This article is more than 1 year old

Thin-client giant Wyse gobbled by Dell

Someone's in a hurry to pump clouds into desktops

PC and server maker Dell never made a machine that needed a dumb terminal, but it does make servers that could end up driving the 21st century equivalent: the thin client served up a virtual desktop over the internet. That is why Dell has shelled out an undisclosed sum to snap up Wyse Technologies, the volume shipper of thin clients.

Wyse was founded several years before Dell, and to a certain extent was crushed by the advent of the PC and the decline of the mainframe and minicomputer. But the thin client, now driven by cloud-based virtual desktops, is seeing resurgence and Wyse, if not getting the last laugh, is at least chuckling a bit.

Wyse was founded in San Jose, California in 1981 by husband-and-wife team Bernard and Grace Tse. He was from Hong Kong and she was from Taiwan and they met while studying engineering at the University of Illinois – the place that gave us the Mosaic web browser a decade and a half later.

Back in the late 1970s and early 1980s, mainframes and minicomputers ruled the world and they connected to end users mostly through dumb terminals. The Tseses figured they could build a better dumb tube and make a little money. Three years later, Wyse was a public company and six years after being founded it had grown to $250m a year in annual revenues and had outsourced manufacturing to Taiwan to cut manufacturing costs.

In the late 1980s, Wyse dabbled in x86-based PCs and pushed revenues to $400m, but started haemorrhaging red ink, and in 1989 it was acquired for $262m by Mitac Group. At the time, Mitac was controlled by a Taiwanese government consortium called Channel International. Mitac is now part of the Mitac-Synnex Group, a 40,000-employee conglomerate that, among many other things, owns motherboard maker Tyan and Synnex, the IT distributor that builds Facebook's homegrown servers these days.

Wyse went public on the Taiwan Stock Exchange in 1999, and three years later was back in private hands again, passed off to private equity firm Garnett & Helfrich Capital, and recapitalized in 2007 with another set of investors. That's when Tarkan Maner, the company's current president and CEO, came on board and he has been running Wyse since then.

What the business looks like on paper

On a conference call with Wall Street analysts this morning, David Johnson, senior vice-president of corporate strategy, said that Wyse had approximately $375m in revenues in its trailing twelve months of sales. The company enjoyed double digit income margins that are, in fact, higher than Dell's PC business thanks to the extra software goodies, like the ThinOS operating system in its thin clients and its Stratus cloud-based thin client management tools, which Wyse adds to its hardware.

The firm's sales were up like a rocket last year, growing 45 per cent, but in doing the acquisition, Dell is forecasting conservatively and only assuming that it can grow this thin client business at the market rate of around 15 per cent annually, as projected by IDC.

Johnson cited some IDC figures that put the thin client market at about $3bn by 2015, with a compound annual growth rate of 15 per cent between 2011 and 2015; this is a lot better than the PC business is expected to do thanks in part to the growing popularity of VDI and tablets, among other factors. The important thing for Dell, explained Johnson, is that by 2015 the total addressable market for servers, storage, networking, and services sitting behind those thin and zero clients will hit $15bn.

Wyse has around 500 employees, with 150 engineers – 140 of them are software engineers working on the ThinOS operating system, the Stratus management tool, the PocketCloud content management, and other code, with 10 engineers working on clients based on x86 and ARM architectures. The company has another 250 sales specialists that peddle thin clients directly or help the company's 3,000 channel partners (which include Dell and IBM, by the way) flog its skinny clients.

To date, Wyse has shipped more than 20 million thin clients and shipped more than 1 million units in 2011. Most of its revenues come from hardware, but over time and inside of Dell for sure, the mix will grow for software and services.

The Wyse product line

The Wyse product lineup (click to enlarge)

With expertise in designing and building PCs, you might be thinking that Dell could have just invested some money and built its own machines and software stack to compete against Wyse, Hewlett-Packard and others. But Dell is in a hurry. Aside from having all those software engineers and 31 years of experience in the dumb terminal and thin client areas, Wyse also has 180 patents and is ready to be ramped up and pushed through Dell's 100,000-strong partner channel and through its direct sales force.

If Dell paid somewhere between $350m and $400m for Wyse, as the rumors suggest, then this may be the fastest way and the cheapest means to build a client and related software business. Buying the market leader, as Wyse is in this niche market, means you have a much lower chance of being sued.

Jeff Clarke, vice-chairman of Dell's global operations and end user computing, said on the call that Wyse will continue to invest in both x86 and ARM clients and in the Wyse software stack, and will also maintain the strong partnerships with Microsoft, Citrix Systems and VMware in the VDI racket. Don't expect Dell to come out with its own hypervisor and VDI broker just yet.

Clarke also warned Wall Street against being overly excited about VDI.

"Adoption rates are still low for desktop virtualization, but we're seeing a lot of customers kicking the tires," Clarke explained. "We don't see the entire world going to thin clients. We still see a very healthy PC business."

That said, Johnson piped up and explained that for specific use cases like healthcare and financial services, where the security of the data is paramount, thin clients have their place. Ditto among certain government and educational institutions, where making the client lower cost and easier to manage is important.

Dell expects the Wyse deal to close during its second quarter of fiscal 2013, which ends in July of this year. Dell's fiscal year ends in late January or early February, depending on the year, and yes that is a bloody stupid corporate calendar. ®

More about

More about

More about

TIP US OFF

Send us news


Other stories you might like