Rivals may not fight in Dell's switch war

Dell has turned up the heat on its gigabit Ethernet-switching competitors with rock-bottom prices on its low-end switches.

But will its bargain basement discounting of gigabit Ethernet really help it rub out the competition?

"Certainly, Dell is taking some customers away from the larger players at the low end," said Joel Conover, a principal analyst at Current Analysis. "But their presence isn't really enough to threaten the incumbents."

On Wednesday, Dell announced a new family of unmanaged Ethernet switches, the PowerConnect 2600, which offers gigabit Ethernet for as little as $22 per port. The company also announced that it has reduced the price of its fully managed PowerConnect 5224 to less than $79 per port.

This is far below the industry average for gigabit Ethernet switching. According to estimates from The Yankee Group, managed and unmanaged gigabit Ethernet port prices averaged roughly $175 in the third quarter of 2003.

Companies, such as Cisco Systems, Extreme Networks and Foundry Networks, offer products priced at the high end of these averages. But experts say Dell's switches are in a different class from these gigabit Ethernet pioneers.

"If someone is looking for basic connectivity and low cost, the Dell switches might be a good fit," said Zeus Kerravala, an analyst at The Yankee Group. "But most companies running gigabit Ethernet today are usually trying to do other things, like voice over (Internet Protocol), so they need more sophisticated and intelligent gear from companies like Cisco, Extreme or Foundry."

This isn't Dell's first attempt at undercutting competitors. The company also introduced per port pricing or less than $100 in March of 2003.

In general, Dell's Ethernet-switching products are geared toward the low end of the market, specifically small and midsize businesses, educational institutions and customers operating in remote offices. Other competitors, such as 3Com and Hewlett-Packard, are also addressing this part of the market.

But analysts say gigabit Ethernet is far from turning into a commodity.

"As the technology matures, prices will continue to fall," Kerravala said. "That's natural, but customers are not only interested in price. They want quality of service and intelligence built into their networks."