Dell Inc said it would buy network and data security products maker SonicWall from an investor group, as the world's No.3 personal computer maker tries to tap the growing demand for online security by large companies.
Dell has been trying to boost profit margins by focusing on being an one-stop-shop for business customers and increasing exposure in enterprise solutions offerings and making its presence felt in mobile security and cloud solutions segment.
"Dell has been steadily expanding outside its traditional legacy PC markets into storage, networking and now security. There's an opportunity to have higher growth margins and higher operating margins," FBN Securities analyst Shebly Seyrafi said.
This is the first deal for Dell after it named John Swainson as its software chief last week with a mandate to expand its software capabilities.
Though financial terms of the deal were not disclosed, investors and analysts are estimating the purchase price to be between $1 billion and $1.5 billion.
On a conference call with analysts, Dell said it will fund the deal with cash but declined to divulge the purchase price.
SonicWall was a public company until 2010, when it was acquired by an investor group led by Thoma Bravo for $717 million.
Dell would use SonicWall's Unified Threat Management technology and its firewall capabilities to offer security solutions to data centers and large enterprises, analysts said.
"This basically is part of the whole game plan that they have put in place, that is to acquire a key technology. They've been doing this in enterprise storage, in networking, and now they're doing this in security as well," said analyst Brian Marshall of ISI Group.
Round Rock, Texas-based Dell has been waging an uphill battle to diversify its revenue base from PCs to become a larger player in the data center equipment market and IT services. It faces stiff competition in those markets from the likes of IBM and HP.
To help that effort, it has been acquiring companies, including Force 10 Networks and Compellent Technologies, to boost its enterprise-related products and services.
Last year, Dell bought network security firm SecureWorks for an undisclosed price.
Founded in 1991, San Jose, California-based SonicWall had a revenue of $260 million last year and boasts of 300,000 customers.
"SonicWall is going to contribute less than 1 percent to Dell's revenue, but they're moving in the right direction," analyst Marshall said.
The deal is expected to close within 45 days.
Centerview Partners LLC served as an adviser to SonicWall.
Dell shares rose 18 cents at $17.14 in morning trade on Tuesday on the Nasdaq.
(Additional reporting by Supantha Mukherjee in Bangalore and Jim Finkle in Boston; Editing by Gopakumar Warrier)