Can Dell Buy Its Way Out of Trouble?

Dell (DELL) posted respectable earnings on Thursday. Wall Street, however, did not think much of them and pressured the shares in after-hours trading. Revenue rose 22% to $15.5 billion in the quarter that ended July 30. Net income was up 16% to $545 million. The company's forecast was not robust enough to allay fears that tech spending could slow in the second half of the year.

Dell has two assets that are not often mentioned: It has $11 billion in cash and low debt, which would certainly allow the company to borrow several billion dollars. And it has a still-respectable market cap of $24 billion. These assets could be critical if Dell wants to buy itself out of its current trouble.

Dell could double-down in the PC and server market. It is a risky move if tech spending slows, but the drop in growth will hurt all companies in the sector so it is a matter of a falling tide lowering all boats. Dell could find some value in trying to become the No.1 PC company in the world again. Depending on whether an analysis is done based on IDC research or Gartner, each of which measures PC market share, Hewlett-Packard (HPQ) has just over 19% of the market. Dell's share is 14%, about the same as Acer's. Lenovo has 8% and upstart Asus, a power in mini-PC's, has about 5%. Dell could make an offer to buy Asus, a low-cost producer, increase its market share sharply in Asia, and probably move back into the No.1 global slot.

Dell could also make the gamble that Intel did when it bought McAfee (MFE) and move into the fast-growing software security market by making an offer for Symantec (SYMC). It would probably have to pay around $15 billion, which it could afford with bank borrowing.

Dell is weak in the digital storage business and has very little presence in the virtualization software industry, both of which are critical to the enterprise server markets. The current leaders in these fields are outside of Dell's reach: Storage leader EMC (EMC) has a market cap of $38 billion, which makes it too expensive for Dell, as is VMWare (VMW), the leader in virtualization, with a market cap of $32 billion. Dell did, however, announce this week its purchase of storage technology firm 3Par.

Michael Dell probably gets regular calls from the big investment banks with suggestions about how to rebuild his company. Since it has, by Wall Street's measures, fallen on tough times, Dell may want to take some of those calls.