I forgot to include this from last weeks INFORMATION WEEK...September 28, 1998, Issue: 702
Section: Top Of The Week
Can Dell Scale? -- The PC Phenom Ramps Up
Its Technology, Services For High-End Push
Mary Hayes
Dell Computer's success in direct sales of low-priced,
industry-standard PCs is established. But to sustain its
astonishing 50%-plus growth, the company will move
further up the Wintel chain into enterprise-class clustered
systems over the next six months-leveraging the same
efficient manufacturing and distribution model that made
Dell a household name.
CEO Michael Dell realizes, though, that if customers are
going to count on the vendor as an enterprise IT solutions
provider, it will have to shed its legacy as just a "box
maker." So Dell is also preparing an array of supporting
products, including high-end storage devices,
systems-management software, and enhanced services from
third parties.
Following this week's introduction of the PowerEdge 4300,
a two-processor system that can be racked as high as six
servers, Dell will roll out a four-processor PowerEdge
system next month that can be racked to 10 servers. The
four-processor PowerEdge, Dell's densest rack system to
date, demonstrates the company's determination to
accommodate the space restrictions of most companies'
data centers. Equally important, the server will be offered
independent of storage-it will be compatible with high-end
storage systems from EMC and other vendors.
Mike Lambert, senior VP of Dell's enterprise systems
group, says the four-processor PowerEdge is the first
example of an unbundling strategy that could propel Dell
into the server big leagues. Under the plan, Dell will
separate industry-standard components-including storage,
CPUs, and I/O subsystems-from high-end servers, giving
customers the flexibility to buy only the pieces they need
when they need them. Lambert says the component
approach will, within three to four years, let Dell
customers build massively parallel systems at a much
lower cost than they can with Unix or other NT systems.
"By adding complementary pieces into the data center,
we'll eventually ease out Unix systems," he says. "There
are old-line followers who don't think the commoditization
of high-end servers will happen. But it's coming, and it's
coming fast."
The component concept sits well with Dell customer Sprint
Communications, whose data center is packed with EMC
storage hardware. "It's something very new for the NT-Intel
server, and it's an example of how NT and Intel are
growing in the enterprise market," says Lorin Olsen, senior
manager of enterprise network services at Sprint.
In some cases, however, Dell is moving away from its
standards model to win higher-end enterprise business.
Dell recently demonstrated a proprietary 16-node server
cluster running IBM's DB2 database. Dell says some
customers, including a major financial services company,
are showing interest in the system. By early next year, Dell
plans to offer Wintel systems that support Oracle Parallel
Server on as many as four nodes, as well as a
standards-based server that scales to eight processors.
On the services front, Dell has hired former NCR executive
Gary Cotshott to pump up its 2,300-person internal
services organization while expanding the fleet of partners
that install and maintain Dell systems. One area for
investment, Cotshott says, is professional services,
including project management and consulting. The services
organization must now decide where to invest money
in-house and where to rely on partners. Within two weeks,
Dell will disclose that integrator DecisionOne Corp. is a
certified Dell service provider, adding 5,000 technical
specialists to the 25,000 now provided by Unisys and
Wang.
Lessons From The Past
It's clear, however, that Dell isn't prepared to jeopardize
its 22% gross profit margin and 60% profit growth in order
to barge into the data center. Dell learned the lessons of
reckless ambition five years ago, when it rushed into the
notebook market with poor-quality systems and posted its
first-ever quarterly loss. Dell is taking a more calculated
approach to scaling its systems. For the most part, it's
waiting for next year's introduction of NT 5.0, for the
subsequent release of Intel's 64-bit Merced processor, and
for both Microsoft and Intel to enhance their clustering
technologies.
Dell, for instance, isn't particularly aggressive about
making its proprietary 16-way server generally available.
By comparison, Compaq already has a variety of
proprietary clustering options, for its VMS, Himalaya,
Unix, and NT platforms. Compaq, in fact, has had a
64-node NT cluster in its labs since February-though
Compaq, too, says it isn't sure whether it will ship the
system commercially. "There are special situations where
we can build [proprietary NT systems] for certain
customers," says Compaq senior VP and chief technology
officer Bill Strecker. "But Dell in my mind is a company
not prepared to support a nonstandard system."
Although Dell has considered (and rejected) a couple of
dozen acquisitions over the past two years, a bold play for
a high-end IT systems and services provider-especially one
on a par with Compaq's $9.1 billion purchase of Digital
Equipment-isn't on Dell's short list, company executives
say. "Growth is a matter of matching our ability and the
opportunity," says CEO Dell. "It's a question of how much
fun a company can have in one day and get up the next day
and continue."
Most of Dell's upcoming enterprise offerings will be
delivered through partnerships, similar to its deal to
license Fibre Channel storage from Data General. Dell is
negotiating with several networking companies, including
Giganet, to license technology for a Dell-branded
high-speed, low-latency interconnect that will let
customers build clustered database servers. On the
systems-management side, Dell will bundle
Hewlett-Packard's Manage/X Special Edition software on
all of its servers starting in early October.
The company also plans to deliver within three months
management software designed for specific types of
servers, as well as new disk-management,
remote-management, and security software. In the first
quarter of 1999, Dell aims to roll out load-balancing and
load-management software for optimizing clustered server
performance, as well as new storage-management
software.
Not One-Stop Anytime Soon
Despite all these moves, Dell isn't likely to be a one-stop
enterprise systems supplier anytime soon. Even Dell
executives say it will be two to three years before its NT
systems are as scalable and reliable as current Unix
systems. Meanwhile, other NT server vendors, including
Data General, NCR, and Unisys, have begun selling
proprietary NT systems that scale beyond anything Dell
currently has in its labs.
The Nasdaq electronic trading exchange uses nearly two
dozen four-processor Dell servers to run its Web site, but it
turned to Unisys for a 10-processor NT server to collect
and process trading information for the site. Nasdaq would
have preferred getting all of its systems from Dell, says
John Delta, the exchange's director of interactive services.
"Dell is a superb company, but it's very much tied to open
systems," Delta says. "It's a great strategy, but we need
massive databases and scalability right away. I'd like to
see some in-house research and development [at Dell] that
gets us to large NT scalability quickly."
Service and support is another enterprise concern.
Systems-control manufacturer Honeywell Inc. this summer
implemented dozens of Dell servers to support a Microsoft
Exchange E-mail system that processes 2 million messages
per month. While Honeywell is pleased with the Dell
hardware, Dell's implementation support could be
improved, says Steve Pine, director of technical integration
and network applications. Two Dell engineers installed the
system adequately, Pine says, but Honeywell would have
benefited from Dell experts who could optimize server
configurations for message routing.
Pine notes that vendors with a history of catering to the
scalability demands of large companies might have been
able to offer those services. Indeed, competitors losing PC
server market share to Dell (see chart, p. 18) are quick to
jump on Dell's shortcomings in the high-end systems arena.
"Dell is much more of a routine purchase. It's like ordering
a pizza," sniffs Mike Liebow, VP of strategies for IBM
Netfinity systems. Dell will face problems even as NT
continues to scale, Liebow argues. "For ERP through SAP
or data warehousing through Oracle, Dell does not have the
same level of capability as IBM," he asserts.
HP will soon offer 99.9% NT server availability,
something Dell can't guarantee without a stronger services
component, says Gartner Group analyst Joe Barkin. What's
more, Dell relies on partners to deliver many services, and
it runs the risk of losing those partners should they be
acquired by another company in a rapidly consolidating
industry, as Digital was by Compaq.
But Dell argues that its services model is more flexible
than the for-profit services organizations of Compaq, IBM,
and HP, since it doesn't have to hire to expand. And Dell
services partners aren't in the business of pushing Dell
products-an arm's-length relationship some customers
appreciate. "I want Dell for what Dell does best, and that is
put hardware together for a fault-tolerant solution," says
Ash Shehata, IS director for Antelope Valley Health Care
Systems in Lancaster, Calif. "I've never really trusted
manufacturers for any services."
So long as Dell is accountable, customers don't care who
actually delivers the service, say Dell executives, who note
that the vendor's direct model ensures that a customer's first
contact is always with a Dell representative. "It seems to
be working," says William Conroy, an analyst with Sanders
Morris Muddy in Houston. But Conroy adds that future
growth could pose problems. "There is a realistic
possibility that the company will face a decision regarding
whether they have the capability in-house to handle
services, or whether they continue to partner," he says.
Limited By Wintel's Scale
Dell's reliance on the Wintel model means it will continue
to be limited by the scale that other vendors' software and
processors can support. Meanwhile, the company says it
can maintain its revenue growth by expanding its notebook,
desktop, and low-end server lines into new geographic
markets, by cutting into the 30% PC market share of "white
box" vendors, and by wresting business away from its chief
competitors. Chairman Dell says the company is capable of
taking up to 25% of the aggregate "personal systems"
market within a few years (it had 5.5% of the global PC
market in 1997). Analysts are skeptical-but Dell has
surprised them before.
Dell's growth in the high-end market is essential to its
continued success. Dell's goal is to derive half its revenue
from non-PC sales within the next few years, as PC profit
margins narrow under pricing pressure. The company's
share of the U.S. Windows-Intel server market rose more
than any other vendor's in the second quarter, to 16.5%
from 10.8%, according to Dataquest, and Dell appears to
have taken market share from Compaq and IBM.
But that success is in the sale of low-end, commodity
servers. Dell's biggest challenge will be to convince
customers it can offer them higher-end systems and service
even if it doesn't have the Unix and other scalable offerings
of a Compaq, HP, or IBM. Despite Dell's insistence that it
can ride the lower-end personal systems wave for another
two years, the high end is clearly on the minds of
executives. "If you poke our salespeople with a stick at 3
a.m., the first thing out of their mouths will be 'servers!'"
says Brian Wood, Dell VP and general manager of
enterprise accounts.
Dell has a phenomenal track record, but it knows its past
accomplishments matter little as it moves up the enterprise.
"Our Achilles' heel is the legacy that comes from success,"
says senior VP and CFO Tom Meredith. "Our challenge is
to move from success to significance." If Dell executes as
well as it has in the past, its legacy will be complete.
-with additional reporting by Tom Davey and Jennifer
Mateyaschuk
Copyright ® 1998 CMP Media Inc. |
