barrons interview with dell .
In fact, this market is both booming and changing rather rapidly. At one time,
businesses favored very high-end, very expensive machines running Unix
software made by Sun Microsystems. But that is becoming less true, with the
high-end share of the market, according to Rollins, sinking from about 80%
originally to under 40% now.
Today, the most impressive growth is in slightly less powerful and much less
expensive mid-range servers that can be cobbled together and interconnected
to run as a single unit, equal in power to the biggest Sun machine.
These workstations, typically powered by Intel chips running Linux or
Microsoft software, are made by the likes of Compaq, IBM,
Hewlett-Packard, Gateway, as well as Dell and several Japanese firms.
Sun argues that these mid-range machines can't handle the toughest jobs and
are prone to failure. It contends that Microsoft's Windows software won't
support "24-7 uptime reliability" (24 hours a day, seven days a week).
But the evidence is otherwise.
As Dell tells customers, its own servers not
only run its Websites, which handle $20
billion in annual sales, but also manage the
company's super-lean inventory,
manufacturing and distribution operations, the
48th-largest in the U.S. More important,
especially in the current economic climate, is
that Dell's Poweredge 8450 delivers 80% of
the horsepower of Sun's Enterprise 4500 at
somewhat more than one-quarter the price,
$600,000 versus $2.15 million.
The smaller, Intel-powered servers seem to
be eating Sun's lunch. And Dell, using its streamlined assembly operations to
win orders, is doing the same thing to its Intel rivals, too.
According to IDC, between 1995 and the first quarter of 2001, Dell was the
only mid-range-server maker to enlarge its share of this growing corporate
market, which now accounts for about $40 billion in annual sales.
Starting in effect from scratch, the company overtook Gateway,
Hewlett-Packard, IBM and finally Compaq to become the market leader with
a 28% share. In the fourth quarter of its fiscal 2001 year, Dell's server sales
advanced at 3.5 times the pace of the overall market and 4.5 times that of
Compaq.
"The total server market is growing at modest single digits, maybe 6%; the
Intel server market is growing at maybe 8%-10%; and we are growing at
50%," Rollins says.
Adds Michael Dell: "We still have the potential for incredible market-share
gains in servers in front of us. On performance and features, we are way out
ahead of Compaq. On price, we operate with a different cost model, which
means we can offer any customer much better value. Looking out, we have a
40%-45% share in desktops and laptops, and I see absolutely no reason why
we shouldn't get our server share up to at least that level."
Storage is an equally hot, $30 billion-a-year business, driven mainly by
Internet shops' need for places to keep all those snazzy pages they want to
display. Dell got into the game in 1998 and, from its current sixth-place
standing, clearly plays underdog to Compaq, Sun and market leader EMC.
But with sales revenues rising 70% last year, admittedly from a tiny base, Dell
is aiming high -- and its chief makes no secret of that. "I quite frankly don't see
a lot of difference between this and servers. We can use the same
hyper-efficient business model, which allows us something between
two-hours' and five-days' inventory compared with about 91 days at EMC,"
he says. "There no reason why we can't be more competitive and grow a lot
faster than most competitors." |
