Street's Embrace of Intel, Windows, Linux Boosts Dell

By Maria Trombly | Securities Industry News | April 14, 2003

Dell's inexpensive but reliable workstations and laptop computers have always appealed to Wall Street firms, but with the recent interest in Intel, Windows and Linux, grid computing, and, of course, saving money, firms are turning to Dell servers as well. Nasdaq and Instinet use Dell servers. So does Morgan Stanley and Lehman Brothers. And for smaller firms, a combination of the Windows operating system and Dell hardware offers low costs and off-the-shelf solutions.

"We are using Dell servers running Windows," said Mike Liker, CTO at Minneapolis-based Craig Hallum Capital Group, Llc. "Partly it's the cost advantage, and partly it's the fact that's its been pretty much a standard for a long time. And we don't have anything that we need the Unix platform for right now."

Chicago-based online brokerage optionsXpress uses Dell throughout the firm, said President David Kalt, "both for workstations for our employees and, more importantly, we use 70 to 100 Dell servers for hosting and facilitating all processes of our trading platform and our corporate site. That's everything from the database servers to the Web servers to all the application servers. All aspects of our trading platform depend on Dell servers."

OptionsXpress uses Dell PowerEdge 1650, which are two-processor machines, and the four-processor 6450, which can be upgraded to hold more processors. Kalt said the fact that Dell servers have fewer processors than, say, high-end Sun machines, is not a disadvantage in his eyes. "The beautiful thing about Dell is that you don't have to buy super-expensive individual machines, you can buy smaller, less expensive machines and daisy-chain them together," he said. Spreading the load over multiple servers is also a plus when it comes to redundancy and backup, he said. "We just buy them in six-packs."

When optionsXpress first launched three years ago, going with an entirely Intel-based infrastructure wasn't the thing to do when the Unix environment was typical for Wall Street.

"There are a lot of people on Wall Street who have become comfortable with the reliability and service on their proprietary platforms," he said. "I met a lot of resistance when I started. I had to fight it." But the trend toward Intel was already there. "The market share numbers were significant enough that I was comfortable with this," he said.

Overall, servers that use Intel chips accounted for 88 percent of unit shipments in 2002, according to International Data Corp., the Framingham, Mass.-based market researcher. But all those Intel-based machines were less expensive, accounting for just about 40 percent of the money that customers spent on servers that year.

Dell is the leading supplier of Intel-based servers, with more than 31 percent of the market in the fourth quarter of 2002, according to IDC. HP was a close second with almost 30 percent, and IBM followed at 11 percent. Meanwhile, Dell expects sales to continue to grow. "We're seeing double-digit year-over-year revenue growth in all regional markets and customer segments," CFO Kevin Rollins told analysts recently. He added that unit volumes were up more than 25 percent from one year ago, and earnings for the quarter ending in April will be 23 cents per share, compared to 17 cents per share last year.

Kalt said he's "found very, very few instances of problems on the hardware level. In terms of security, we've had no security breaches but it's not all tied to Dell hardware. We've got Cisco hardware and security software that we use." He added that he's seen five nines reliability-with downtime measurable in minutes over the past three years in a company that has to be up and running to serve its customers around the clock.

The only reliability problem that he's faced has had to do with running Windows.

"We know that our Microsoft Web servers will go down periodically," he said. "But because we know that, and we know what causes it, we can jump start them quickly. In the Unix world, that wouldn't be required because they tend to stay up and they tend to be more stable." But, he said, the additional monitoring and maintenance that's required is offset by being "able to deploy them quickly, monitor them quicker, upgrade our site more frequently," he said.

The downside to buying Dell is that there isn't the kind of handholding you might get from an HP, IBM or Sun. "It would be nice if they had some more local representation," Kalt said. "Their salesforce is really concentrated in Austin [Texas] and on phone sales. I think as their customers get larger, they will need to service us on a local level a little better, like some of their competition. It's not critical yet for a firm like ours, but it might become more critical."

In addition, HP and IBM both have strong consulting arms, and a tradition of Wall Street experience. "Dell doesn't have in-house capital markets expertise," said Damon Kovelsky, an analyst at Financial Insights, a subsidiary of IDC, also based in Framingham. "But as long as spending remains an issue, they have a very viable product as it is much, much cheaper. The problem is, you still have to bring in some outside help if you're doing a large-scale project, which is where HP and IBM have the advantage. They have the expertise, and Dell doesn't."

Dell's embrace of Linux has been a major positive factor for many Wall Street firms. At Morgan Stanley, for example, Jeffrey Birnbaum, global head of enterprise computing for institutional securities, said Linux is a way for a firm to reduce costs while leveraging its in-house Unix expertise. Dell, along with IBM and HP, is one of the suppliers that Morgan Stanley is using for its Linux computers.

"I think that the combination of Linux on Intel is providing every firm on the Street with significant cost reduction opportunities," said Birnbaum. "There are a lot of custom applications in the financial services area and a lot of those custom apps have traditionally been written in Unix," said Mark Melenovsky, another analyst at IDC. "Linux has a lot of similarities to Unix, so it's not that difficult to port those custom apps from a Unix to a Linux environment. Dell is the leading supplier of Intel-based hardware, so they're poised to take advantage of that trend."

HP and IBM have been taking advantage of this trend as well, Melenovsky said. "IBM in particular has really developed their high-end Intel-based server strategy. And HP is the worldwide incumbent player with their Intel-based systems."

But Dell is the market share leader and perceived as the low cost provider, he added, and has been penetrating the Wall Street market more aggressively recently.

In addition, Oracle CEO Larry Ellison was joined by Dell CEO Michael Dell in New York City on April 2 to announce that Dell will now resell software licenses for Oracle's 9i database for Linux. In addition, Ellison said it has moved all of its proprietary internal systems to standards-based Dell systems running Linux.

"These big systems are expensive, and by definition, they are a single point of failure," said Ellison. "Linux and Dell will be the dominant architecture in the enterprise."

Meanwhile, Dell continues to work on making its servers faster and more powerful, said Dell spokesman Bruce Anderson. Although most customers are interested in the current 32-bit server standard, Dell is starting to look at the 64-bit Itanium 2, partly for Wall Street applications. "One of the areas in which we do see interest for Itanium 2 is high-performance computer clusters, for risk analysis," Anderson said. "We have a number of customers who are using high-performance clusters to do risk analysis and financial modeling. We have decided to watch that market closely and we think it has a great long-term future."

Anderson could not say when an Itanium 2 server would be available, however.