Dell Revamps Strategy For Blade Servers

Dell is still on a roll. The leading PC vendor is expanding its share of the market, cutting costs, and increasing its revenue. The company has tripled its revenue since 1997. Still, Dell faces challenges as it revamps a blade-server strategy that started fast but fell behind those of rivals Hewlett-Packard and IBM.

At a financial-analyst conference last week, chairman and CEO Michael Dell said his company is renewing its efforts in the blade-server market. The company plans to deliver a new generation of blade servers with standardized components that will make today's blades obsolete, but it will take several quarters to make that happen. "There aren't enough industry-standard components for this next generation of blades yet," Dell said.

The standards Dell is banking on will come in the areas of systems-management software, cooler-running processors, and a backplane that uses a PCI Express bus to attach blades from different vendors. "Today's blade servers are suboptimal in that regard," Dell said.

"Dell has to do something in the blade market because it's part of selling into the larger enterprise," says Mark Stahlman, managing director of equity research for Caris & Co. But the company's timetable is too aggressive, Stahlman says. Dell is hampered by a lack of standards needed to realize its vision and its inability to develop a blade that runs on anything other than an Intel Pentium chip. "Dell is selling Pentium blades, but people want Xeon blades," he says. One strategy would be for Dell to expand its blade lineup to include Advanced Micro Devices Inc. 64-bit-compatible Opteron-based servers.

The blade problem hasn't hurt Dell's finances; the company projects quarterly revenue of $11.4 billion, up 20% from a year ago.Dell also disclosed plans with partner Oracle to sell database software and commodity servers to small and midsize companies. A preinstalled version of Oracle Standard Edition One on a Dell PowerEdge 2600 or 2650 servers running Red Hat Linux or Windows will start at $4,108.