Servers Become Dell's Comeback Weapon

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Symantec (SYMC) has a spam-protection appliance built the same way. These companies—as well as others including Cisco Systems (CSCO), General Electric (GE), Honeywell (HON), and McAfee (MFE)—brand as their own boxes that Dell has custom-configured for them.

Overcoming a rocky recent past

In addition, through its Data Center Solutions Group, Dell builds clouds, the large groups of computers whose collective power can be tapped remotely, via the Internet. Customers for DCS-built clouds include Yahoo! (YHOO), Facebook, and Akamai (AKAM) as well as big Chinese Internet companies like Baidu (BIDU), Tudou, Tencent Holdings, and Youku. Big Oil avails itself of DCS's services, as do a number of Wall Street firms.

Dell has also designed servers for other markets, including virtualization, which lets companies slash costs by distributing computing tasks more efficiently among various machines.

Closing the gap with HP

Although the stars seem to be aligning for Dell in the enterprise market, success is far from assured. Dell has to move past the instability of the past several years, which saw major management changes, federal investigations, share loss, and financial distress. The first quarter of 2008 (BusinessWeek.com, 5/30/08) really rocked, but in fairly recent memory earnings have been choppy.

And though Dell is doing fine at the low end of the x86 server market (in single- and dual-processor systems), Hewlett-Packard's (HPQ) mix is higher (more quads), which means HP makes on average more revenue and profit on each unit shipped. What's more, HP has acquired EDS to enhance its enterprise services position. HP currently ranks No. 2 behind Dell in the U.S., with 28.5% of the market, according to IDC figures.

Dell has taken a different approach, harnessing in-house talent to create customizable offerings for customers. By building solid hardware into which its customers can pour their software, Dell is able to reach a wide array of customers without having to support them with a large services organization. The approach may give Dell a leg up, judging from recent and projected growth.

In the $28.7 billion global market for servers, Dell trailed HP in the first quarter, according to IDC figures. But it was the only major player to achieve double-digit growth, and in the current quarter, Dell is likely to close the current eight-point gap with leader HP another notch. We're talking about a big pie here—and Dell is coming in for a decent slice of it.

Kay is the founder and president of Endpoint Technologies Associates (www.ndpta.com).