Dell predictions in 2014

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Bhaskar Jayaraman jay.bhaskar@gmail.com

Compiled in May 2013

Agenda

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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

Dell Enterprise Solutions & Services

•High performance rack

•Blade

•Tower servers Servers & Networking

•Compellant

•EqualLogic

•PowerVault

•DX Object Storage Storage

•Transactional

•Outsourcing

•Project based BPO, IT infra, Consulting, Applications

•Support & Deployment of storage, servers, networking

•Infra, Cloud, & Security services

•Applications & BPO

Services

3

Dell performance (All figures in $ ‘000)

4

48,000

50,000

52,000

54,000

56,000

58,000

60,000

62,000

64,000

Jan/10 Jan/11 Jan/12 Jan/13

1,000

3,000

5,000

7,000

9,000

11,000

13,000

15,000

Gross margin Operatingincome

Income beforeincome taxes

Net income

Feb-10

Feb-11

Feb-12

Feb-13

Net Revenue

Business performance – ESS

5

0

2,500

5,000

7,500

10,000

12,500

15,000

17,500

20,000

Servers andnetworking

Storage Services Total revenue Net revenue Operating income

Feb-10

Feb-11

Feb-12

Feb-13

Three changes in Senior Management

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Leadership team 2012 2013

Chairman and CEO Michael S. Dell

President, Enterprise Solutions Bradley R. Anderson Marius Haas

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 Suresh Vaswani

President, Software John A. Swainson

Senior Vice President Lawrence P. Tu

Big changes in ESS leadership

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President Services, Suresh Vaswani

President Software, John

Swainson

CTO Software, Don Ferguson

President Enterprise

Solutions, Marius Haas

Head of Storage Group, Darren

Thomas

VP, Compellant, Alan Atkinson

VP EqualLogic & NAS Solutions, Pete

Korce VP PowerVault, ?

CTO, Enterprise Solutions, Jai

Menon

VP and GM, ESS, Dario Zamorian

Networking, Tom Bourne

VP, Servers, Forrest Norrod

Retention Addition Removal

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)

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Dell storage strategy – Push unified storage

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- 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

Dell Enterprise & Mid-range Storage (Compellent & EqualLogic)

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Enterprise – Compellent Mid Range – EqualLogic & DR series

Array Controller Only

Unified Storage Controller

Features Array Controller Only - Virtualization focused

Unified Storage Controller

Features DR backup/recovery

SC8000 FS8600 Volume virtualization

PS-M4110 Blade Array

FS7600/FS7610/FS7500

Asynchronous, file system-level, snapshot-based replication to peer systems

DR4100

SC220 - Disk enclosure

Thin provisioning PS6500/PS6510 iSCSI SAN

Replication DR4000

SC200 - Disk enclosure

Metro Clusters PS6100 iSCSI SAN NDMP Back-Up

Snapshots PS6110 iSCSI SAN Mirrored, battery-backed write cache

No encryption, deduplication

PS4110 iSCSI SAN RAID 5, 6, 10, 50C

Load balanced IO

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

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Dell Expenses

12

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Selling, general, and administrative Research, development, and engineering Total operating expenses

Feb-10

Feb-11

Feb-12

Feb-13

Revenues & Expenses in Enterprise Solutions

13

0

500

1,000

1,500

2,000

2,500

3,000

Servers & N/W

Storage

Services

R&D Expenses

Climbing

Why this matters?

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• 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

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

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Expect Dell to – Identify redundancies

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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

Expect Dell to – Merge features, remove prod. line

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Features 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

Rem

ove

Compellent has almost all EqualLogic features

Thank you

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