Thoughts on the 2Q FY’14 x86 Server Market

Leading industry analyst reports for 2Q Fy-14 Server performance are starting to appear and I wanted to provide some thoughts and commentary on Dell’s performance.  First, it’s important to note that as a business Dell is prioritizing profitable growth and we are growing in the mainstream server markets worldwide.   Beyond that, Dell is deliberately driving a change in our server mix to more richly configured servers with more integrated technologies and management capabilities that help our customers solve real problems. This is our business strategy and we are committed to it.

When reading some of the recent reports researching the 2Q server market I do not see this change show up in the materials, specifically in the Revenue share numbers.  To provide more specifics and context, in 2Q in the mainstream Server market – comprised of racks, towers and blade servers – Dell grew worldwide x86 PowerEdge Server revenue by double digits on a year/year basis.

Additionally, Dell also grew its blade server business faster than the market; faster than any major competitor on a unit basis.  Blade servers are the fastest-growing most profitable segment of the mainstream server market and Dell is increasing its share in this category.  Growth in blade servers, which are the building block of a converged compute architecture, is important as Dell blade server sales creates opportunity for complementary sales of Dell Storage and Dell Networking products, giving our customers a complete converged solution developed by one company to work better together.

We believe Dell gained share against its major competitors in the mainstream server markets globally.  Admittedly, Dell’s share of the hyperscale market, a combination of the Density Optimized and ODM-Direct/Self-Build, did contract; this shift can be attributed to a purposeful move away from deals we felt were unattractive.  Moreover, it is important to note that, as Morgan Stanley’s Katy Huberty noted in December of last year “We expect hyperscale share to remain volatile given lumpy order patterns and large deal sizes.” A down quarter today, can quickly turn into blow-out quarter tomorrow.

Other indicators show our server franchise remains strong, profitable and growing:  our channel partner business is expanding at near record highs.  In short, our strategy is solid and our results are well ahead of expectations and we will continue down this path.

Analysts generally do a very good job at researching and measuring the market, predicting trends, and cutting through a lot of the hype in the industry.  Sometimes they get some details wrong, particularly when a company like Dell is transforming itself.  That said, theirs is not an easy task any way you cut it and they provide an invaluable service to customers and vendors alike.

Dell is experiencing strong growth in the right parts of the market; the core server form factors of racks, towers and blades.  We will continue to focus on this area.  I am very encouraged by the performance of the Server business and some of the innovative products and solutions we are bringing to market.  Over the past 18 months the server team has released some great products – Dell PowerEdge VRTX, PowerEdge R920, Dell Fluid Cache for SAN – and plan to unveil a completely refreshed Server portfolio in the coming weeks.

About the Author: Forrest Norrod