Dell's Storage Sneaks Up

Dell, which is desperate to make its presence felt in the storage market, posted a solid set of third quarter results last night, with storage growth outpacing the vendor's PC business.

The vendor's third quarter revenues were $15.6 billion, up 9 percent on the same period last year, and above analyst estimates of $15 billion. Dell's earnings per share were 34 cents on net income of $766 million, up from 27 cents and $601 million in the year-ago quarter, although this was slightly below analyst estimates of 35 cents.

Dell's sales of desktop PCs actually declined 1 percent year-over-year, compared to the firm's server and storage divisions, where revenues grew 8 percent.

"Were making progress, but there is much more to be done," said Dell CEO Michael Dell, on a conference call last night, highlighting, in particular, opportunities in the consumer, SMB, and enterprise markets.

In the SMB space, Dell pointed to the vendor's recently-launched iSCSI SAN as evidence of its desire to be taken seriously as a storage player."We’re extending our partner direct program for small and medium businesses and expanding our offerings into mid-sized businesses," he said, adding that he expects iSCSI to reach about 25 percent of all enterprise disk shipments by 2011.

Earlier this month, the vendor threw down $1.4 billion to acquire iSCSI SAN specialist EqualLogic, signaling Dell's intentions to crack the storage market.

"EqualLogic is an extension of the fact that we’re already in the storage business," said Dell's CFO Donald Carty, in response to a question from an analyst during last night's call. "You’d expect us to do well in growing our footprint in the storage business and growing it pretty quickly here."

Dell is keen to strengthen its portfolio against rival vendors such as IBM and HP, and the SMB market is seen by many vendors as a relatively untapped arena for selling storage products and services.

The acquisition was seen by analysts as a shrewd move to jump-start Dell's storage business, as iSCSI is increasingly being touted as an alternative to Fibre Channel, particularly amongst SMBs.Dell is currently working to build EqualLogic's technology into its 1000, 3000, and 3000i PowerVault disk arrays, although the vendor's attempts to re-brand itself as a storage player have received a mixed response in some quarters.

There has also been speculation that Dell's recent storage moves could affect its relationship with EMC, from whom it resells its storage kit. This partnership has become a major cash cow over recent years and Dell now accounts for between 15 percent and 16 percent of EMC's overall revenues, according to Goldman Sachs.

CEO Michael Dell used last night's conference call to dispel suggestions that the EMC partnership is on rocky ground. "Our Dell/EMC storage will continue to grow due to a focus on lowering total costs," he said, adding that the EqualLogic acquisition will "simplify storage" for SMBs.

At least one analyst feels that Dell's third quarter results suggest that the vendor is heading in the right direction. "Dell is beginning to drive incremental revenue from newer initiatives [international, SMB, consumer, new products, and acquisitions]," wrote Goldman Sachs analyst Laura Conigliaro, adding that the vendor saw "unusually aggressive" pricing in the Japanese PC market.

Another vendor enjoying storage growth is Brocade, which posted its own results last night. The SAN specialist's Q4 revenues were $340 million, up 63 percent on the same period last year, although slightly below analysts' estimates of $340.8 million. Brocade's annual revenues were $1.2 billion, up from $751 million in 2006.Have a comment on this story? Please click "Discuss" below. If you'd like to contact Byte and Switch's editors directly, send us a message.