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Dell to buy storage company for $328 million

Dell Corp. (Nasdaq: DELL) hopes a $300-plus million outlay of stock will help it reach the top ranks of enterprise storage vendors.

On Wednesday, the Austin, Tex.-based computer maker announced a plan to issue 6.9 million shares of stock to buy privately-held ConvergeNet Technologies Inc. The deal is worth about $328.6 million, based on the price of Dell stock as of Wednesday's market close.

Dell said it expects to record a one-time charge of 5 cents to 7 cents per share against future quarterly earnings to cover research and development expenses previously incurred by ConvergeNet.

ConvergeNet's "storage domain management" technology allows corporate storage systems to work with any Intel- or RISC-based server running UNIX, Solaris, Windows NT, Windows 2000, NetWare or Linux operating systems. The company, founded in 1997, hasn't formally announced any large customers yet, although it has previously announced plans to introduce its products at industry trade shows this month and next.

"Our customers want storage technology from Dell that connects with any open-standards server," said Michael Lambert, senior vice president of Dell's Enterprise Systems Group. "The technology we acquire with ConvergeNet will help make that happen."

Dell said its first acquisition may not indicate that more purchases are on the way. "This is not a harbinger of going down the acquisition path," Lambert said. "But never say never."

As PC makers declining prices and possibly slower expansion as the market becomes more saturated, companies like Dell are expanding into other regions to maintain their growth rates. Enterprise systems, including servers, workstations and storage, generated 16 percent of Dell's revenue in the July quarter.

Dell, a relative newcomer to the corporate storage market, has said it plans to become one of the top three vendors in that space. EMC Corp.(NYSE: EMC) currently commands the largest market share, with Compaq Computer Corp. and Sun Microsystems also among the largest storage area network providers.

Dell said it will focus on the mid-range storage market that service networks of computers and leave the larger "enterprise market," that run off mainframe computers to storage giant EMC at least for now.

"We're not going to take EMC on head to head," said Lambert.

Lambert said Dell currently makes EMC compatible servers and hasn't yet discussed its new move with EMC.

Reuters contributed to this report.