Dell Makes Headway in Server Market

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Dell Makes Headway in Server Market

By Dennis McCafferty

Staff Writer

It seems like Dell Computer Corp.'s server line gets more introductions than an ambassador these days, what with constant product upgrades. But when a company more known for PCs than servers vows to take on the big names in the booming server market, opportunity can be elusive if the technology doesn't stay ahead of the pack.

In September, the PowerEdge 2100 was introduced as Dell's first single processor, Pentium Pro server for workplaces with fewer than 100 employees. Then, two months later, the two-processor, 4100 model was introduced for offices with at least twice as many employees.

Now, with the newly released four-processor, 6100 model, Dell is going after Fortune 100 companies where the number of cubicals stretch into the thousands. The 6100 server's price starts at $10,000, but most have been sold for $20,000 to $30,000 with added memory and disk drive capacity.

The federal market, where Dell has already established itself as a player in the server market, will also be a prime focus of the sales campaign.

"Servers are a different business than desktops and portables," said Mike Lambert, senior vice president of the server group for Austin, Texas-based Dell. "There are different issues to deal with. If we could work on that, we could move the company forward."

Among the issues was designing a product that serves as an infotech field general for a myriad of operating systems such as Windows NT, Novell NetWare and SCO Unix. With its traditional desktop line, Dell mainly dealt with a single system such as Windows 95.

Among the capabilities of the 6100 are 4GB memory capacity, duplicated backup power and disk drives that will keep the system running like normal if there's a breakdown. The bottom line for customers: No hour-long downtime or lack of data access during component breakdowns or power supply failures.

"It's not like the old days where if you wanted to buy a server, you had to hire the magician at the same time you bought it to make sure it works right," said Roger Harden, director of marketing for Dell's federal sales division. "These things work."

Market statistics show Dell has begun to make an impression in the server market. But the company has a lot of ground to make up before industry leader Compaq Computer Corp., Houston, breaks a sweat.

For the financial quarter ending Sept. 30, Dell ranked fourth in the United States with 5,300 units sold, claiming 5 percent of the market, according to International Data Corp., a market research firm based in Boston. At No. 1, Compaq sold 41,000 units for a 39 percent market share. Worldwide, Dell ranked seventh with 10,000 units sold, falling well behind Compaq's lead of 96,000 units. Worldwide, Compaq commanded a 31 percent market share to Dell's 3.2 percent.

But the battle has just begun.

"Dell has really made a big push in recent quarters," said Lynda Fitzpatrick, a server market analyst with IDC in Boston. "They've been doing extremely well. Of the second-tier companies out there, we expect them to move to the top tier in the next couple of quarters."

IDC's first ranking of top vendors for the federal PC server market, however, shows Dell has already emerged as top tier.

The company ranked second with 5,800 shipments, accounting for 20 percent of the market share during the federal budget year ending Sept. 30, 1995, the most recent statistics IDC has made available. Compaq was No. 1, with 7,300 shipments, accounting for 26 percent of the market. Dell's strength was boosted mainly through Treasury Department contracts, General Services Administration Schedule sales and Air Force shipments, according to IDC.

It's easy to see why Dell has dived head first into the server market. Company officials eye significantly higher profit margin percentages in server sales, as opposed to a 20 percent profit margin for desktop products. (They indicated the server profit margin will be less than 40 percent, to remain competitive.)

Overall, the server market is forecast to grow at more than 40 percent in sales for the next three to five years, while the PC industry is projected to grow 12 to 16 percent, according to industry estimates.

"[Server products] give us the opportunity, as we grow, to add to our revenue something that is growing much faster than the rate of growth in the industry," said Lambert, who arrived at Dell in October as the server group was launched.

Dell, a Fortune 500 company, is the world's leading direct marketer of computer systems and recorded $6.9 billion in total revenues for last year.

In Dell's most recent financial release, a strong third quarter boosted net income to $343 million for the first nine months ending Oct. 31, a 70 percent increase. Earnings shot up from 99 cents to $1.77 per share in the same time period. Market Guide Inc., a research firm, attributes part of the success to the new focus on the server market.

Not to be outdone by Dell's introduction of the 6100, Compaq countered this month with federal price cuts on the ProLiant 5000 four-processor server, with the top line 6/200-1X model being reduced from $15,000 to just under $13,400. The reduction is part of recently announced product price slashings by Compaq for commercial and government customers.

Company executive Don Neder said such price reductions will save federal customers about 10 percent on servers, making Compaq competitive with any product Dell comes up with.

"Compaq is very comfortable in a commercial-like environment against Dell or any other competitor," said Neder, manager of government contracts for Compaq. "We have a great relationship with resellers to get the product out there for the federal government .... We're not going to sit back on past successes. We're going to focus on what the competition is coming out with."

Federal PC Server Shipments By Vendor, FY95
Rank Vendor Shipments Share (%)
1 Compaq 7,300 26
2 Dell 5,800 20
3 Digital 5,100 18
4 Hewlett-Packard 1,100 3.8
5 IBM 600 2.1
Others

8,400

30

Total 28,300 100.0
Source: International Data Corp.

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