Services

As we meet with investors, we have been getting a lot of questions about a pending corporate upgrade cycle and whether Windows 7 will be a catalyst for PC demand.

First, let me say that we're very excited about the Windows 7 launch next week.  Dell is one of Microsoft's biggest OEM partners, and due to a collaborative engineering effort that extends over the past three years, we really feel customers will reap the benefits from upgrading to Win7.  Windows 7 has some very compelling features ranging from better applications and drivers to faster boot times and quick online capabilities. 

So why Windows 7?

Beginning with boot time - it's fast.  Windows 7 uses less memory to boot the OS than Vista.  Microsoft removed unnecessary services and drivers from automatically loading, which reduces the boot time and the OS footprint occupied in memory.  The user interface also has several cool new features.  Jump lists or pinned applications facilitate opening recently viewed items, such as files, folders, or websites in a more organized fashion.  And the snap feature allows you to snap two windows to the side of the screen and compare them side by side with ease.

Windows 7 makes it easier than ever to go mobile.  Improved wireless connectivity results in less time to locate and connect to a network.  And with location aware printing in the Professional and Ultimate versions of Windows 7, you no longer have to manually switch printers when moving from home to work or network to network.  In addition, it can also run in XP mode which is great for customers that need a way to deal with legacy applications that aren't compatible with Vista or Windows 7.  Clearly, these are just a few of the cool features you will find, so check out more details in our Direct2Dell blog.

As Michael recently stated regarding the use of Windows 7, "You will love your PC again".

What about a corporate PC upgrade cycle?

In commercial accounts, increases in information technology spending are most strongly correlated with improvements in corporate profitability and that will be the key driver of a commercial refresh.  Specific to Win7, we have only seen about 30% of our commercial customers adopt Vista with the rest staying on older operating systems.  With a weak economy, the installed base has increased to about five years for desktops and 3-4 years for notebooks. So many of our customers are working with older machines and running an operating system that is almost 8 years old.   This coupled with the fact that new PCs are faster, considerably more energy efficient, and have much better graphics capabilities make for a compelling upgrade. 

We're also working with Microsoft on the launch of Windows 7 next week, and on the upcoming launch of Office 2010.  Everything we see right now from the direct conversations with customers to surveys with CIOs tell us an upgrade cycle is forthcoming and likely in 2010 - helped by Win7 but really driven by an improving economy.

Data is generated at a faster rate than ever before and the need to manage this data efficiently is extremely critical.  Also, with heightened regulations, enterprises are required to store more data for longer periods of time, which also increases the demand for storage capacity. 

Based on this massive data growth, storage is considered more resilient than other IT hardware in this challenging economy, but customers still require optimal, cost effective solutions as budgets are more constrained.  Customers also want confidence that their data is easily available and protected.  Recent IDC research estimates the annual cost to maintain storage is 1.5x the cost to acquire the storage.  We believe these challenges provide Dell an opportunity to offer customers solutions that will require lower maintenance and improve their overall ROI.

So why Dell?  Dell offers a complete storage solutions portfolio which includes EMC, PowerVault, and EqualLogic that covers file storage, block storage, and data protection.  Due to Dell's recent announcement on the expansion of its enterprise technology portfolio, I'd like to focus on the EqualLogic PS Series.  The recent expansion includes the EqualLogic PS4000 storage array which is designed for remote offices and small medium businesses, provides an affordable entry point for smaller configurations, and offers the same benefits as previous PS Series generations.  EqualLogic PS Series have a comprehensive feature set built-in with the software and applications expected from an enterprise-level SAN.  This all inclusive feature comes at no additional charge rather than à la carte pricing, which can become costly for customers.  There is no additional software to install or service costs to incur to initiate the data management and protection features for this enterprise-class SAN.

The EqualLogic PS Series solution simplifies storage technology, management, and business practices.  The PS Series is an iSCSI SAN, so the use of IP and Ethernet networking technology keep costs down on switching hardware and on training costs. Also, instead of making customers play a capacity guessing game, and over-invest in hardware, the PS Series can be expanded modularly, so customers buy only what they need now and pay as they grow - all without disrupting applications.  With the EqualLogic peer storage architecture, customers can buy one generation of hardware, expand with a second and third generation of arrays - all online, all within the same SAN, and then retire the older hardware as they see fit.  Customers also have the option to download the latest software items to update their arrays at no additional cost.  All of these unique features yield TCO benefits:  Less time managing storage, all-inclusive software package, pay-as-you-grow model, and cost-effective iSCSI network all help reduce the total cost of ownership for storage.

In 2008, Dell was #1 in iSCSI storage and also received the PilotHouse Award as the Best Overall Storage Provider for Virtual Environments.  Dell also ranked in the March 2009 Issue of Storage Magazine as #1 midrange array provider in terms of user service and reliability.  The PS Series 2008 sales growth was 134% Y/Y.  Also, 82% of the EQL sites were new enterprise storage sites, where our indirect Partners represented more than 55% of these new sites.

The end result is a win-win situation with happy, loyal customers and a sustainable, profitable business. 

I recently sat down with Jeff Clarke, Vice Chairman, Technology and Operations, to discuss a range of topics that have received investor attention including:

• Declining Client ASPs in the commercial customer business
• Desktop and mobility virtualization
• Progress on our $4 billion cost initiative
• Optimization of our global manufacturing and logistics network
• What we are going to do with the savings we realize from some of these initiatives

As always, I look forward to your questions and comments!

Last week, we achieved yet another milestone in enterprise computing with the launch of our latest enterprise solutions - including our 11th generation PowerEdge servers, a new EqualLogic storage product, and new systems management capabilities. These offerings are specifically designed to help our customers become more efficient and maximize their return on investment in data centers. As part of this launch, we introduced 14 new enterprise products that help customers cut cost and complexity through simplified management, industry leading virtualization and innovative solutions. Two members of our executive leadership team, Steve Schuckenbrock, President, Large Enterprise, and Brad Anderson, Senior Vice President, Enterprise Product Group presented at the launch event in San Francisco on March 25^th.

In today's discussion, I am going to focus on our blade servers. Data centers today have faced increasing challenges as they have grown. The sprawl of many servers, plus the resulting challenges to power and cooling, has dramatically increased the role of blade servers. According to industry research firm IDC, in calendar Q4 of 2008, blades made up roughly 15% of the x86 server market by volume and Dell was ranked #3 worldwide with 9% market share. Per IDC, we grew our blade units by roughly four times the industry growth rate in calendar Q4 of 2008. IDC also projects that blades are expected to experience strong growth in the mid-twenty percent range from 2010-12.   

With our M-series blades, the goal from the beginning was to design the most power efficient server enclosure in the world. Another driving force in data centers today is virtualization. Blades fit perfectly in a virtual environment as they take up less space than normal rack mount servers and together with virtualization, provide customers a physical and virtual consolidation to save data center space and ease management. Dell provides industry leading solutions for customers running virtualization. Our ability to boot directly to VMware software is also a key differentiator for us. Dell's virtualization servers provide 50% more DIMM slots in the M905 than any competitive four socket server and 33% more high speed I/O.

So how competitive are our blades? We hired a third party firm to run the exact same server configurations and benchmarks on Dell, IBM, and HP blade enclosures. The result showed that our existing M-series blades had up to a 19% power advantage, and up to a 12% performance advantage, over our nearest competitors. Last week, we announced some further enhancements to our M-series blade portfolio - our new blade architecture now has 27 percent lower acquisition cost and delivers 17 percent lower TCO (total cost of ownership) over 5 years per rack compared to HP's c-Class.

So from a competitive standpoint, we are very well positioned in the blade market space and we are the only vendor to provide fully modular switches allowing customers to grow their blade enclosure throughput as their data center needs grow. With our M-series blades, we also offer FlexAddress, which is a low cost way to keep the server's Ethernet or Fibre Channel connection when changing a blade. This can help reduce customer downtime and works with any switch infrastructure a customer uses today. Designed to solve the major challenges of any data center, our M-series blades can be the ideal way to unlock the optimal data center within a customer environment by maximizing the power, cooling, and consolidation needs of today and tomorrow.

As always, we encourage you to ask questions or leave comments on Dell Shares.

Thanks for joining us on Dell Shares.  I recently sat down with Steve Schuckenbrock, President of Dell Global Services and CIO, to get some more insight into our services business. Our discussion focused around what we're doing with cloud services and remote infrastructure management. We also touched based on our recent acquisitions, how our services business is growing, and how the current economic environment will impact our business.

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Steve walks us through the services supply chain, and how, at Dell, our services business is differentiated from our competitors. Why we believe that customers will embrace proactive, low cost services solutions. Why developing "services aware" hardware allows us to deliver customized-solutions that reduce tedious, people intensive tasks that can be automated. And finally, how Dell's simple and configurable services deliver a pay-as-you-go business model that is both scalable and flexible to our customer's needs.

We hope you find this discussion helpful. As always, we will respond to your questions and comments posted on this blog site as well as via email and over the phone. So please feel free to post on this site or contact us directly. We look forward to hearing from you!