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Clouds float Dell bottom line

Hyperscale saves x64 biz

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It's easy to be snarky about the "cloud computing" catch phrase server makers are tossing around as they peddle their wares. It's as annoying as it is inexact. Nonetheless, there's some money to be made from companies facing complex server scalability issues.

In the spring of 2006, Dell quietly set up a free-standing business unit called Data Center Solutions, just as the Web 2.0 buzzword was taking off and had not yet merged into the utility computing buzzword to give us yet another: Cloud computing. And that DSC unit - believe it or not - is one of the keys to Dell's resurgence in the x64 server market.

Three years ago, says Forrest Norrod, vice president and general manager of the unit, Dell took a look at some statistics for the server space at large and gathered the best intelligence it could find about server installs and spending at the companies deploying the very largest grids and clusters. Among the name-brand companies deploying "hyperscale" distributed computing - which is a better moniker perhaps than cloud computing to describe what these companies do - the compound annual growth rates for server sales and shipments were much larger than for the market at large.

Significantly, the tier one server makers - Dell, IBM, Hewlett-Packard, Sun Microsystems, and Fujitsu-Siemens - had a lower market share among these hyperscale companies than they had for general purpose servers in the broader market. While Norrod is not one to argue semantics - he says "cloud computing is just the latest instantiation of a type of computing that has been evolving for a very long time" - Dell will do whatever it has to do to get its foot in the data center door. "We wanted to get in there and see what these customers needed and go get our unfair share," Norrod says.

To that end, Dell created the DCS unit with its own product development, marketing, sales, and support team, which now has close to 200 employees and which can also draw on the substantial expertise of the rest of the Dell company. Back when it was founded, DCS initially targeted 20 companies, including the name-brand Web companies we can all chant: Google, Yahoo, Microsoft, Salesforce.com, Facebook, eBay, and so on. The goal was to target 5 companies per quarter and nail them.

DCS began selling its Cloud Computing Solution - a mix of custom server development, data center design, and custom support services - in March 2007. And after 19 months of sales, the unit has 30 active customers and is shipping machinery and delivering services to 27 of them this quarter.

Dell won't talk about revenues or shipments for the DCS unit, but Norrod will brag about this: If DCS were broken out as a separate company during the second quarter of 2008 - the last quarter for which server market share data is available from IDC and Gartner - then DCS would rank among the top five server makers. Norrod would not even hint at what percentage of Dell's server revenues and shipments in Q2 came from the DCS unit, but for this to be true, the number would have to be pretty large.

Gartner reckons that 2.34 million servers shipped in the second quarter of this year, up 12.2 per cent from the year ago quarter, with Dell coming in number two among all shippers with 577,163 servers sold worldwide. The number four position was held by Sun Microsystems, with 96,510 units, and the number five position was taken up by Fujitsu-Siemens, with 61,077.

IBM sold 308,835 machines according to Gartner, giving it the third ranking, and Hewlett-Packard was the dominant shipper, with 706,724 machines. For Norrod's statement to be true, DCS would have to account for between 10.6 per cent and 53.5 percent of Dell's total server shipments in Q2. The lower number is probably closer to the truth.

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