Dell Should Buy RIM or Die

NEW YORK (TheStreet) -- For all the talks about the death of the PC, conversations that I've considered grossly premature, it seems that the prolonged struggles of tech giant Dell (DELL) would suggest that this morbid chatter may actually be right on time. For a company I have always wanted to give the benefit of the doubt, it is getting progressively difficult to ignore that the "lights at the end of tunnels" could be those of an incoming train.

As its most recent quarter would suggest, these lights are now coming from both directions; Dell's best option might be to change tunnels altogether. In other words, it needs to shift its focus and possibly rethink its strategies.

Dell needs to make a move to remind Wall Street that not only does it still have the competitive spirit, but it is determined to take back that which was stolen from it -- its growth. It can do this by acquiring Research in Motion ( RIMM) and announcing its presence in the mobile device market to compete with the likes of Apple ( AAPL) and Google ( GOOG), and firing a revenge shot at its OEM partner Microsoft ( MSFT). Its life now depends on it.

In the company's second-quarter earnings announcement, investors learned that for as bad as things once appeared for Dell, things just may actually be getting worse. Even more disappointing is that it seems the company's management just can't find the right mix to fix its problems.

For the period ending in July, Dell said it earned $732 million, or 42 cents per share, on revenue of $14.5 billion. Excluding costs, the company said it would have earned 50 cents per share. While the company would have topped analysts' estimates of 45 cents, the numbers still represent an 18% annual decline from the $890 million it earned last year. What's more, its revenue figures also fell off by 8% from the same period of a year ago -- falling short of analysts' estimates by $200 million.

Dell continues to show a considerable amount of weakness, not only in its mobility division to the extent of a 19% year-over-year decline, but its PC business also fell 9%. Even more concerning is the fact that revenue actually dropped 14% annually when combined both desktops and laptops -- lending further credence to the notion that PCs are dying in favor of tablets and mobile devices.

However, here's the problem, its other OEM partner, chip giant Intel ( INTC), in its most recent quarter announced not only sequential revenue growth of 5%, but remarkably, its PC revenue rose a respectable 4%. So how is it that Intel can see somewhat moderate growth in PCs, but Dell can only produce double-digit declines?

During Dell's announcement, its CFO Brian Gladden was quoted as saying: "The revenue deterioration we saw during the quarter was clearly above anything we expected."

I think that admission should be cause for concern for any investor who is long Dell. The company is now banking on a rebound upon the release of Microsoft's new Windows 8 operating system. Dell is hoping that Windows 8 will be compelling enough to persuade consumers back into the realm of the PC and steal some of the spotlight from Apple. I think this is too much of a wager -- particularly for a company so entrenched in the enterprise.

This is why I think buying Research in Motion makes the most sense, if Dell truly wants to compete with not only Apple, but also Google and Amazon ( AMZN). Dell tried this once with its Streak tablet. Granted it was anything but successful, but what it means is that it has the existing platform in place to make a RIM acquisition work.

But alas, this may not be an option, at this point. The company needs to reinvent itself in a way that IBM ( IBM) once did, by letting go of what it knew and venturing into an area where it can lead. This is Dell's new reality.

If nothing else, Dell should make a pre-emptive move to block IBM, Microsoft or even Hewlett-Packard from stealing RIM away, as it makes perfect sense for each of them. For that matter, it also makes sense for Facebook ( FB).

In RIM, not only will Dell be able to leverage its existing enterprise presence, it will acquire assets such as RIM's BB10 software, a growing music service as well as RIM's Mobile Fusion, a product that supports the collaboration of enterprise mobile devices, even that of competing models such as iPhones and Android devices. Dell becomes relevant again.

Until then, it would be hard to consider these shares attractive, even at such depressed levels, as they are likely not going anywhere for a while. Instead, shares of HP and Cisco ( CSCO), with which it competes, are more compelling plays.

As much as I hate to say it, it seems Wall Street has gotten this narrative correct. However, for Dell, it should consider that it is time to change the conversation as RIM not only would make the story more interesting, but it could potentially signal the next chapter in Dell's lackluster growth.

At the time of publication, the author was long AAPL and held no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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