Over the last two weeks our Enterprise Solutions Group has been on the road discussing our Enterprise Solutions strategy. Brad Anderson (SVP, Enterprise Solutions Group) attended the Barclays Technology Conference on December 7th and Darren Thomas (VP and General Manager, Storage) and Dario Zamarian (VP and General Manager, Networking) joined the Raymond James IT Supply Chain Conference on December 13th. Below are some of the highlights.
Enterprise Solutions Strategy: Dell is building out solutions that now include server, storage, networks and system management. Those components combined with our mid-market design focus and coupled with services is something that very few of our competitors can bring to market. Dell is number two worldwide in x86 server share and grew +12% Y/Y in servers. We have moved from a reseller of third party storage to an IP leader through the acquisitions of EqualLogic and Compellent. Dell IP storage grew +23% Y/Y in Q3. We have started to grow our networking footprint with the acquisition of Force10 Networks last quarter giving us a leading technology in the data center networking space. In networking, Dell grew +83% Y/Y in Q3, +43% organically. Combined with services our Enterprise Solutions and Services business is now an $18 billion business that grew +8% Y/Y in Q3 FY12, +13% Y/Y excluding third party storage.
Romley and Dell 12G Servers: Investors wanted to better understand how this transition would impact demand, margins and ASPs. Brad mentioned that while Romley may not be as significant as Nehalem generation over generation, it's still a big step up. Brad noted some customers did not make the transition to Nehalem, consequently this transition would be a significant jump in performance for them. Overall he believes the transition will drive richer configurations with more memory and larger drive capacity. Brad also noted we expect 10GbE to become the standard networking interface driving synergies with Force10. Dell’s 12G servers will see SSD and flash alleviate some of the I/O bottlenecks currently in existence and will also incorporate technology from our RNA acquisition enabling both read and write protection within the server.
Storage: Dell has taken a thoughtful and holistic acquisition strategy in building out our storage portfolio. Brad and Darren walked through the progress of the transformation from storage reseller to an IP leader in storage. Compellent saw triple digit revenue growth Y/Y in Q3 and we have doubled the Compellent engineering and sales teams since acquisition. Darren noted Compellent is a leader in tiering, offering Automated Tiered Storage which dynamically classifies and migrates data to the optimum storage tier based on frequency of access. There is no other system on the market more optimized. EqualLogic is number one in iSCSI and has a frameless peer storage architecture allowing linear scaling of capacity and multiple generations of EqualLogic arrays to work in a single, virtualized pool. He also noted Dell’s mid-range storage portfolio is now broader than any of the pure play storage companies. Historically Dell has had a generalist sales team without a storage specific quota. We have now built out a storage sales team 600 strong in Large Enterprise and Public that is compensated specifically on storage, allowing us to better compete with the pure play storage companies.
Other intellectual property assets that Dell has picked up around storage include a global file system via our Exanet acquisition, which provides horizontal scaling and has been rolled out to PowerVault and EqualLogic, and content aware compression technology via our Ocarina acquisition, which allows us to look at what a file is before we compress it. The team continues to integrate these technologies across our storage portfolio. Brad noted we should see total storage growth in the next 1-2 quarters as we anniversary most of our third party storage revenue.
Networking: Including PowerConnect and Force10 Dell has only a 2% share in networking which presents a great opportunity. Networking is in the early stages at Dell but in the last 18 months we’ve brought together a pretty strong portfolio. In the access layer switch space Dell has a brand called PowerConnect and we have a partnership with Aruba that provides wireless connectivity for mobility as well as Juniper. Dell continues to have a very strong partnership with Brocade in particular for fibre chanel SAN switching which is very much a solution partnership with our Compellent products. Dell recently acquired Force10 Networks which has industry leading top of rack 10 GbE capability.
So why Force10? We believe the network has to change as we move to a virtual world. In doing that we think the data center dramatically changes and you'll start having convergence top of rack down. We want to participate in that. Dario framed our recent acquisition of Force 10 as the ideal fit for our focus on data center networking, which is the fastest growing segment ($6B, 20+% CAGR) within networking. Force10 has a complete portfolio for the data center including conventional core, top-of-rack, and distributed core. Force10 is open and standards based avoiding vendor lock-in which matches Dell’s open philosophy. Force10 has an operating system allowing Dell to create the glue on the software that goes together across the networking layer as well as server, storage and systems management. Brad noted Force10’s solutions provide one of the best combinations of performance, density and power efficiency on the market today. Force10 has the density required to compete in the data center and provides the ability to deploy at a fraction of the total cost of ownership. Force10 brings a lot of capabilities in channel and direct sales capability. Finally, Force10 plays well in the mid-market because when you have distributed core you no longer have to invest upfront, allowing our customers to buy a fixed form factor and scale linearly as the need in their data center increases.
Better together: In addition to highlighting the strengths of the respective portfolios, our executives emphasized the importance of providing “better together” solutions. An example is having PowerConnect products optimized when connected with EqualLogic storage allowing PowerConnect to instantly recognize EqualLogic and auto-configure the perfect settings. As we build out our enterprise portfolio look for “better together” to become an important differentiator.
Mid-market design focus: They also emphasized the importance of our mid-market design focus, allowing us to be optimized for the mid-market where Dell’s unique ‘trusted advisor’ status provides key advantages, especially in enterprise. We believe a lot of innovation takes place in designing for the mid-market and scaling up resulting in simpler, more efficient solutions versus designing for the high end and trying to scale down.
We invite you to listen to a replay or read the transcript of Brad’s presentation at Barclays and Darren & Dario at Raymond James. As always we welcome your comments.