Dell to enter networking equipment market

Taking on established players like Cisco Systems Inc. and 3Com Corp., Dell Computer Corp. said Wednesday that it would enter the market for networking products. The U.S. direct seller of PCs plans in October to start selling low-cost switches for small and medium sized businesses under the Dell PowerConnect brand. The products will initially be available in the U.S. only.

"We have been selling other companies' networking products and noticed that more and more customers were ordering switches when they bought a server. We decided to sell our own brand," said Mickel van der Horst, marketing manager enterprise systems for Dell in the Netherlands.

Currently Dell sells switches from vendors including 3Com, Foundry Networks Inc. and NetGear Inc. Those products will continue to be offered by Dell both in the U.S. and elsewhere, Van der Horst said.

"We aren't making a good margin being just a basic reseller. With a Dell-branded device we will be able to have more control over the costs and retain a larger part of the profit," said Steve Lewis, head of Dell's storage division for Europe, the Middle East and Africa (EMEA).

The Dell PowerConnect offering, according to Van der Horst, will initially be limited to small 16 and 24 port switches to network PCs and other devices, such as printers. The devices will be made by contract manufacturer Delta Electronics Inc. of Taiwan.

Dell estimates that small and medium-sized enterprises (SMEs) spent about US$5.3 billion on network switches last year.

If the U.S. market welcomes Dell's networking devices, the company could start selling them in other countries, Lewis said.

"We will test it in the U.S. and if it proves successful we would look to roll Dell PowerConnect out possibly as a global brand and expand the product portfolio," he said.

One analyst who was briefed by Dell predicted the company could soon be aiming for the European networking market.

"The question is if the buyers like the Dell name on switches. If the product is a hit, Dell could start selling the switches in Europe early next year and expand its networking product portfolio," said Peter Hulleman, a research analyst with International Data Corp. (IDC) in the Netherlands.

Hulleman compared Dell's move into the networking hardware arena with the company's entry into the storage market in 1998. Dell started out with a small portfolio that was gradually expanded as the market accepted the products.

NetGear and Linksys Group Inc. have most to fear from Dell's latest venture, Hulleman said, especially in Europe where the two low-end networking equipment vendors are just setting up shop.

"Dell already has its network in Europe and is one of the largest suppliers to SMEs. NetGear and Linksys are just starting out," Hulleman said.

Lewis didn't name NetGear and Linksys, but did say the low-end switching market is especially interesting because the devices have become a commodity and "some no-name brand players have carved out some market share by just being price aggressive."

Severine Pujol, an analyst with Dataquest Inc., said that although there are many players serving the low-end switching market Dell will probably do well.

"The market is quite saturated and most new players that enter the networking market go for Gigabit Ethernet as opposed to fast Ethernet. It will be hard for Dell, but it will probably work for them as most SMEs look to buy all their products from one vendor to prevent interoperability issues. If I were 3Com I wouldn't be too happy," she said.

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