Dell tempers enterprise storage ambitions

Despite Dell's aggression in the performance PC, laptop, and server markets, the computer maker is uncharacteristically modest when it comes to the field of high-end storage and network switching.

By routinely underselling its competitors, Dell has rapidly become the No. 1 PC maker in the world, the No. 2 maker of laptops computers worldwide, and earned the No. 5 position in worldwide server revenue, according to recent estimates by International Data Corp., based in Framingham, Mass.

In achieving these lofty market positions, Dell's low-cost build-to-order manufacturing model and resulting low prices have been a primary catalyst in the commoditization of the PC, laptop, and server hardware markets.

Dell's manufacturing model has the potential to cripple the already weakening profit margins of the high-end storage and networking hardware markets. But the Round Rock, Texas-based company shies away from entering that space on its own, a move that has contributed to Dell's absence on the Top 5 list of storage vendors by revenue recently compiled by Gartner/Dataquest, based in Stamford, Conn.

"Our strategy for the company hasn't changed. We look to solve customer business problems, and right now there is the opportunity for solving Windows or NT storage problems inside corporations," explained Bruce Kornfeld, Dell's director of storage product marketing.

"But it doesn't mean Dell has to sell mainframe-style storage products. We solve a project. If [customers] have a storage farm that needs to be deployed on 10 Windows servers, Dell is the choice. When you start talking about deploying thousands of terabytes for mainframe storage opportunities, there are other companies out there more equipped to solve that problem than Dell," he said.

Experts believe Dell could be positioned to gain a foothold in the enterprise switching market -- long the stronghold of titans such as Cisco Systems Inc. and Nortel Networks Corp. -- because of a leveling out of the playing field.

"Standardization [in the Ethernet switching market] has occurred," said John Weisblad, a Dell spokesperson. "That's the first step toward commoditization. And when a market commoditizes, Dell historically does well selling into that space at a better price/performance level than our competitors."

But here again, Dell prefers to play in the small to medium-size product categories.

"We prefer not to sell the high-end enterprise switches, but we connect to them," said Kornfeld, who explained that Dell's PowerConnect line of switching products "are focused on small-business customers looking to deploy small-area networks for their businesses, not for large multinational corporations that need to deploy hundreds of terabytes of storage."

Controlling Dell's market altitude in the storage and switching arena is the fact that Dell is not a technology company that commits large portions of its revenue to research and development. The company re-sells a number of products, from Fibre Channel switches built by Brocade to high-end 32-way servers built by Unisys.

"Our stated strategy for much of our product line is to OEM components that don't make sense to design in-house. Our philosophy is we leverage our partner's R&D as much as possible," Kornfeld said.

This philosophy could open the door for Dell to find an entrance point in to the high-end server market through a possible re-sale partnership with enterprise storage mammoth EMC, according to Moody's Financial Information Services in New York.

A Dell-EMC partnership in the near future is very likely, a Moody's representative said.

Rumors of Dell moving up into enterprise switching also make sense because of the struggles other, more established switch makers are experiencing, according to Brooks Gray, an analyst with Technology Business Research Inc. in Hampton, N.H.

"The market's already commoditized," Gray said. "Dell will attempt to go for some volume. It's going to take time, and we'll see what kind of progress they make over the next year. Historically, vendors entering into this market haven't succeeded. But Dell's management and the value proposition they bring to the market gives them a better chance of succeeding."

As an example of a value proposition that Dell could bring to the table, Gray predicted that the company might bundle its switches with low-end LAN servers.

In early September, Dell made its first foray into the switching market, unveiling its PowerConnect line of LAN switches aimed primarily at small and mid-size businesses. The line includes four products, led by the high-end PowerConnect 5012, which boasts 10 Gigabit Ethernet copper ports and two GBIC (Gigabit interface converter) slots, as well as virtual LAN support.

At the moment, Dell has no specific plans to roll out enterprise-class switches, according to Weisblad.

"We're waiting to see what the market reaction is" to the PowerConnect products, he said. "It's too soon to tell."

Gray agreed, calling Dell's PowerConnect switches "a test run" for a more ambitious bid for the lucrative enterprise market. But in the meantime, Dell has a strong opportunity to achieve volume in the small and mid-size market, both because the company has a large server base in small businesses and because its hardware and services value proposition continues to improve, Gray said.

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