Dell Plans to Move Deeper into Data Center

 
 
By Jeffrey Burt  |  Posted 2009-07-14 Email Print this article Print
 
 
 
 
 
 
 

At the annual Dell analyst day, Dell executives say the company is looking to change its product mix, moving more upstream into the data center with a solutions-based approach and away from its heavy reliance on PC sales. The executives, including CEO Michael Dell, say this will be accomplished through a combination of targeted acquisitions, partnerships and organic growth. However, while they say the move away from reliance on PCs is key, it is unclear how easy such a move will be, given that PCs still account for about half of Dell's revenues. Dell also says the company won't offer an all-in-one data center solution, as Cisco and HP have.

Dell is going to continue moving away from its PC roots and deeper into bigger-and higher-margin-areas, particularly services and the data centers of large enterprises.

At Dell's annual analyst day in Austin, Texas, on July 14, CEO Michael Dell and other executives talked about their desire to change the company's product mix to move away from the client business, grow in emerging markets and become more of an innovator in the data center.

Both Dell and Chief Financial Officer Brian Gladden said continuing to rely so heavily on low-margin PCs in the revenue mix would be difficult. Moving upstream makes more financial sense, and is where the industry is going, Dell and Gladden said.

The executives gave a big-picture look at Dell's overall plans, but declined to fill in many details. They said the company would move away from point products and instead would work to offer enterprises solutions that can encapsulate everything from data center hardware to software to services.

They also said the growth in these areas would come from a mix of acquisitions-such as the company's 2007 purchase of storage vendor EqualLogic-partnerships and organic growth. During a question-and-answer session, Dell declined to speculate about what companies might be targets of his interest, saying only that such deals take time, and need an interested seller as well as a buyer.

However, he said the acquisitions would be strategic, and suggested that there wouldn't be any large-scale purchases.

Dell said his company already has a strong enterprise business, at about $14.5 billion in revenue, which comprises servers, services and storage.

Such technology transitions as virtualization, green IT, 10 Gigabit Ethernet, mobility and cloud computing continue to fuel new trends in the data center, and Dell said his company's latest generation of PowerEdge servers are optimized to take advantage of them.

Dell's aggressive push deeper into the data center with a solutions-based approach will put it in tighter competition with the likes of Cisco Systems, Hewlett-Packard, IBM and-after its expected purchase of Sun Microsystems-Oracle. However, Dell said his company would not roll out an all-in-one data center offering, as Cisco is doing with its UCS (Unified Computing System) or HP with its BladeSystem Matrix, both of which house the hardware, storage, management software and networking in a single offering. There isn't a demand for those types of offerings among enterprises, he said.

"I just think the hype has run too far for that," Dell said, adding that he has seen the large data centers of such companies as Microsoft and Facebook. "When we go into these data centers, there's no proprietary stack at all."

During the Q&A sessions, analysts said they essentially understood where the company was aiming, but were unclear on how the company would achieve its goals.

A key question was how Dell was going to be able to break free of its reliance on PCs, which still constitute more than half of the company's revenues. Analysts also asked how Dell would keep its server revenues from taking a hit if it continues to push virtualization.

Stephen Schuckenbrock, president of Dell's Large Enterprise business, said while virtualization has been talked about for most of the decade, only about 15 percent of servers have been virtualized. Once server virtualization starts gaining momentum, there will be a threat to hardware sales, but that is offset by the other virtualization-based areas that Dell can take advantage of, Schuckenbrock said.

Dell and Gladden both talked about an expected rise in hardware refreshes in 2010, as the global recession has forced enterprises to delay new purchases. Businesses have extended the life cycles of their hardware by more than a year, which should lead to pent-up demand to refresh.

Dell said he expected that storage and servers would be refreshed first, followed by PCs.

 
 
 
 
 
 
 
 
 
 
 

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