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8/25/2002
12:44 PM
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Dell Branches Out

The PC maker turns its manufacturing prowess to new servers, storage, and networking.

Dell Computer has leveraged its wildly successful and efficient build-to-order model to become the leader in the U.S. market for Intel-based PCs and servers. In one hour, the company can manufacture as many business PCs -just over 2,000-in its Morton L. Topfer Manufacturing Center in Round Rock, Texas, as it would in an entire day 10 years ago. Now, Dell is aggressively moving to repeat that success in three new areas: modular servers, storage, and networking.

In these cost-conscious times, businesses are eager to hear Dell's value proposition. The company's first-generation "blade" servers hold the promise of reducing infrastructure costs, says Charles Oliver, director of global IT for Eastman Chemical Co., the $5 billion-a-year maker of chemicals, fibers, and plastics. Eastman standardized on Dell notebooks and desktops five years ago and recently decided to move software that controls manufacturing operations at about 40 plants to Windows-based Dell servers to save money. "We're very happy that Dell has a blade server strategy," he says.

Dell will introduce its PowerEdge 1655MC blade product in October. Customers can order up to six of these "server on a board" systems packaged in a slim chassis. Each board features up to two 1.26-GHz Intel Pentium III processors running Linux, Windows, or Novell NetWare. A line of more fully featured PowerEdge blade servers, which can be customized with a mix of CPU, storage, and memory-server boards to handle intensive computing tasks, is due in the first half of next year. The customizable systems, also known as "bricks," will be more flexible and expandable than current designs. The systems will include software to monitor blade status and deploy applications remotely to hundreds of servers from any location.


Michael Dell

With 3% of the total IT market, CEO Dell sees a lot of room for the company to grow.
Dell isn't the only vendor in the modular-server market-Hewlett-Packard, IBM, and Sun Microsystems are also players. The direct vendor's strategy with both its blades and bricks is the same: to drive down costs without sacrificing features. Dell's low-end blade server is expected to sell for about $3,500. A comparable version of HP's BL20p server blade, which ships this week, is about $5,500, including an enclosure.

Dell succeeds in lowering prices because it continues to bring its own costs down, chairman and CEO Michael Dell says. The company plans to cut $1 billion out of costs this year, partly by increasing operational and supply-chain management efficiencies. "Our strategy is, how do we make ourselves more valuable to the customer?" Dell says. The focus is on new enterprise services and products that can be added to the company's portfolio.

Storage falls into the products category in a big way. Dell says the market for network-attached and midrange storage for Windows and Unix systems is becoming the kind of space the company thrives in: high-volume, low-cost products that support industry standards. The vendor generates most of its revenue, 52%, through PC sales, but its storage business is accelerating. Storage grew 70% in the second quarter, ended Aug. 2, and Dell expects its storage revenue to reach $1 billion for fiscal 2003. "Our storage business has had massive growth," Dell says. "And that's a function of customers recognizing value and also our distribution system and efficiency."

Dell's expansion has piqued the interest of Sears, Roebuck and Co. "Dell's saying, 'I've got this model working on PCs and servers; why can't I make it work in other areas?'" says Don Zimmerman, Sears' acting CIO. Still, Zimmerman is cautious. Earlier this month, Sears said it would buy just seven Dell PowerVault 220S direct-attached storage systems, along with 1,800 PowerEdge 2500 servers and 3,700 OptiPlex GX50 desktops. "You have to be careful if there are spaces they haven't been in before," Zimmerman says. "In some of these newer areas, Dell will have to prove itself. So we make small purchases and see how they operate."

Russ Holt

Dell has an agreement with storage leader EMC to manufacture an entry-level Fibre Channel storage device that will ship next year, VP Holt says.
Dell recently has made inroads in the midrange storage area network market through an alliance with storage leader EMC Corp. to resell its Clariion SAN products. Dell also has an agreement with EMC to manufacture and ship early next year an entry-level Fibre Channel storage device comparable to EMC's Clariion FC5300 System, says Russ Holt, VP and general manager of Dell's enterprise systems group. That's potentially good news for storage customers. Dell could push the market to be more cost sensitive, says Enterprise Storage Group analyst Nancy Marrone.

Specifications such as the Common Information Model and Bluefin mean standardization is just starting to take hold in the fragmented storage market, where problems with interoperability have long been a sore point for customers. That's an opportunity for Dell. "We'll focus our development in the area of the marketplace where standardization has occurred," Holt says.

Dell engineers are getting as much of an education in the intricacies of storage software as EMC may be gaining in efficient manufacturing. Dell has been helping to define the specs for the new Clariion product, while EMC has taken the lead in its overall design. The partnership between Dell and EMC is a two-way street, says Linda Hargrove, Dell's VP of worldwide enterprise systems group marketing. "There are cost efficiencies that Dell can bring to bear from a manufacturing and supply-sourcing perspective," she says. "Likewise, EMC has brought us storage R&D expertise."

After all, says Joel Schwartz, EMC senior VP and general manager of the Clariion line, midrange storage may be a high-volume market, but it isn't a commodity yet. "Our system will support industry standards," Schwartz says, "but it's still got a lot of high-value intellectual property inside." For example, integrated security software lets administrators manage hundreds of Clariion systems from a single console.

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