Competition from Dell, Informationweek article:
Dell Vows Aggressive Storage Push Amid Stock Slide
CEO tries to assure analysts that its financial woes won't last, but stock downgraded anyway
By Paul McDougall
As his company's stock sank to its lowest price in two years, a defiant Michael Dell last week vowed to push even harder into fast-growing markets such as storage and appliance servers.
The Dell Computer CEO outlined a plan to use his company's build-to-order PC sales model to drive down prices in the market for specialized infrastructure products. "We have a tremendous opportunity to commoditize that part of the market," Dell told financial and industry analysts at the company's Austin, Texas headquarters. His goal? To preserve Dell's status as a financial and PC industry growth leader.
On Oct. 5, Dell's stock price hit a low of $25 after the company warned that third-quarter revenue would miss expectations by 3%. It closed the week at $25.3125. Dell blamed weak markets in Europe and slower-than-expected sales to the government for the shortfall. The stock has steadily declined from a high of $59.75 in March. Dell joined Intel and Apple Computer as high-tech giants whose stocks were battered in recent weeks following warnings of slower growth.
Sounding a brighter note, Dell said the company's core PC business remains strong. He predicted that the company could pass market leader Compaq in sales as early as next year.
However, analysts didn't appear to buy into Dell's pitch. Gerard Klauer Mattison, Chase Hambrecht & Quist, and SG Cowen all downgraded the company's stock the day after Dell spoke. In a report last month, U.S. Bancorp Piper Jaffray analyst Ashok Kumar called networked storage a "Dell disaster" because the company has yet to ship any SAN products from ConvergeNet, a networked storage company it acquired more than a year ago.
But Dell's predicament could be good news for systems buyers because the company appears more committed than ever to build market share by cutting prices (see sidebar story, "Standing Tough When It Comes To Price"). At the meeting, Dell CFO Jim Schneider said the company is taking "strong pricing actions to stimulate demand." Last month, Dell slashed prices by as much as 47% across its line of PowerEdge servers. It also cut prices on business desktops by 15% and trimmed notebook prices by 12%. Dell maintains that its build-to-order model will still let the company maintain healthy margins despite the price cuts.
The plan to offer storage as a buy-over-the-Internet commodity includes making the systems easier to use. The new PowerVault 530F features storage virtualization--it lets users add devices as needed without reconfiguring the entire storage area network. "Our goal is to simplify the storage environment so you don't have to have a storage expert administer your system," Dell storage VP Russell Holt told analysts. Dell made its storage business a separate unit last month and tapped Holt to head it. |
