Dell to unsheathe blade servers

The company, in a news conference to be held Wednesday morning in New York, is expected to announce a blade-server line, along with management software and services bundles to go with it, sources said. The company will also likely flesh out its blade strategy further in a meeting with analysts in New York on Thursday and discuss other topics, including component price increases and possible buyouts in the services market.

Server blades are essentially small servers built on cards that can be plugged into a special rack, where they are stacked like dishes or library books. The rack offers a shared power supply and networking capabilities and allows customers to add servers on an as-needed basis. Typically, blade servers are used for jobs such as Web site hosting.

The Dell servers will likely be based on Intel's new 800MHz dual processor-capable Pentium III chips, introduced last month.

The new blade servers are also part of a larger push by Dell to expand into areas beyond the PC. Though the company has reached the No. 1 spot in industry standard servers, machines that are based on Intel hardware and Microsoft Windows or Linux operating systems, and it continues to grow its market share in the PC market, Dell is looking to continue its expansion into higher-margin markets. A deeper push into servers, though, will put it into conflict with IBM and Sun Microsystems. Sun will be coming out with low-cost Linux servers later this quarter targeted at taking business away from PC makers like Dell.

Dell executives will also likely discuss their brick server strategy on Wednesday. Bricks are Lego-like computing blocks that can be assembled to form larger, more complex computers. The first bricks are due toward the end of the year.

In the meeting with analysts on Thursday, Dell is expected to address the effect of component price increases on its business and the possibility of acquisitions in the services market. Dell has only acquired one company in its history, ConvergeNet, and Dell has already shut down the facilities it acquired in that deal. Still, executives from the company have recently openly discussed how acquisitions could occur.

Dell is coming into the blade-server market later than competitors such as Hewlett-Packard and Compaq Computer. Both companies have launched single processor server blades based on Intel's 700MHz Pentium III uniprocessor chip for blade servers in the past few months. Dell, though, will argue that it can offer better price and/or performance.

Dell will also address, through software, one of the pressing issues with blade servers: managing them.

Although hardware companies have largely discussed how the design of these smaller servers uses less power and saves valuable back-room real estate, the introduction of blades will create new data-management problems. Instead of having to manage 84 servers in a rack, IT managers have to worry about keeping tabs on hundreds of servers at once. Software will become a competitive differentiator.

One blade start-up, Racemi, is exiting the hardware part of the blade business to concentrate on blade-management software.

"Probably more than anything else, the real difference is going to be the software. What do I do when I literally have hundreds of these things? How can I manage these thing in aggregate?" said David Freund, an analyst at Illuminata. "Blades simplify the physical aspects (of server deployment) but they intensify the software management issues."

Once tackled, though, blade management will open the door to other sales opportunities. Internet service providers will likely offer blade systems that can be automatically reconfigured to handle sudden bulges of traffic, Freund predicted.

As for bricks, so far Dell has said that a single brick could be designed to provide processor power, handle input/output or contain storage. Multiple bricks will therefore need to be linked together to build large servers. But that's the idea. Customers will be able to fit the bricks together in various configurations to custom build servers to meet their needs, Dell executives have said.

Dell will manufacture these various different kinds of bricks using off-the-shelf components such as Intel processors, which will keep prices relatively low.

Other key markets to Dell's future success include storage and IT services. The company has begun to beef up these areas with new products, alliances and hires. For example, Dell formed a far-reaching relationship with storage giant EMC. In the relationship, Dell is providing manufacturing and logistics expertise to EMC while EMC is making Dell its primary sales channel for small and midsized businesses.

In services, Dell tapped Jeff Lynn, a former Compaq Computer executive, to run its services operations, including its Dell Technology Consulting group.

Dell representatives would not comment for this story.

News.com's Michael Kanellos contributed to this report.