Dell Computer Corp. will face stiff competition in a flagging market as it embarks on an effort to start selling its own line of low-end networking gear. The Austin, Texas, direct marketer announced last week it will start selling Taiwanese-made network switches under its own brand name in the fall. Dell will continue reselling switches from major networking vendors such as Nortel Networks Corp., 3Com Corp. and Cisco Systems Inc. as it has done for years. But the company plans to lure small and midsize enterprises away from those brands by offering more commodity-driven products.
The decision comes as Dell seeks new sources of revenue as PC sales slow. But to succeed, the computer maker will have to take on major networking vendors at a time when those companies are also having difficulty selling gear.
Dell officials said their strategy is to undercut prices by taking advantage of recent developments in standardization and by using its direct sales channels.
"Chances are, the customer is going to be really sensitive to price," said Jon Weisblatt, a spokesman for Dell. "The way we see it, standards have really taken hold. Thats the first step toward commoditization."
The Dell-branded switches, dubbed PowerConnect, will be built by manufacturer Delta Networks Inc., of Liutu, Taiwan. Because of its direct relationship with enterprise customers, Dell will not have to stock up on inventory but instead will build products on demand, Weisblatt said.
Dells headway into switch manufacturing is seen by some as a step in a slow but steady merging of computer and telecommunications technologies. Not all are convinced, however, that the two industries converge naturally.
"Dells management and execution is exemplary, but to transfer that from the computing world to the networking world is not going to happen overnight," said Jay Patel, an analyst at The Yankee Group, in Boston. "Theyre taking baby steps in that direction, but they will have to be extremely careful." It is also unclear whether switches—to date, high-end, highly differentiated products—are conducive to high-volume, low-cost production. "Commodity is sort of an oxymoron for the telecom market," Patel said. "It might happen five years out."
The company said that it is already in the networking business with its wireless networking, caching and load balancing products. Today, 25 percent of Dells servers sold to small and midsize businesses are sold with other manufacturers switches, Weisblatt said.