Dell predictions in 2014 The document summarizes Dell's Enterprise Solutions and Services division performance and strategies for cost reductions and product consolidation in response to declining storage revenue and competitive pressures. It predicts Dell will reorganize expenses by reducing redundant R&D between its Compellent and EqualLogic storage platforms, merging features between the products, and potentially removing one of the product lines. Dell is also expected to cut R&D expenses significantly through cost reductions and acquisitions to meet investor demands and support a leveraged buyout that could take the company private.

1. Dell predictions in 2014
Compiled in May 2013
Bhaskar Jayaraman
jay.bhaskar@gmail.com
1

2. Agenda
Case & Issue Introduction
• Introduction
• Dell’s Enterprise Solutions and Services (ESS)
• ESS revenue going up but storage revenue down
• Competitive pressure on storage
Dell’s response
• Storage acquisitions & storage product consolidation
• Reorganization
• Going private
Future trends
• Shareholder/Investor pressure
• Revenue pressure on ESS division
• Cost reductions
• Acquisitions
• Reduced R&D
• More reorganization
2

3. Dell Enterprise Solutions & Services
Servers &
Networking
Storage
Services
•High performance rack
•Blade
•Tower servers
•Compellant
•EqualLogic
•PowerVault
•DX Object Storage
•Transactional
•Outsourcing
•Project based BPO, IT infra, Consulting, Applications
•Support & Deployment of storage, servers, networking
•Infra, Cloud, & Security services
•Applications & BPO
3

4. Dell performance (All figures in $ ‘000)
64,000
15,000
62,000
13,000
60,000
11,000
58,000
Feb-10
9,000
56,000
Feb-11
7,000
54,000
Feb-12
5,000
52,000
Feb-13
3,000
50,000
1,000
48,000
Jan/10
Jan/11
Jan/12
Jan/13
Gross margin
Operating
income
Income before
income taxes
Net income
Net Revenue
4

5. Business performance – ESS
20,000
17,500
15,000
12,500
Feb-10
10,000
Feb-11
Feb-12
7,500
Feb-13
5,000
2,500
0
Servers and
networking
Storage
Services
Total revenue
Net revenue
Operating income
5

6. Three changes in Senior Management
Leadership team
2012
Chairman and CEO
Michael S. Dell
President, Enterprise Solutions
Bradley R. Anderson
Vice Chairman and President, EUC
Jeffrey W. Clarke
President, Chief Commercial Officer
Stephen J. Felice
SVP & CFO
Brian T. Gladden
SVP, Strategy and Buss. Dev.
David L. Johnson
SVP, HR
Steven H. Price
SVP, CMO
Karen H. Quintos
President, Services
Stephen F. Schuckenbrock
President, Software
John A. Swainson
Senior Vice President
2013
Lawrence P. Tu
Marius Haas
Suresh Vaswani
6

7. Big changes in ESS leadership
President Services,
Suresh Vaswani
President
Enterprise
Solutions, Marius
Haas
President
Software, John
Swainson
CTO Software, Don
Ferguson
VP, Compellant,
Alan Atkinson
Retention
Head of Storage
Group, Darren
Thomas
VP EqualLogic &
NAS Solutions, Pete
Korce
Addition
CTO, Enterprise
Solutions, Jai
Menon
VP PowerVault, ?
VP and GM, ESS,
Dario Zamorian
Networking, Tom
Bourne
VP, Servers, Forrest
Norrod
Removal
7

8. Dell’s server side strategy
• Integrate acquired storage, network, & server products
–
–
–
–
–
–
Force10 Networks
EqualLogic
Compellent
AppAssure
Wyse
Quest Software
• Stabilize & increase adoption
– Fluid File System (FFS) in blade and rack servers
– FFS applications like faster databases, web servers etc.
– EqualLogic storage controller blade in ActiveSystems 800
• Push against products like
–
–
–
–
Exadata, Oracle
UCS, Cisco
CloudSystem, AppSystem, HP
PureFlex, IBM
• Key decision makers in Engineering
– Don Ferguson
– Jai Menon
– Divisional VPs (Refer slide 8)
8

9. Dell storage strategy – Push unified storage
- Improve limits of Dell Fluid File System (FFS) scale-out NAS
-
Probably still a 32 bit system
Addresses 1PB currently
Max 8 node cluster
Only 8 cores per controller
RW Snapshots
- Improve FFS adoption on
-
PowerVault
EqualLogic
Compellent
Big Data
NAS, File I/O – Images, Audio, Video
App servers – Windows Storage Server
- Increase DR/Backup adoption
- Discontinue DX Object Storage Platform
- Currently OEM Caringo’s CAStor on PowerEdge servers
- Replace with Caringo s/w only solution for x86 platforms
9

10. Dell Enterprise & Mid-range Storage (Compellent & EqualLogic)
Enterprise – Compellent
Array
Unified Storage
Controller Only Controller
Features
SC8000
Volume
virtualization
SC220 - Disk
enclosure
SC200 - Disk
enclosure
FS8600
Thin provisioning
Mid Range – EqualLogic & DR series
Array Controller
Only Virtualization
focused
PS-M4110 Blade
Array
Unified Storage
Controller
Features
DR
backup/recovery
FS7600/FS7610/F Asynchronous, file DR4100
S7500
system-level,
snapshot-based
replication to peer
systems
Replication
Metro Clusters
PS6500/PS6510
iSCSI SAN
PS6100 iSCSI SAN
Snapshots
PS6110 iSCSI SAN
Mirrored, batterybacked write cache
No encryption,
deduplication
PS4110 iSCSI SAN
DR4000
RAID 5, 6, 10, 50C
NDMP Back-Up
Load balanced IO
10

11. Dell SME Storage (PowerVault)
MD Series
Backup ML/TL Series
NAS
Unified Storage
Controller
MD1200/1220/3060e - Disk Enclosure
DL 4000 AppAssure Backup
NX3300
NX3600/3610
MD3200 Single, and MD3220 Single - SAS
Controllers
DL 4000 CommVault Backup
NX3200
NX3500
MD3200i Single, MD3220i Single/Dual, and
MD3260i Dual - iSCSI SAS Controllers
LTO-6 Tape Backup
MD3600f Fibre Channel SAN
114X Tape Backup
ML6030 Tape Library
ML6020 Tape Library
ML6010
TL4000
TL2000
124T
11

12. Dell Expenses
10,000
9,000
8,000
7,000
6,000
Feb-10
Feb-11
5,000
Feb-12
4,000
Feb-13
3,000
2,000
1,000
0
Selling, general, and administrative
Research, development, and engineering
Total operating expenses
12

13. Revenues & Expenses in Enterprise Solutions
3,000
2,500
2,000
Servers & N/W
1,500
Storage
Services
R&D Expenses
1,000
500
Climbing
0
13

14. Why this matters?
• Leveraged Buy Out (LBO)
–
–
–
–
–
–
Take company private on large loan
Cut costs
Keep cash flows constant or increase them
Pay off debt with cash flows and reserve cash
Exit after five years
Typical investment return 30%
• Reorganize expenses usually in business units with
–
–
–
–
Growing or significant R&D
Declining revenue/income contribution
For e.g. Dell Enterprise Solutions Business
Therefore Dell’s Storage Division
• Revert R&D expenditure to historical 1% -1.5% of revenue
–
–
–
–
–
–
Year ended 2012 R&D expense = $1,072 million
Desired R&D expense in at 1% of 2013 revenue = $600 million (Nowhere close right now)
1st Quarter 2013 R&D expense alone = $313 million
Projected expense for 2013 based on run rate = $1,252 million
Required reduction in R&D in 2014 to bring it to 1% of revenue = $650 million
Approximately 50% across the board
14

15. Where to expect Dell to reorganize expenses?
• Identify divisions with large engineering expense, low profitability
– Compellent & EqualLogic for Large Enterprise & SME
• Identify features to invest in
–
–
–
–
iSCSI for Compellent
Virtualization support for Compellent
SSD based arrays for both
Increase Limits of Fluid File System
-
32 bit to 64 bit
Add more than 1PB capability
Add more than 8 nodes to cluster, more than 8 cores per controller
Rewritable Snapshots
Encryption
Deduplication
• Cut redundancy in Compellent & EqualLogic
• Reduce Legacy Support Costs
15

16. Expect Dell to – Identify redundancies
Features
Compellent
EqualLogic
Unified Storage
Y
Y
Snapshots
Y
Y
Thin Provisioning
Y
Y
Virtualization
N
Y
Unified Controller access protocols
NAS, NDMP
NAS, iSCSI, NDMP
Array Only Controller access protocols
FC, iSCSI
iSCSI,
Number of nodes in cluster
8
2
Max Unified capacity
1PB
500TB
MAX CIFS connections
6000
3000
Storage arrays
SC8000
PS-Series
16

17. Expect Dell to – Merge features, remove prod. line
Compellent
EqualLogic
Unified Storage
Y
Y
Snapshots
Y
Y
Thin Provisioning
Y
Y
Virtualization
N (Y)
Y
Unified Controller access protocols
NAS, NDMP
NAS, NDMP
Array Only Controller access protocols
FC, iSCSI
iSCSI,
Number of nodes in cluster
8, 2
2
Max Unified capacity
1PB, 500TB
500TB
MAX CIFS connections
6000, 3000
3000
Storage arrays
SC8000, PS-Series
PS-Series
Scalable
Y
Remove
Features
Compellent has almost all EqualLogic features
17

18. Thank you
18