The Round Rock, Texas-based PC maker appointed Russell Holt to head the division and report directly to CEO Michael Dell.
The move acknowledges how rapidly Dell's storage business is growing. Dell typically breaks out a business after it achieves a projected $1 billion in annual sales, analysts say. Until today, storage had been part of the company's server division.
At the same time, the company is playing a distant game of catch-up with IBM and other storage rivals.
"What we've done in the past here at Dell is incubate businesses as part of larger organizations," Dell spokesman Jim Mazzola said. "As they gained critical mass and we wanted to accelerate them, we moved them out to form their own segments."
Brooks Gray, an analyst with Technology Business Research, sees the potential in Dell's move.
"The segmentation makes sense and follows tradition the way Dell has segmented its business," Gray said. "This is a good time for Dell to increase their focus on external storage, as well as internal."
Dell started selling branded storage products in 1998, with modest success.
Internal storage, or storage built for the inside of servers, still accounts for the bulk of Dell's storage sales, analysts say. But sales of discrete external storage systems have increased as companies have sought more efficient ways to handle the data dump created by Web content.
Dell's PowerVault external storage products brought in revenues of $226 million last year, and Gray estimates sales of about $100 million for the current quarter.
Holt faces a tough job in an exploding market, in which Dell is a relative latecomer. PC rivals, such as Compaq Computer and IBM, have long had separate storage operations and good brand awareness. Hopkington, Mass.-based EMC leads the market.
"Yes, Dell is still a relatively small player," Gray said. "The real challenges Holt will face is ramping Dell's external storage business. I believe they will target the low-end NAS (network attached storage) market and the SAN (storage area network) market for medium-size businesses."
Today's announcement follows an increased focus on storage at Dell. Last month the PC maker started selling Quantum's SnapServer. Dell also picked up storage software and hardware maker CoverageNet last September in its first acquisition.
Dell also has stepped up storage sales efforts as part of its Internet infrastructure strategy. Analysts estimate that, driven by Internet demand in part, storage sales could reach $100 billion by 2005.