Re: Minutes from Feb 21 LSE Call

Larry McVoy
2003-02-22T16:04:22Z

On Sat, Feb 22, 2003 at 07:47:53AM -0800, Martin J. Bligh wrote:
> >> > Let's see, Dell has a $66B market cap, revenues of $8B/quarter and
> >> > $500M/quarter in profit.
> >>
> >> While I understand these numbers are on the mark, there is a tertiary
> >> issue to realize.
> >>
> >> Dell makes money on many things other than thin-margin PCs. And lo'
> >> and behold one of those things is selling the larger Intel based
> >> servers and support contracts to go along with that.
> >
> > I did some digging trying to find that ratio before I posted last night
> > and couldn't. You obviously think that the servers are a significant
> > part of their business. I'd be surprised at that, but that's cool,
> > what are the numbers? PC's, monitors, disks, laptops, anything with less
> > than 4 cpus is in the little bucket, so how much revenue does Dell generate
> > on the 4 CPU and larger servers?
>
> It's not a question of revenue, it's one of profit. Very few people buy
> desktops for use with Linux, compared to those that buy them for Windows.
> The profit on each PC is small, thus I still think a substantial proportion
> of the profit made by hardware vendors by Linux is on servers rather than
> desktop PCs. The numbers will be smaller for high end machines, but the
> profit margins are much higher.

That's all handwaving and has no meaning without numbers. I could care less
if Dell has 99.99% margins on their servers, if they only sell $50M of servers
a quarter that is still less than 10% of their quarterly profit.

So what are the actual *numbers*? Your point makes sense if and only if
people sell lots of server. I spent a few minutes in google: world wide
server sales are $40B at the moment. The overwhelming majority of that
revenue is small servers. Let's say that Dell has 20% of that market,
that's $2B/quarter. Now let's chop off the 1-2 CPU systems. I'll bet
you long long odds that that is 90% of their revenue in the server space.
Supposing that's right, that's $200M/quarter in big iron sales. Out of
$8000M/quarter.

I'd love to see data which is different than this but you'll have a tough
time finding it. More and more companies are looking at the cost of
big iron and deciding it doesn't make sense to spend $20K/CPU when they
could be spending $1K/CPU. Look at Google, try selling them some big
iron. Look at Wall Street - abandoning big iron as fast as they can.
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Larry McVoy lm at bitmover.com http://www.bitmover.com/lm