Dell is already beginning to stir up competition in a segment once thought to be immune from the acute price pressures of the desktop world. It is also one of the fastest-growing vendors: International Data Corporation (IDC) says Dell became the fourth-largest PC server supplier in 1997 and continued to experience phenomenal growth, with an increase of 181 percent in terms of revenues.
As it has done successfully in the desktop market, Dell will exploit the cost advantages of its efficient build-to-order business model, Dell executives said. Just yesterday, Dell announced a new Pentium II server for $3,200, less than similarly equipped servers from many competitors.
The Austin, Texas-based vendor is also planning to introduce crucial high-end storage technology from Data General in order to leapfrog into the highest echelons of the PC server market. Data General has been a player in this space for a few years now but lacks the brand name recognition that Dell has in the Intel-compatible world.
The move upward will represent a shift for Dell. To date, it has mostly concentrated on less sophisticated servers for relatively small groups in corporate settings. With high-end corporate "enterprise" servers due later this year, Dell will begin to deliver the kind of systems that historically have been offered by computer industry giants such as IBM and Hewlett-Packard, which have their own consulting groups and large research-and-development budgets.
Dell's move into the high end will also, in all likelihood, engender price wars at the lower end of the server market as Dell tries to take market share away from more established vendors.
Among the new technologies expected for high-end servers later this year is the first industry-standard 64-bit PCI (peripheral component interconnect) technology, Dell executives said. PCI is a data path technology that is now used in all new PCs. To date, standard PCI technology has been strictly 32 bit. New 64-bit technology will increase the speed at which data is shuttled around in a server computer--a critical factor for computers that process large amounts of data.
High-speed Fibre Channel data transfer technology for hard drives will also appear in servers in the second half of the year, said Kevin Libert, senior manager, enterprise strategy at Dell.
Further, Dell will begin to market storage subsystems under its own brand name. The subsystems will be supplied by Data General and be based on that company's Clarion storage technology.
Dell also confirmed that it is doing joint research and development with Data General in this area.
None of the Data General, Fibre Channel, or PCI technologies represent new territory, but rather technologies that have yet to become prevalent. Most Intel-based server vendors, for instance, continue to use the less powerful 32-bit PCI.
That Dell is adopting these technologies may presage their adoption by other Intel-based server vendors. In general, Dell closely follows the Intel technology development road map.
On the software side, Dell will adopt the next generation of clustering technology from Microsoft when it comes out, as well as deepen relationships with enterprise vendors such as Oracle, Libert said.
It is also adopting critical server management technology such as Hewlett-Packard's OpenView and software from Tivoli Systems.
While Dell wants to capture enterprise accounts, it will continue to release workgroup servers. Yesterday, the company introduced the PowerEdge 2300, a Pentium II-based server that comes in a slightly smaller box than its predecessor and starts at $3,200. The PowerEdge 3200 comes with a 333-MHz, 350-MHz or 400-MHz Pentium II processor.
Along with the technology push, Dell will strike hard on prices at the lower end. "We will be aggressive where it makes sense," said Scott Weinbrandt, director, server brand marketing at Dell.
Pointing his finger at vendors such as Compaq, Libert said "We don't think customers should be gouged...price wars mask other issues such as inefficiencies and bad forecasting."
Both Weinbrandt and Libert claim that server prices have been artificially high for years, as large computer vendors have set higher margins on servers to offset low margins on desktops. Most vendors have also used the computer reseller channel to sell their products, which adds an extra layer of cost. By selling direct and providing service and support through third-party contractors, Dell can replicate the services provided by larger vendor for less, they said.
Last year, for example, Dell delivered 4,000 servers to Wal-Mart over a four-month period of time. The servers came preloaded with software, but were also preconfigured to conform to the network addresses in use at Wal-Mart. In the past, much of this work would have been performed by resellers, Libert said.
But the next generation of high-end Slot 2 servers from Dell and others won?t be cheap. Various analysts have said that Intel will charge $2,000 or more for these processors because the server market is less price sensitive when it comes to chips.