By Timothy Prickett-Morgan
With server and workstation businesses that grew by leaps and bounds during 1998, it looks like Dell Computer, the world’s largest direct seller of PCs might just be ready to take it up another notch and start delivering Unix solutions – whether it likes it or not. Up until now, Dell has been happy to let the enthusiasm for Windows 98 and Pentium II chips drive its desktop business, and is similarly pleased that customers seem to want beefed-up PC workstations with Windows NT, fast graphics cards and the fastest Pentium II Xeon processors. Ditto for departmental and workgroup servers, which also use the same peppy Xeon processors and come equipped with the enterprise-class features that MIS managers have come to expect: RAID 5 data protection for storage arrays, lots of expansion room for memory and peripherals and hand-holding to ensure them that when things go wrong – as they always do – that Dell stands behind its equipment and will help them sort things out. But last week, as Chairman Michael Dell reported financial results for his eponymous company’s 1999 fiscal year, Wall Street didn’t exactly party. Growth during the fiscal fourth quarter, ending January 29, slowed more than analysts and investors liked, with Dell only growing at 3.6 times the PC industry as a whole rather than 4 times; overall revenues for the quarter climbed only 38%, far below the 56% that Dell has averaged over the previous two years. To help boost its image and its stock, Dell sent out trial balloons informing analysts, investors and competitors that it is considering a big move into the little PC market. If anyone can sell sub-$1,000 PCs, it is probably Dell, which now pushes some $14m a day through its online store. That’s a rate that comes to about a third of Dell’s overall sales, which were $18.2bn in fiscal 1999; the company hopes to push it to half of sales by 2000. But nonetheless, pushing cheap PCs is really an example of Dell thinking small, and it is certainly not a high profit move. If Dell was thinking outside of the box, it would see that actively selling and supporting Unix, on the other hand, is a much better move.
Adding it up
Let’s look at the numbers. According to International Data Corp, Dell sold some $1.6bn in servers, up like a rocket from $900m in 1997. (These are calendar numbers, not fiscal.) That gives Dell a 12% market share of the PC server business, just behind Hewlett- Packard at $1.7bn and just ahead of IBM at $1.5bn. Everybody trails Compaq’s $3.8bn in PC server sales, but Dell’s Texas competition actually saw PC server sales shrink by 4% compared to 1997’s $4bn. With Dell, HP and IBM essentially in a three horse race for the second spot, Dell can be confidently declared number two by virtue of its growth. IBM is only growing revenue at 5%, HP at 36%, but Dell is at 76%, nearly ten times as high as the 8% growth the PC server industry saw from 1997 to 1998. Dell isn’t just big in servers, it is also number two in PC workstations and might soon be the number two vendor in the overall Unix and NT workstation business. In 1998, IDC says that Dell shipped 148,000 explicitly branded NT workstations and about 227,000 other NT workstations. This is second only to Hewlett-Packard, which shipped about 310,000 Kayak NT workstations and another 80,000 other NT workstations; in addition, HP shipped some 90,000 PA- RISC Unix workstations. While Sun Microsystems can claim more than half of the Unix workstation shipments in 1998, both Sun and HP are virtually tied at $3.4bn and $3.3bn of the $14.7bn in workstation revenue in 1998. Dell is coming on strong with its $1.4bn, and has more than tripled workstation sales over 1997 to get there; if the company continues to be aggressive, it could end up being the number two overall workstation vendor by early 2000, especially if Unix workstations take a dive at HP as it focuses on its NT workstation business. When you add it all up, Dell has a server and high-end desktop business that was worth about $3bn in 1998 and could grow to $5bn or $6bn by the end of calendar 1999. That puts Dell in the same class as the biggest Unix vendors. Oddly enough, Dell doesn’t seem to be thinking of Unix as an option for driving high-end workstation and server sales. Dell’s servers can be equipped with Windows NT 4.0, NetWare 4.11 or NetWare 5.0 and its workstations similarly come with Windows NT 4.0. (Software license fees for these are not included in the base hardware price.) Nonetheless, Unix may be just the edge that Dell needs. While it doesn’t make any sense for Dell to create a new version of Unix – if there is one thing we all don’t need, it’s another version of Unix – but three perfectly good ones are available to help drive its business: Linux, SCO UnixWare and Solaris for Intel. If Dell is looking for proof that pushing Unix is a good strategy, even on just PC server hardware rather than on proprietary servers with unique RISC processors and high-bandwidth system backplanes, it need look no farther than rival Compaq, which drove about a third of PC server sales in 1998 with SCO Unix variants. Moreover, all of Dell’s big enterprise computing rivals – Sun, HP, IBM and Compaq plus Bull, Data General, Sequent and Siemens – have their own Unix lines and Unix sales pitches for customers who don’t want Windows NT. Don’t get the wrong idea. Dell isn’t against Unix. But not being against it is not exactly the same thing as being for it, and it is a distinction that bears some detailed analysis. As we go to press, Dell is rumored to be working out a licensing deal with Caldera to put its OpenLinux on Dell servers and workstations. Certain Dell configurations have been pre- certified to run Red Hat Linux. The company will install any operating system, not just Linux, on machines through its DellPlus program for a fee of $249. That price doesn’t include the cost of the software, which Dell server buyers usually get from the DellWare online software store. Then Dell employees grab the software, load it on the server, configure it and burn it in just like they would NT or NetWare, the operating systems that Dell actually provides technical support for on its servers. Dell doesn’t care what customers want to load on the machines – SCO UnixWare, Red Hat Linux, Caldera Linux, SuSE Linux, FreeBSD, Solaris for Intel, or even OS/2 Warp. But in every case, operating systems installed under DellPlus are not covered by Dell’s technical support. While none of these environments have the same volumes of Windows NT, collectively they certainly rival it and in the future they may surpass it, so Dell, which charges hundreds to thousands of dollars for three years of commercial- class tech support with lots of handholding and generous hardware warranties and onsite tech support for NT and NetWare customers, could be passing up a big piece of change.
Chicken and egg
Dell is especially laissez faire when it comes to Linux, which HP, Sun and now IBM will all be pushing on their equipment with full tech support. Perhaps the reason Dell hasn’t taken a big stand on Linux is that up until now Linux installs have been a rare exception, not a volume business. Dell won’t say how many of its workstations and servers run what operating systems, and similarly won’t specify how many go out with no operating systems at all on them, except to say that only a smaller percentage of Dell workstations are sold with an operating system other than NT and on servers, there are similarly few non-NT or non-NetWare machines. Of course, this may be a chicken-egg problem. If Dell was forward looking when it came to Unix, as it has been with its online Web store (purposefully all Dell hardware running NT, no Unix) and, more importantly, with the intranet stores it has set up at 12,000 corporate customers as part of that online store, it would see that it limits itself when it hitches its star almost exclusively to NT. With growth slowing in its enterprise server and workstation sector during late 1998 and early 1999, perhaps Dell will give Unix some real thought. Moreover, when and i
f its online store starts hitting a performance wall, it may have to think about using high-end Unix servers. Its own business may be growing faster than the power that comes from each new Intel hardware generation and Microsoft clustering technology. Only time will tell if either event will happen.
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