Recession-weary server buyers return to Dell

Dell was among the first companies to suffer from the recession, but its server business is coming back with a vengeance, surveys show.

After being hammered by the recession, Dell appears to be re-emerging as a strong data center player, with two separate surveys of data center buyers showing increased demand for its x86 servers compared with HP and IBM, its primary competition.

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A SearchDataCenter.com survey of data center professionals found that Dell gained significant market share for servers against its primary competitor Hewlett-Packard, going from second place at 29.9% of the server market versus HP's 38% in 2009, to first place with 35.1% versus HP's 34.1%.

When it came to one-processor systems, Dell tied HP for the top spot in 2010 at 37.4% share. It also displaced IBM for the No. 2 spot in eight- and 16-core systems, with 29.3% share, up from 22.4% a year earlier.

And for the first time, Dell figured prominently as a vendor of large SMP machines. Just one year earlier, IBM dominated that segment with 43.9% of the market, followed by HP with 30.9%, while Dell barely registered at 2%. In 2010, Dell stormed onto the scene with 17.9% of the market, while IBM and HP shares dwindled to 35% and 27.6%, respectively.

Of course, part of Dell's success with larger systems is a trickle-down effect of new multi-core chips from Intel and AMD. However, there's little doubt that data center buyers are entrusting Dell with denser systems than they would have in the past.

Demand for Dell blades also increased, taking market share away from IBM. In 2009, HP and IBM dominated the blade space with 35.2% and 33.2% of the market, respectively, to Dell's 21.6%. In 2010, HP cemented its position at 39.1%, but Dell chipped away at IBM's position, moving to 24.6% share compared with IBM's 26.6%.

Dell's strength does not surprise some data center pros who say cost is what matters to cash-strapped companies.

"It still comes down to Dell pricing. When it comes to the most cost-effective way to upgrade your data center, folks now might opt for increasing processor capacity, but up to a limit. If I have single-processor pizza boxes, maybe I go to a dual-processor box, not an eight-processor box," said Pete Sclafani, CIO of 6Connect, a San Jose, Calif.-based data center consultancy.

"What's interesting here is that if you look at the Dell r710s, they have a whole boatload of RAM, and if you're doing virtualization, you don't have to go for big four-processor beasts to see that value. You can do well with two processors and take advantage of that RAM to provide some future proofing," Sclafani said.

New Mind, a U.K.-based developer of hosted software, likewise finds Dell prices unbeatable.

"We used to use HP, but we switched two or three years ago to Dell because we found that they could compete very well in terms of price -- they gave really good discounts off of list price," said John Fox, senior network engineer. At the same time, Fox thinks Dell competes well in terms of reliability as support.

New Mind runs VMware on a handful of Dell servers, and Fox said the company would most likely turn to Dell for its next server purchase

Dell's changing fortunes
Market research firm TheInfoPro detected a similar dynamic in its latest server study. Despite weak server spending overall, Dell fared well relative to its competition."Customer ratings improved in every category; the number of respondents indicating they were planning to make a switch was cut in half, and Dell is listed as in plan for a number of x86 groups, indicating that the company is gaining new consideration among 'mature' tech companies," according to a statement by TheInfoPro.

Bob Gill, TheInfoPro managing director for server research, attributes Dell's relative success to the psychological profile of its customers.

When times get tough, "Dell customers are more likely to be price-conscious and take the economy to heart and lower hardware demand," Gill said. Conversely, Dell customers start spending again at the first glimmer of hope.

"When the market started to tank 18 months ago, Dell and HP were the first to take a dive in terms of hardware demand," Gill said, but it took longer for the recession to impact demand for IBM and Sun products. "Budgets are still negatively inclined for 2010 going into 2011, but that plays into Dell's favor because people are still price sensitive," he said.

TheInfoPro has yet to detect a bounce-back for HP, Gill added.

Open vs. proprietary all over again
If Dell is seeing an uptick in sales, it probably has nothing to do with improved products. Even longstanding Dell customers are hard-pressed to show too much enthusiasm for Dell servers.

"We went with Dell for the same reason I suspect everybody else does: price," said Stan Horwitz, a data protection professional at a large Northeastern university. For several years now, the school has been using "dozens" of Dell blade servers, whose quality Horwitz described as "OK."

"In my humble opinion, all these servers are the same," Horwitz said. "Dell doesn't really make anything that stands out, and neither does HP, really, so they have to go on price and customer service."

Meanwhile, Dell's competition is looking to take customers down the road to proprietary systems again, Cisco with its UCS and HP with the BladeSystem Matrix. In response, Dell continues to repeat its "open, capable, affordable" mantra as its answer to the appeal of converged infrastructure. On some level, Dell's resurgence could be read as a rebuke by IT buyers of this proprietary strategy that many see as an attempt by large vendors to lock customers into one solution stack for servers, networking and storage.

At the same time, Dell appears to want to move up-market into IBM/HP/Oracle territory, with an expanding portfolio of sophisticated data center management technologies. For instance, this summer Dell acquired Scalent, a maker of automated deployment and provisioning software. Dell plans to integrate that technology into its Advanced Infrastructure Manager suite. Scalent competes with automated deployment software like CA's Spectrum Automation Manager, which the company picked up from Cassatt last year.

But it remains to be seen whether Dell will succeed with the mid-to-large enterprise that solutions like Scalent are designed for. Thus far, Dell has had limited success there, said TheInfoPro's Gill. When it comes to servers, Dell's bread and butter comes from two ends of the spectrum: SMBs and the truly gigantic -- Internet service providers and high performance computing customers where Dell is "good enough" and competes with whitebox manufacturers like Supermicro, he said. For Dell, "the fairly large enterprise is a no man's land that belongs to HP," he said.

Barbara Darrow contributed to this report.

Let us know what you think about the story; email Alex Barrett, News Director at abarrett@techtarget.com, or follow @aebarrett on twitter.

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