Dell Tries New Products, Chips, And Deals To Fire Up Growth

Computer maker revamps servers and storage systems, cuts prices, embraces AMD chips, and buddies up to Google.
Dell has been struggling. Growth has stalled over the past year and a half as rivals Hewlett-Packard and Lenovo have aggressively cut prices on PCs and servers to grab market share. Now Dell's fighting back.

The company last week introduced a new generation of servers and storage systems to reignite growth. Dell also said that it would cut prices and add 2,000 customer service reps. Dell also disclosed agreements with Web search and advertising leader Google. Last month, Dell revealed plans to start offering systems based on chips from Advanced Micro Devices.

The deals with Google are the most intriguing. Google will pay Dell an undisclosed amount to install its Goo-gle Desktop and Google Toolbar software on tens of millions of Dell PCs. And Google is going to resell Dell's new PowerEdge servers as its search appliance.

Chart: Where's The Growth? Dell hasn't been showing much revenue growth in the past year and a half.The Google deals will generate additional revenue and server sales, but Dell's new products are the key to getting the company back to high growth mode. Until that happens, customers will wonder if "The Dell Effect"--turning complicated and expensive compu-ters into low-priced commodity products--has lost its punch.

The company is still the PC market leader. "There are a lot of companies that would like to have some of the same financial issues Dell is facing," Illuminata analyst Gordon Haff says. But HP, IBM, and Sun Microsystems have tightened up their supply chains and closed in on Dell in terms of their ability to sell low-priced servers effectively, Haff says.

Sales Slide
Dell's server and networking sales grew only 11% in fiscal 2006 and shrank 7% in the first quarter of fiscal year 2007. Sales of the company's storage line grew 38% in fiscal year 2006. But even that bright spot dimmed in the first quarter of 2007, when Dell's storage revenue dropped 16% compared with the previous quarter.

A relative newcomer to storage, Dell has a 7% share of the worldwide external controller-based disk market and ranks fifth among all vendors, according to Gartner. Dell's partnership with storage leader EMC, in which Dell is rebranding and selling EMC storage products, has helped the company grow. "Users don't want to get tied to one vendor, and a lot of customers are giving Dell an opportunity to gain business because of that collaboration with EMC," Gartner analyst Donna Taylor says.

Dell is using the new Intel Woodcrest processor platform to refresh its PowerEdge server line. That should address the performance-per-watt gap that Dell experienced as an Intel-only supplier during the past two years, as AMD provided more efficient processors to Dell's competitors.

Dell's new servers will increase performance by 150% or better over existing Dell servers and reduce power consumption by 25%, says Neil Hand, VP of worldwide enterprise marketing. "That isn't all driven by Intel's new designs but by a lot of effort Dell has put behind these platforms to look at them holistically," he says. That has included new fans and power supply designs, as well as improved management capabilities.

And later this year, Dell will introduce its first servers based on AMD's Opteron processors, most likely in the four-way market, where Gartner says AMD now owns 48% of the U.S. market and 36% of the worldwide market.

New chips, new products, lower prices, improved customer service, and partnering with Google may not be enough to return Dell to its high-flying days. But they're steps in the right direction.

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Brian T. Horowitz, Contributing Reporter
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