St. Patty's Day Primer on upcoming BrainShare announcements..... =;-)
Dell seeks to conquer new
territory with server appliances
By Joe Wilcox
Staff Writer, CNET News.com
March 17, 2000, 8:45 a.m. PT
Dell Computer hopes to repeat its earlier success in the PC
business with a thrust into the market for specialized
server appliances.
The Round Rock, Texas-based PC maker plans to unveil a
server appliance before its financial analyst meeting next month,
according to sources. The new lineup, which may be marketed
under the name PowerApp, will offer a choice of operating
systems, including Novell's Internet Caching Server (ICS) or a
customized version of Microsoft's Windows 2000, sources said.
More importantly, a new line of high-demand, fat-margin
hardware will help Dell offset a steady decline in PC prices.
Server appliances--small,
limited-function servers geared for
specialized tasks such as email or
storing data--are one of the hottest
hardware growth areas, analysts
said.
The rise in the number of
e-commerce firms, Internet service
providers and small businesses has
helped to boost the market for server
appliances.
Dell?s major server competitors,
Compaq and IBM, started pushing
into the market last summer but with
limited success. Both companies
have focused their efforts on small
businesses while repositioning their
existing server products to compete
for ISP business.
Meanwhile, Dell sat on the sidelines
waiting for the sector to mature
before offering a product. The
strategy is typical for Dell, said
analysts, who expect Dell to strike it rich in the server appliance
market.
"They?ve got some heavy-hitting software manufacturers behind
them, and they have a dedicated design to the device--they?re
not taking an existing box and just giving it a paint job," said
Piper Jaffray analyst Amir Ahari.
Dell executives see the market as mature enough to introduce a
product with a good chance to succeed but young enough that
the company can dictate the market's growth.
"Dell typically waits for a market to mature before getting into it,"
said Lindy Lesperance, an analyst with Technology Business
Research. "But once they do, they quickly use their efficient
manufacturing and distribution to roll over competitors."
If Dell takes the plunge, it will dive into one of the fastest-growing
hardware markets. Market researcher Dataquest forecasts 2.9
million server appliances will be sold this year, 3.7 million in
2001, 5.1 million in 2002 and 7.3 million in 2003.
Big markets mean big money. Merrill Lynch predicts server
appliance sales will reach $16 billion in 2002, an estimate some
industry analysts say is conservative.
Dell is expected to unveil the product before mid-April, sources
familiar with the product said. As recently as two months ago,
PowerApp was the leading candidate for the server appliance
name, but that could change before it is introduced, sources
said.
A Dell representative declined to comment on any product plans
but strongly hinted that Dell is preparing a significant
announcement for the end of the month.
Sources familiar with Dell?s server appliance said it will sell
below $5,000, making it a strong contender among products
geared for ISPs, which typically range between $5,000 and
$90,000. Those sold to small businesses typically cost as little
as $1,000.
"Dell has a track record of coming in, under pricing, bringing
down the costs and forcing a lot of people to revamp and revise
the business model," said Ahari.
Dell?s strength as a successful seller online is likely to appeal to
ISPs and their customers, say analysts. The PC maker, which
takes in more than $25 million a day in Web-related sales, could
easily convince ISP customers it knows their business.
"You?ve got a manufacturer, 50 percent of whose revenue is
derived online," Ahari said. "If anyone knows online transactions,
it?s Dell."
Dell?s biggest asset may be its ability to offer a server appliance
that fits into an existing PC installation or appeals to customers
looking for one manufacturer to supply everything--from PCs to
servers. The computer manufacturer would also be in a better
position to cross sell from server appliances to other PC
products, say analysts. Many server appliance makers only sell
a few specialized products and cannot deliver PCs, portables or
other types of servers.
Dell will also be using more familiar PC software from Microsoft
and Novell, rather than Linux and Unix, which have emerged as
server appliance favorites. This is likely to appeal broadly to
ISPs looking to build their hosting and connecting infrastructures
around PC products, Ahari said.
Neither Microsoft nor Novell would comment on Dell?s server
appliance.
Dell isn?t exactly new to selling specialized servers to ISPs. Last
summer, the PC maker started offering ISPs Novell ICS on
PowerEdge servers. But the server appliance would be a new
design specifically for the needs of ISPs, e-commerce
operations and small businesses, which typically look for a
no-fuss box they plug in and forget about, sources said.
Success in this sizzling market could help boost Dell, which has
taken some hard knocks recently as its core PC business
declined. After issuing its second profit warning in half a year,
the PC maker in January lowered its growth projections to 30
percent from 38 percent.
By contrast, some companies selling server appliances have the
more-than-50 percent growth rate that once dazzled Dell
investors. Merrill Lynch, for example, forecasts a five-year
compound annual growth rate of 65 percent for Cobalt Networks
and 50 percent for Network Appliance, two smaller companies in
the market.
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