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First PCs. Then servers. Now storage?

How Russ Holt plans to spearhead Dell's push to transform high-end storage into a commodity market.


First PCs. Then servers. Now storage?
By Stephen Shankland
Staff Writer, CNET
May 9, 2001, 12:30 p.m. PT

It's almost a contradiction.

Dell Computer, a company known for tackling markets once they're well established, is two years into its effort to conquer the storage market. It's territory that's fraught with expensive planning--not to mention chockablock with equipment that doesn't work together. For Dell, this is a world away from the market for interchangeable commodities that PCs and low-end servers have become.

But Russ Holt, general manager of Dell's Storage Systems Group, stands by the company's decision to move into limited areas of the storage market, gradually offering higher-end products to bigger customers.

"We want to begin forcing the commoditization," he said in an interview.

Holt has credentials for the task: He laid the groundwork for Dell's current ascendant position in the low-end server market. And before joining Dell in 1998, he spent 14 years at the old-line computing company NCR, most recently in charge of servers.

But storage is a tough nut to crack, as IBM, Hewlett-Packard and Sun Microsystems have found as they try to win back former customers who now source hardware and services from storage specialists, such as EMC and Network Appliance. Dell won't be granted an exemption just because it's dominant in the PC market.

Dell's storage effort "hasn't been a total success when looking at the...mix of storage to total sales," said Technology Business Research analyst Brooks Gray. "It's been down there in the 1 to 1.5 percent range for the last four quarters."

While Dell's storage revenue is increasing quickly, "that's from a very small base," Gray said. Gray estimates that Dell garnered about $102 million in the fourth quarter of 2000 for standalone storage products--products such as direct-attached hard disk arrays, storage area networks (SANs), network-attached storage (NAS) that are independent from a server.

Storage companies promised that high-speed SANs would ease storage headaches, but that promise proved overambitious as companies struggled to get their switches, network cards, and storage systems to work together. NAS, a much simpler form of storage product attached to a network, has been easier but still comes with its share of headaches involving managing the profusion of NAS systems.

With our customers, we propose a more simple architecture vs. a lot of vendors talking about a full-blown, monolithic, heterogeneous storage environment. But there's no question Dell is ambitious. Though its high-end storage systems currently can be used with Windows servers but not Unix servers, the company has expanded so the products work with Windows servers from IBM, Compaq Computer and Hewlett-Packard as well as those from Dell. Holt described his aspirations in an interview with CNET

Q: What's Dell's storage strategy and how well is the division faring?
A: We will be applying the Dell model to the storage industry in order to standardize and simplify storage...for our customers. We believe that as the market commoditizes, the customer benefits. We've seen evidence of that in the PC business, in servers, and now we believe the next horizon is storage. We're No. 6 in the industry in revenue, and No. 4 if you measure by capacity (the number of terabytes of storage systems sold). We're selling a lot more capacity for dollar for our customers.

What fraction of that is directly attached to servers, what fraction is attached by a network, and do you see that fraction changing?
We don't break that out. If you look at the industry, we are similar, though probably weighted more toward internal because we have such a large server business. Last year we increased external storage (that attached to servers by a storage area network, for example) by 6 percentage points. It's the fastest-growing part of our business. Our external-storage business grew 70 percent (from the year ended January 2000 to the year ended January 2001).

At Sun, IBM and Compaq the storage business reports directly to the chief executive. How independent is your storage business from your server business?
We're managed internally by our own profit and loss under the PowerVault brand.

How often are Dell NAS and SAN products used with non-Dell servers?
That information is really hard to get. But the feedback from customers expands (SAN and NAS products) into non-Dell server environments. The SAN appliance product that we an example of where storage is beginning to be a lead in some sales opportunities.

Who do you consider to be your biggest competitor now?
We approach the market differently from EMC, Compaq, HP, Sun, NetApp. We do not attack our market head-on. With our customers, we propose a more simple architecture vs. a lot of vendors talking about a full-blown, monolithic, heterogeneous storage environment (a single, large storage system that will connect to Unix servers, Windows servers and mainframes). The market has not standardized to the point where those systems are easy to deploy.

Why do you want a big, monolithic approach anyway? What if I have two (storage systems)? I still have simplified management, one for Wintel, one for Unix...It's less costly. It's easier to manage.

Do you foresee a day when there will be a single, unified island of storage?
I think the market conditions play directly into Dell's strengths. We offer better price-performance than any other computer or storage provider. That's the goal. As standards come into play, we'll begin to provide those capabilities.

What do you think about the debate of Fibre Channel (the communication standard used to build today's storage area networks) and Internet Protocol (IP, an adaptation of which is starting to make its way into the storage market)?
Fibre Channel is really optimal for SAN-based environments, and it's relatively well established. I do believe that Storage over IP (SOIP) or iSCSI (another IP storage standard) are very promising. I don't think iSCSI is really ready yet to perform the transfer. Quite honestly, we're an investor in (SOIP advocate) Nishan Systems. Will SOIP or iSCSI replace Fibre Channel? Maybe, but that's about three to five years out.

What about InfiniBand (a high-speed connection technology backed by many server and storage companies)? Many believe it also has the potential to replace Fibre Channel.

IP will make its entree as a systems interconnect, making very thin servers interconnected. Over time you'll see it as a replacement for Fibre Channel. It'll probably start making an impact three to five years out.

What's the status of your acquisition of ConvergeNet? That acquisition didn't result in products as soon as Dell had hoped.
The acquisition of ConvergeNet was a technology and talent-based acquisition. As we continued to develop the product, we had both software and hardware activities. The hardware base was primarily a proprietary implementation. In September of last year, we found a solution based on industry-standard architecture using Dell PowerEdge servers. We introduced our PowerVault 530F (the modified ConvergeNet product). We discontinued the proprietary hardware development.

So that was a change in strategy?
The market moves very rapidly. The bulk of the value was in the software. That just happened faster than we thought.

Storage has been a hot market, but now it too has been hit by the spending pullback--both storage specialists and server companies expanding into storage.
I think the market conditions play directly into Dell's strengths. We offer better price-performance than any other computer or storage provider. (The economic environment is putting) pressure on Compaq and EMC profit margins. (Chief information officers will say) we can't stop deploying storage, because business depends on it, but maybe we'll pick a project here and a project there. Also, I think you're going to see a lot of start-ups. Market conditions notwithstanding, there are a number of start-ups out there still providing value, primarily in the area of software. Dell is constantly partnering with some and working with others.