Here’s Why Dell Wants to Be More Than Just a PC Company

Dell Inc. (NASDAQ:DELL) CEO Michael Dell is abandoning low-margin PC deals, spending more on research and development in order to expand the brand and position the company as more than just a PC vendor.

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In a conference call yesterday after Dell released its third-quarter earnings report, Dell said that “improved profitability and cash flow” have allowed the company to “move forward with strategic investments, both organic and inorganic.”

“We’re now investing in R&D at an annual run rate approaching a billion dollars. Dell now has 5,000 patents granted for pending around the world and has over 20 R&D (centers) globally.”

Dell has made five acquisitions this year alone — acquisitions meant to enhance the company’s capability as an enterprise solutions provider, with a focus on server, storage, networking, and security.

Dell’s intent focus on becoming a solutions provider led him to walk away from $2 billion in PC deals, as they didn’t fit the company’s broader strategy to move upstream to higher-end IT partnerships.

However, though Dell maintains that his company can innovate and be more of a key partner in enterprise IT, R&D spending remains light.

Dell touted a $1 billion annual run rate in R&D spending that would account for only 1.6% of revenue, which is expected to be about $62.5 billion for fiscal 2012 ending January 30. For respectability, Dell needs to hit 3%

Though Dell is spending more on R&D this year than last, it isn’t enough to change the perception that the company doesn’t innovate.

Even Apple (NASDAQ:AAPL), whose research and development spending as a percentage of revenue has been on the decline for years, is estimated to have spent roughly 2.2% of skyrocketing revenue on R&D this year.

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If Dell is going to become a big player in enterprise solutions, the company is going to have to spend more to prove it.