Dell's Riding Storage As It Seeks A Return To Juggernaut Status
By Brian Womack
Investor's Business Daily
Tuesday December 18, 5:39 pm ET
Dell's growth might be disappointing in PCs, but in the storage market, it's smoking.
The computer hardware company posted at least 18% growth in the third quarter in key storage markets, while industrywide sales in those markets rose just 3% to 5%, say market trackers Gartner and IDC, separately. It did well in the first half, too.
The gain gave Dell (NasdaqGS:DELL - News) the No. 5 ranking alone. It had been tied with Network Appliance (NasdaqGS:NTAP - News), Gartner says. IDC puts Dell at No. 4. EMC (NYSE:EMC - News) retained the No. 1 spot.
No. 3 Hewlett-Packard (NYSE:HPQ - News) -- Dell's key rival in computers -- saw its storage sales rise by just 2.1%, Gartner says. And IDC says HP's storage sales were flat last quarter. No. 2 IBM (NYSE:IBM - News) saw slightly higher growth, as did EMC.
Storage is a bright spot for Dell, which is in the midst of a turnaround after sluggish sales and profit prompted founder Michael Dell to return to the chief executive's post almost a year ago. Storage is a key part of its strategy to boost growth. Dell last month said it would spend $1.4 billion for storage company EqualLogic to beef up its lineup.
"Storage is a fast-growing market segment; there is opportunity there," said Praveen Asthana, worldwide director of marketing for Dell. "It's a good area for us to focus on."
Storage sales rose 8% in Dell's most recent quarter, ended Nov. 2, which was the same as Dell's overall growth. But in the previous quarter storage revenue jumped 12%, to just 4% for the company overall.
Storage sales help Dell's lucrative server sales, says IDC analyst Brad Nisbet. Many corporate customers like to buy servers and storage from the same company.
Dell server sales have been rising more than the industry's overall, but in PCs the company last year lost its lead to HP. In the third quarter, Dell's PC market share fell to 14.4% from 15.9%, Gartner says.
But Dell's market share is rising in higher-end data storage gear.
Dell sells two lines of storage. On the higher-end products, Dell resells some of market leader EMC's gear for larger businesses. For businesses with simpler needs, Dell sells its own PowerVault product line.
Last quarter, Dell said PowerVault posted double-digit growth. Dell wouldn't give a figure, but IDC's Nisbet says PowerVault sales rose 52%.
"That growth rate stands out," he said. "Dell is doing pretty well lately. A lot of it is coming from their own line of storage systems."
Dell says it increased its storage research spending near the start of 2006. The company wouldn't give specific figures. It often takes 18 months to two years for such investments to pay off -- and now they are, analysts say.
Dell began to roll out storage products last year for small and midsize businesses that were designed to be simple to install. In that market, ease of use is crucial.
It continues to roll out products, including a new, inexpensive storage box with high-end features that it introduced in September.
The acquisition of EqualLogic -- expected to close early next year -- should help Dell reach more customers looking for storage gear that is less expensive than the traditional, higher-end products, analysts say.
"We view the acquisition as somewhat expensive but positive (and strategic) as Dell has proven capable of taking low-end storage solutions to market," Daniel Renouard, an analyst with Robert W. Baird & Co., wrote in a note last month.
EqualLogic is in the fast-growing virtualization market that has been made popular by VMware (NYSE:VMW - News). Virtualization software essentially carves a physical server into several "virtual servers."
"One of the big problems when customers implement to virtualize ... is storage," Asthana said, adding that the acquisition wouldn't interfere with Dell's relationship with EMC.
Nisbet says the acquisition makes sense.
"They're diversifying their product line," he said. "Dell is in a good position now to offer a complete or closer-to-complete solution with respect to virtualized servers."
Greg Schulz, an analyst with the StorageIO Group, says the acquisition could be a good one for Dell but it should maintain EqualLogic's relationship with storage resellers.
Dell traditionally sold most products directly to customers, but it's recently been expanding its relationships with resellers. |
