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Servers to highlight Dell analyst conference

The company, which rose to prominence on the strength of desktop PC sales, is increasingly turning its attention to servers and other "back-room" technology.

Dell Computer, a company that rose to prominence on the strength of desktop PC sales, is increasingly turning its attention to servers and other "back-room" technology.

The Round Rock, Texas-based company will detail its strategy for the coming year in meetings with analysts later this week in New York. The presentations are expected to focus on Dell's plans for expanding its reach in the lucrative market for servers, hardware and ancillary services for the computing systems that support the operations of Web sites and e-commerce companies.

Dell is expected to unveil a line of server appliances--small, limited-function computers geared for specialized tasks such as email management and data storage. The servers, which likely will be marketed under the name PowerApp, will offer a choice of operating systems, including Novell's Internet Caching Server (ICS) or a customized version of Microsoft Windows 2000, sources said.

The company also is expected to discuss its plans to move deeper into the market for complex, expensive multiprocessor servers.

"What they want to do is move up into the Sun (Microsystems) space," said Dan Niles, an analyst at investment bank Robertson Stephens.

Dell has manufactured and sold servers with substantial success for years. The difference in the company's new strategy will be in the emphasis it places on servers.

Although Dell is growing faster than most of its competitors in the desktop market, pricing pressures have eroded PC margins. In addition, analysts say that growth in desktop sales may have peaked.

In comparison, the rampant demand for servers makes the market look like virgin territory. The rise of e-commerce and widespread Internet use has created a huge market for server appliances, as companies going online find they have to bulk up on hardware.

An oft-quoted prediction from Intel chairman Andy Grove postulates that only 4 percent to 5 percent of the servers necessary for a wired world have been employed.

A number of smaller companies, such as server manufacturer Network Appliance and several Linux publishers, have benefited from this demand. Now they will face increased competition from Dell, IBM and the rest of the hardware old guard, however.

"Dell typically waits for a market to mature before getting into it," Lindy Lesperance, an analyst with Technology Business Research, said earlier this month. "But once they do, they quickly use their efficient manufacturing and distribution to roll over competitors."

Analysts meeting with Dell this week also are likely to listen closely for any financial guidance the company might give. In its past two fiscal quarters, component shortages and a slowdown in corporate buying because of Y2K expenditures hurt the company's earnings.

In its last fiscal quarter, which ended in January, Dell reported earnings of $430 million, or 16 cents per diluted share, compared with $425 million, or a split-adjusted 15 cents per share, for the same period a year earlier. The results were in line with lowered expectations.

Dell executives recently said the shortages have cleared. And Robertson Stephens' Niles says that sales for the company's first fiscal quarter, which ends in April, will increase over last quarter's sales.

Another issue expected to be discussed at the conference is Dell's possible use of AMD's processors. Dell is the last large PC manufacturer to rely exclusively on Intel processors. Few expect that to change in the near future, but speculation has been flying.

The company lately has seemed less antagonistic toward AMD. "It is pretty clear in their presentations to the public and conference calls that they are embracing the concept more," said Drew Peck, an analyst with research firm Cowen & Co.

Dell could benefit from adopting, or threatening to adopt, AMD's Athlon processor, according to some analysts.

"Dell was impacted by some of the (Intel) shortages," said Linley Gwennap, prinicipal at research firm the Linley Group, who added that such a move would "send a signal. It gives them more leverage."

Despite the rumors, however, Gwennap and many other analysts view a possible alliance with AMD with skepticism.

Optimism for a Dell deal has percolated for years at AMD but has been repeatedly quashed. Dell has been examining Athlon processors inside its labs, sources close to both companies have stated, but the relationship has not expanded to a commercial level.

"There's always some sort of low-level discussion going on (between Dell and AMD)," said Nathan Brookwood, principal at Insight 64. "But I will believe it when I see it."