Re: Minutes from Feb 21 LSE Call

[Larry McVoy]

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.