Dell sticks with low-end server strategy

ROUND ROCK, Tex. — Don’t expect a Scott McNealy-style about-face on the server market from Michael Dell.

In the 1990s, McNealy’s Sun Microsystems Inc. got out of the 64-bit processor market, saying there wasn’t enough demand. Last year, Sun jumped back into the 64-bit arena. McNealy said he’d

misjudged the market.

Dell’s namesake company decided to forego the high-end server market, focusing instead on one-, two- and four-processor boxes. Dell — neither the company nor the CEO — won’t be revisiting that decision anytime soon.

“”It’s not what the customer’s buying,”” Dell said at a press briefing at Dell Inc.’s headquarters Wednesday. Even demanding applications like Microsoft’s SQL Server run for the most part on four-way servers rather than eight-way boxes. There just isn’t enough volume to interest Dell.

“”There aren’t very many of them. There’s like 37,”” he joked. “”Go ahead. Be king of the eight-ways.””

Dell’s focus is on a scale-out, rather than scale-up, model for servers. Two four-way machines will outperform an eight-processor box, said Neil Hand, marketing director, enterprise systems, and cost less. The scale-out strategy pitches more machines of smaller configuration, which serve as a pool of compute resources in an enterprise environment. Machines can swap applications when one becomes more critical than another — for example, a financial application running after hours takes precedent over a messaging app, which can afford a little latency.

This week Dell announced a deal with the Department of National Defence’s Edmonton Garrison, one of the country’s largest army bases. The company is replacing a series of older equipment with 22 PowerEdge servers and a redundant Dell/EMC CX600 storage system.

Howell Cobb, DND Edmonton Garrison’s data net supervisor, said the two-way rack-mounted servers will be more than capable of providing the network performance it needs.

“”The way we looked at it was that it would be easier in some ways to have redundancy with a wider variety of smaller units rather than one or two larger units,”” he said.

Dell is currently running third in the server marketplace in Canada. Carlos Isturiz, director of the advanced systems group for Dell Latin America — into whose bailiwick the Canadian server market also falls — said that’s largely due to aggressive pricing from leaders IBM and HP as they try to hang on to that market while they’re losing ground in the desktop and notebook markets. That can’t last forever, he said.

Isturiz said the people in his organization were concerned when Dell conceded the eight-way market, but the scale-out strategy is gaining traction in Canada — “”A lot more than we expected,”” he said.

Cobb said a lot of the interest is coming from the public sector.

“”I know just from a general standpoint they’re getting a lot of the government market,”” he said. “”Price-wise, it seems they’re very competitive and it seems like they’re being very aggressive about winning contracts.””

Dell’s services operations ride the coattails of the install base to an extent, said Gary Cotshott, vice-president and general manager of Dell services. The service operation has been developing from simple warranty support to include professional services and managed services over the last five years, Cotshott said. Enhanced services — asset management, deployments, migrations, move/add/change services and more — brought in US$2.2 billion for Dell worldwide last year, about two-thirds of the total services revenue, Cotshott said.

While a bigger install base means bigger demand for services, managed service offerings can also drive hardware sales, Cotshott said. Dell’s service offerings are still “”close to the box”” — the company’s not interested in any big, multi-vendor integration projects, he said. A big managed services account — Cotshott points to a recent deal with Great West Life — means sales of Dell machines.

Cotshott expects service revenues to grow at twice the rate of product revenues. They’ll make up US$3.4 billion of Dell’s roughly US$40 million revenue in 2003. Dell’s forecasting US$60 billion in revenue for 2006; Cotshott said services will make up to US$9 billion of the figure, about US$7 billion coming from the enhanced service offerings.

–with files from Shane Schick


Would you recommend this article?


Thanks for taking the time to let us know what you think of this article!
We'd love to hear your opinion about this or any other story you read in our publication.

Jim Love, Chief Content Officer, IT World Canada

Featured Download

Dave Webb
Dave Webb
Dave Webb is a technology journalist with more than 15 years' experience. He has edited numerous technology publications including Network World Canada, ComputerWorld Canada, Computing Canada and eBusiness Journal. He now runs content development shop Dweeb Media.

Related Tech News

Get ITBusiness Delivered

Our experienced team of journalists brings you engaging content targeted to IT professionals and line-of-business executives delivered directly to your inbox.