Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Dell Makes Big Bet On Enterprise IT In Bid To Boost Profits

Posted by Tom Foremski - March 25, 2009

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Dell, Wednesday morning launched an early salvo in what is shaping up to be a massive battle for server markets as data centers look to cut costs by using servers based on an advanced Intel microprocessor due out on Monday.

Dell announced what it called its broadest ever family of servers, and storage systems, just days ahead of similar announcements expected from rivals Hewlett-Packard, Sun Microsystems, IBM, Cisco, and others, as Intel officially introduces a major upgrade to its Xeon server microprocessor.

The move is a key strategy of founder Michael Dell's, who returned as CEO more than two years ago to try to reinvigorate the company and move it beyond PCs and expand it's enterprise IT business.

The server market has almost ground to a standstill in recent months as customers await the first servers based on Intel's latest microprocessor architecture design, Nehalem. Intel has set expectations very high, promising breakthrough performance, while at the same time significantly reducing power consumption. Many data centers are unable to expand because they have drained their power capacity.

Dell is making a big bet on Nehalem, which is used in it's new Dell PowerEdge server family and includes several features Dell says are unique.

"We believe our design, based on industry standards and unique features, such as the industry's first built-in management software, will offer customers the lowest total cost of ownership," said Stephen Schuckenbrock, head of Dell's Large Enterprise group.

Dell said it would release pricing and benchmark results on Monday, the official launch of Nehalem. It claimed excellent performance from its Nehalem based servers, saying that each one could replace 9 servers and as many as 18 servers if customers use virtualization technologies.

Dell also introduced data storage and IT management software.

Brad Anderson, senior VP, claimed that Dell can produce better performing server and storage systems than its larger rivals because it doesn't have to support proprietary technologies, especially in the area of management software. And it offers unique capabilities.

For example, it worked closely with Symantec to create the Dell Management Console (DMC), which replaces as many as nine separate management consoles with a single interface. DMC also works with many types of non-Dell hardware and management software, allowing customers to save on labor costs in administration, which can be as much as 70 per cent of total data center costs.

[For more details please see: Dell Unveils Efficient Enterprise Computing Portfolio, Freeing Customers from Costly and Proprietary Technology]

Foremski's Take:

Dell has a lot riding on this launch because it is seeking higher margin markets. However, it is up against well-entrenched competitors such as HP, IBM, and Sun, that have considerable experience in building data systems. It must show potential customers that it is not just a PC company, assembling standard components, and that it can design high performance IT systems with unique features.

It must show that it understands the issues facing data center managers as they try to deal with their largest headaches: administration costs, server consolidation, and power consumption.

The launch is also a test of Dell's Services business because enterprise customers are motivated to buy solutions rather than boxes.

Dell has invested more than two years on developing this family of IT systems, working closely with Intel, Symantec, VMware, and large IT users to make sure it had the best overall design and performance across 15 different IT applications. Dell also said that its services group was involved from the beginning to make sure services capabilities were closely integrated into its systems.

Dell's aggressive bid to expand its enterprise IT business comes at an opportune time because of the availability of Intel's Nehalem.

Intel claims that the extraordinary performance of Nehalem based servers means customers can recoup their costs within as little as 8 months. If this is true, it will create a tsunami of demand from data centers that are already under tremendous pressure from the economic downturn to cut operating costs.

Although a rising tide will lift all boats, Dell clearly hopes its long preparation will not only lift its boats higher, but establish it as a major vendor of IT systems (. . . especially if IBM acquires Sun.)

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