DellShares

 Dell storage has come a long way in the past three years.  We have transitioned from being mostly a reseller of storage to becoming a full provider of storage technology.  Storage is an area that not only enhances Dell’s technology offerings, but also continues to transform Dell’s P&L.

Differentiated Technology, Driving Significantly Lower TCO

At a high level, you can think about storage in two broad categories… block and file.  Block (SAN) storage is essentially databases, or large blocks of structured data.  File (NAS) storage is basically all the rest, a large swath of unstructured data from individual word documents to music and video files.  Both types of storage are growing, and growing fast.

For ten years now, Dell’s storage portfolio covered elements of both block and file storage.  We provide our own line of PowerVault™ entry level storage with SAN, NAS and tape backup capabilities.  Until recently, much of Dell’s storage revenue came from mid-range block storage where we were mostly reseller of storage sold to mid-sized and large corporations.  Three years ago we acquired EqualLogic and began offering our own storage IP with its own unique value proposition.

EqualLogic arrays were built on the idea of automatic tuning, load balancing, modular design and all-inclusive software functionality built for seamless scalability.  EqualLogic introduced the idea of “no storage left behind” whereby Dell customers can download future software updates without paying additional license fees.  And, EqualLogic storage connects to other devices via Ethernet (iSCSI storage).  With Ethernet projected to get faster and faster (1GbE, 10GbE, 40GbE…) over the next several years, the need for EqualLogic iSCSI storage will only grow.

Today, we’re pleased to announce the close of Compellent Technologies.  Compellent is Dell’s first IP branded fiber channel storage solution.  Compellent is built on the idea of “fluid data” – a tiered storage approach that analyzes frequency of data use, and then delivers the right data to the right application at the right time.  By delivering automated, tiered storage, and thin provisioning, Compellent utilizes many fewer disks and significantly lowers TCO.  Like all Dell storage, customers pay for the software once and receive future upgrades and new features as they become available.

Together with Dell EqualLogic, PowerVault and Compellent, our block and file storage offerings now span every layer from low- to mid-range offerings for SMBs and Public institutions to higher-end enterprise ready offerings for large corporations and organizations. 

Last year, we also acquired two more storage assets that bring with them important IP.  Exanet provides Dell with scale-out file storage capabilities, and moves us for the first time beyond the arena of mid-range block storage and into the playing field of mid-range file storage.  We hope to launch our first Exanet NAS product early this summer.  The second is Ocarina, which gives us content-aware file deduplication capabilities that we plan to add across our entire storage portfolio over time.

All of these storage capabilities align to our other block and file storage offerings, driving significantly lower total cost of ownership that is resonating well with all our customers.  Take a closer look at the attached slides to see how all these storage elements fit together. 

Subtle Transformation, Driving Huge P&L Impact

To most folks on the outside looking in, our storage transformation seems subtle at best, and perhaps even unimpressive.  For the full year FY09, Dell storage revenue was $2.7B.  By the end of FY11, Dell storage revenue fell to $2.3B – a 14% revenue decline over two years. 

Not readily visible to folks on the outside, however, is the size and magnitude of our mix shift to Dell branded storage and its huge impact on the Dell’s P&L.  As a provider of unique IP vs. a reseller, Dell storage gross margin percent has more than doubled in the last two years and continues to grow each quarter.  And, over the same two-year period from FY09 to FY11, total storage gross margin dollars rose nearly 50%. 

Dell branded storage now accounts for almost two thirds of Dell storage revenue and more than 80% of Dell storage gross margin. 

Even though overall storage revenue has declined over the last two years, it has been mostly offset by the decline in reseller revenue as Dell branded storage has grown over the same time period.  As an example, the compound annual growth of EqualLogic storage revenue is over 50% for the last two years.  We expect to maintain these growth rates for some time, and as we add Compellent, Exanet and Ocarina products into our portfolio, we expect Dell storage to eventually grow from a new baseline. 

As always, we invite you to take a closer look at our enterprise solutions and services business.  The transformation is happening every day.  Are you missing it?

We welcome your comments.

Best,

Rob