Dell Server Unit Targets Needle’s Eye of Not-Too-Big Customers

Dell Inc. has created a new business division to sell servers to customers large enough to warrant some light customization, but not so large that they’re designing and assembling their own equipment.

The new unit for the closely held company is named Datacenter Scalable Solutions and targets customers who may need thousands of slightly tweaked computer servers at a week’s notice, but aren’t so large that they’re designing and building their own servers with Asian companies such as Quanta Computer Inc.

The division sits between Dell’s traditional business and its eight-year-old Data Center Solutions division that targets the largest data center operators.

“DCS is Savile Row. You walk in and you’re picking fabrics and cuts and everything for your custom suit, that’s the DCS world,” said Ashley Gorakhpurwalla, the general manager of Dell Server Solutions, in an interview. DSS, by comparison, is more about alterations to an existing design, with a couple of areas of customization, he said.

Dell estimates the market for traditional IT servers is almost $40 billion, and the hyper-scale DCS market is worth about $9 billion. DSS’s target audience fits between these two and is worth about $6 billion and growing quickly, the Round Rock, Texas-based company said.

Low-Cost Servers

Dell, like rival Hewlett-Packard Co., is facing a change in the cloud market as large companies such as Baidu Inc., Amazon.com Inc. and Google Inc., design highly customized data center servers and have them built at a low cost by suppliers such as Quanta. This segment of the server market, called ODM Direct, grew 22 percent to sales of $974.9 million in the first quarter and represented 7.6 percent of the worldwide server market, according to data compiled by IDC.

Dell had an 18 percent share of the total global server market on sales of $2.3 billion in the first quarter, but with a growth rate of 12.6 percent, according to IDC.

“Server design is like the PC market back in the ’80s,” said Ali Heydari, chief architect of data centers for Baidu, China’s biggest search engine. “You had the big names and eventually it became the Taiwanese companies.”

Dell has been catering to this competitive low-cost market for several years and counts large Chinese operators such as Baidu, Alibaba Group Holding Ltd., and Tencent Holdings Ltd. as customers, Marius Haas, Dell’s chief commercial officer, said in an interview. The company believes it can maintain its grip on these customers through a combination of its logistics skills and its experience, Haas said.

Seeking Customers

Dell has already talked to about 200 customers about its new Scalable Solutions products, he said. Dell is confident it will be able to sell to companies that, though large, are not so big they have developed the kind of global logistics capability needed to buy servers directly from an ODM and get them assembled and sent to their data centers.

Hewlett-Packard, meanwhile, recently announced a joint-venture with Foxconn Technology Group to develop similar servers. That venture has already resulted in about $1 billion of booked business, Hewlett-Packard’s enterprise chief, Antonio Neri, said in a June interview.

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