Dell's new storage devices aimed at small businesses
By John Pletz
American-Statesman Staff
Wednesday, August 30, 2000
Dell Computer Corp. plans to roll out two new products next week aimed at giving the personal-computer maker a bigger share of the burgeoning storage business.
Dell will announce two entry-level devices aimed at small businesses or workgroups within larger businesses that need to share and store files for day-to-day use and as backups in case of disaster. It's a market that has been good to Dell.
With more computers performing more functions -- not to mention the tremendous growth of the Internet as a business tool -- has come a massive explosion in the amount of computer-generated data that must be stored.
Demand for storage was estimated at $30 billion in 1999 and will grow to $46 billion by 2003, according to research firm IDC.
Dell formed a storage business in 1998 and has a tiny slice of the market -- 4 percent, compared with No. 1 Compaq Computer Corp.'s 21 percent.
Storage is classified two ways -- internal and external. Storage capacity on disk drives within servers -- the large computers that contain software programs and files at the heart of PC networks -- is internal storage. And it fills up fast.
But the servers themselves are still adequate, which has created a strong market for external storage -- other servers or devices with additional storage capacity that plug into the networks or individual servers.
"You have people swapping out servers not because the servers are at the end of their life cycle, but because they need more storage," said John McArthur, vice president for storage research at IDC. "This allows people to keep servers around longer."
Like its competitors, Dell is under pressure to find new markets with higher-margin products as profits and growth continue to slow down in the desktop-computer business.
Dell has done that in workstations -- the high-powered desktop computers used for intensive work -- and in servers.
Within just a few years of entering both businesses, Dell became a leader. It hopes to do the same in storage, but it has a long way to go: Dell's storage revenue last year was just $1.2 billion, according to IDC estimates, compared with industry-leading Compaq's $5.8 billion.
Dell has encountered some stiff resistance from competitors and customers.
As it has found in some parts of the server business, big corporations are reluctant to turn over critical functions from existing mainframe, mid-range and Unix computers to cheaper Intel-powered systems running Microsoft's Windows NT.
"NT is big and getting bigger, and will surpass Unix," McArthur said.
But until then, Dell is focusing on smaller companies that favor cheaper, off-the-shelf products over proprietary ones.
The devices Dell will announce Tuesday are inexpensive and easy to use, key requirements for small companies with limited capital and technical resources.
A network-attached storage device carries a price tag of about $3,000. The other, a storage-area network device, costs between $38,000 and $43,000. Network-attached storage provides storage to any device on a network, from desktops to servers, while storage-area network devices generally are connected to other servers.
The most complex, proprietary storage devices can cost $500,000 to $1 million or more.
"It's targeted at the sweet spot of the market," said Bruce Kornfeld, marketing director for Dell's storage group.
Selling high volumes of a near-commodity product more profitably than its competitors is the recipe Dell followed to become the No. 1 PC seller in the United States.
"I like the new focus," McArthur said. "I think it's the right direction for them to move. It plays to their strength. I think they'll do well in that space as they've done in servers."
To some, the announcement signals a shift for Dell, which started out with higher-end storage products in an effort to chase the large customers that are the most profitable.
A year ago Dell purchased ConvergeNet, a small San Jose, Calif., company that developed proprietary storage technology. But that move has yet to bear fruit, and some question whether it ever will.
"If you go back a year, they were thumping their chests, saying they'd build up the technology to go after" EMC Corp. and Sun Microsystems, said Ashok Kumar, an analyst at U.S. Bancorp Piper Jaffray, who recently downgraded Dell and called into question its storage strategy.
"The bad news is, I'm getting the sense (Dell is) getting shut out of the big enterprise accounts," added Amir Ahari, Kumar's colleague. "They don't have the robust products they need to get into the data centers. Frankly, they're not getting a lot of help from Microsoft and Intel in terms of getting the quality of stuff customers are looking for.
"The flip side is the small-business market is pretty big and pretty untapped."
But Dell's competitors are adapting, too.
"Increasingly Dell's peer group is becoming more competitive on price," Kumar said. "Compaq, H-P and companies like IBM use (low-end storage) as a loss leader to sell high-end products and services."
You may contact John Pletz at jpletz@statesman.com or 445-3601.
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