Dell: The Public Cloud Doesn't Scare Us!

Dell (Nasdaq: DELL  ) makes a good chunk of change off selling servers. The Texas-based company raked in $1.8 billion off server sales in the last quarter alone -- which was up 20% from $1.5 billion the same quarter a year earlier.

But with the emergence of companies such as Rackspace (NYSE: RAX  ) and Amazon.com's (Nasdaq: AMZN  ) EC2 cloud services, there's a diminishing need for companies to purchase servers to perform all the data crunching they need. They can offload it to public cloud servers that have the computing firepower to handle it.

Dell's response to the public cloud? It isn't going to affect its server sales at all, said Roy Guillen, general manager of Dell's Data Center Solutions.

Most businesses -- whether they are large or small -- are still going to elect to purchase Dell servers and keep them in-house because they will be able to access the data more quickly. There are also a number of security concerns when shipping data off to cloud servers that many companies have, Guillen said. Some IT firms simply can't meet security-compliance requirements that companies have, so the public cloud isn't an option.

Those security concerns are mostly a myth, said Jason Hoffman, founder and chief technology officer of cloud-computing provider Joyent. His company purchases servers from Dell, and the public cloud infrastructure they offer is immune to security threats such as rootkits. But most major companies will probably still always have security standards that will prevent them from moving their business into the public cloud.

Dell's server business is already booming. If you split Dell's Data Center Solutions off from the main company, it would count for the third-largest distributor of x86 architecture servers, or those with chips from Intel (Nasdaq: INTC  ) and AMD (NYSE: AMD  ) . Dell's top 20 customers -- including Microsoft (Nasdaq: MSFT  ) and cloud video-game company OnLive -- regularly purchase tens of thousands of server nodes from the company.

But cloud computing is growing just about as quickly as everything else and is a lot more cost-efficient for many businesses. Amazon recently began offering graphics processing as part of its cloud-computing products. The limits of cloud computing when compared with in-house data servers are starting to quickly disappear. And as the public cloud options for developers continue to grow, it seems as if the public cloud could be more of a threat than Dell realizes.

For now, at least, Dell's strategy is pretty clear -- see no evil, hear no evil, speak no evil.

 

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Intel and Microsoft are Motley Fool Inside Value recommendations. Rackspace Hosting is a Motley Fool Rule Breakers selection. Amazon.com is a Motley Fool Stock Advisor pick. The Fool owns shares of and has bought calls on Intel. Motley Fool Options has recommended buying calls on Intel. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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