Dell's Storage Numbers Dip

A drop in storage revenues prompted Dell Computer Corp. (Nasdaq: DELL) President Kevin Rollins to tell analysts that the only thing he expects to keep shrinking is the size of the SANs he expects to sell.

After several quarters of solid sequential growth, Dell's storage revenues slipped last quarter, while the company's overall revenue grew slightly (see Dell's Storage Sales Jump and Dude! Dell Still Soaring in Storage). Rollins called the slip a "one-time aberration" that will be overturned with the help of a new low-end storage system aimed at small and medium businesses (SMBs).

"I think that is a one-time aberration, just due to the shift in focus," Rollins said in a conference call with analysts. "We're trying to make sure everybody knows there is nothing wrong with the overall storage business."

However Rollins wants to put it, Dell appears to have lost the steady momentum it had been building with help from its partnership with EMC Corp. (NYSE: EMC). In the fourth quarter of 2003, external storage revenues dropped 14 percent, from $441 million in the final quarter of 2003 to $379 million in the first calendar quarter this year. Rollins claims the dip is due to a change in product mix: He says Dell is placing more emphasis on selling the midrange Clariion storage system it co-brands with EMC and less on selling the higher-end EMC Symmetrix. Dell's margins are higher on the Clariion than on the Symmetrix, which it merely resells.

So these comments would imply that the drop in storage revenues was caused largely by a falloff in Symmetrix sales. Rollins is counting on further Clariion revenue growth, with the help of a new low-end system that Dell will manufacture. Dell and EMC are expected to announce the system this month (see EMC Lets Clariion Out of the Bag and Dell & EMC Prep Low-End SAN)."As you know, we've got another product coming on here in this quarter," Rollins said. "We have focused over the last quarter, and now into this one, more on midrange storage, which is the Dell/EMC product line. Our midrange storage grew very nicely (last quarter). I think you will see extraordinary growth. We had a very good quarter in our Dell/EMC growth rate overall."

So will it happen? Analysts point out that EMC's Clariion growth rate for the previous quarter exceeded Dell's, although they expect the new low-end Clariion to help both companies.

"We would expect a more focused sales force and new low-end Clariion products to cause... Clariion growth" for the rest of the year, wrote Goldman Sachs & Co. analyst Laura Conigliaro in a research note today.

A.G. Edwards' David Wong agreed, writing, "We expect accelerated Dell/EMC growth going forward" due to the new low-end system.

Dave Raffo, Senior Editor, Byte and Switch0