The very nature of an IBM PC compatible computer is that it can be assembled by just about anybody. When IBM came up with the platform, it was so afraid the new computer would do it harm, it made the IBM PC an open platform that anyone could copy and add to.
This decision – influenced by a long-running anti-trust lawsuit against Big Blue by the US Department of Justice – gave upstart firms such as Dell, Compaq and Microsoft the impetus they needed to become the companies they are today. System assemblers had been making money from building desktop PCs. So why were laptop computers not built in the same way?
Laptop computers are very different to desktop PCs. Until recently, their construction was not modular: a few large manufacturers – tier ones – could afford to come up with their own designs; and a limited number of original design manufacturers (ODMs) made the notebooks and supplied them to the large vendors.
Some ODMs got lucky – or got clever – and broke out, becoming respected vendors in their own right. Acer is the first company to spring to mind, followed by the likes of Asus. But, effectively, the custom laptop market was something resellers and integrators steered well clear of.
Then something happened to change this: people and companies started to buy more notebook PCs than desktops. Vendors woke up to this. In January 2003, Steve Jobs, chief executive of Apple, declared that the laptop would be his company’s biggest area of concentration and produced the numbers to show that most customers were buying iBooks or PowerBooks instead of Macs. Other vendors identified the same thing.
More importantly for the channel, Intel also realised this market was firing up. Traditional vendors were not necessarily the right businesses to help Intel capitalise on it. But who is helping Intel in this new market? While it may appear to be the channel, the real winners are of a different ilk to the average integrator.
While a desktop PC’s strength lies in its flexibility – bits and pieces can be added at will – corporate buyers became used to the idea of stretching their client PC investments out after the year-2000 fiasco and the dot-com bust.
Along with the rise in notebooks came a few other factors. TFT displays became a lot cheaper and Intel launched Centrino, an architecture designed to be wireless with low-cost, low-power consumption and modularity at the core of its design. It should be noted that while AMD has released a few notebook-specific chips, and Apple kept the PowerPC architecture wheezing along on its PowerBooks until earlier this year, Intel has largely owned the notebook market. Young upstarts such as Transmeta have fallen by the wayside. Apple recently switched over to Intel, putting Intel chips in its new laptops and desktops.
Intel also made a key change with the launch of Centrino: it involved both the ODMs and tier one vendors from the off. Traditionally, tier ones enjoyed first dibs on any new chips from Intel. Now, ODMs were able to get hold of the goods at the same time.
Krish Iyengar, EMEA communications manager at Intel, points to a number of initiatives that Intel launched in 2003 that helped bring about an assembler market for notebooks.
“If we really step back to 2003, resellers were looking for an ecosystem similar to the desktop market where they have the standard components and infrastructure, the common building blocks,” Iyengar said. “We’ve now reached the point where we have seven common interchangeable blocks [for notebooks].”
“The second problem for us was that there’s a huge distance between EMEA, China and Taiwan, both in terms of distance, but also in terms of languages. This distance had led to some confusion and communication difficulty. ODMs did not have warehouses in EMEA for local stock. The next stop was to work on the infrastructure here to do that. Asus, Compel and Quantum all worked on logistics in Europe. Now resellers should be able to get an order fulfilled within 48 hours – basically, days or hours instead of weeks.”
Iyengar also pointed to training efforts from both Intel and distributors and ODMs to introduce the idea of notebook assembly to the channel. At present the company is pushing Verified By Intel, which is a programme aimed at giving resellers a good platform for notebook assembly.
It has worked so far: Mesh, Rock, MSI, Evesham and others have embraced the new market and had some success. Distributors such as Ingram Micro launched Build Your Own Notebook for the channel in an attempt to get small system builders into the process. Intel recently launched Intel Integration Initiative to encourage more assemblers into the whitebook market.
However, the market is not all one big success story. The problem, said Nick Boardman, chief executive of Rock, is that there is only a market for cheap, budget laptops, high-end custom machines, and very little else.
“The mainstream is a difficult market [to crack],” he said. “At present it is polarised: people either want the best offerings or they want the cheapest.”
Rock recently made some changes to its business model. At one point, the firm was building low-priced notebooks for a larger vendor, but ditched this in favour of its high-end custom notebook business this year.
“We were a different company last year,” Boardman said. “We’re now doing half of the volume that we were doing then. We decided not to be judged on last year’s brand.”
The end result is that, although volume has plummeted, the individual notebooks are far more profitable. Customers are spending about £1,400 on a laptop, instead of aiming for the cheap-and-cheerful machines that flood the market.
That is not to say that the market in general is terribly rosy.
“Dell has missed its numbers recently, which is a sign that things are tough,” Boardman said. He also pointed towards the recent recall of several million batteries by Dell and Apple. “We had a difficult year last year,” he said. “The core element used to be the best laptops, and that was because corporates were buying. Now the average price is £700. The commodity market has arrived.”
Alastair Edwards, senior analyst at Canalys, said: “There have been dramatic price falls and it is now far harder for local guys to compete with the big ‘A’ brands. It all has to do with distribution. The vendors are trying to go through distributors and ODMs but distributors are not finding the market nor are they putting in the effort when they see a good opportunity.”
So, alongside commoditisation is a less-than-enthusiastic distribution channel.
Boardman told CRN: “There’s less disparity in prices between ODMs and tier one vendors now, but about 90 per cent of laptops are still sold by tier ones.”
Boardman went on to say that ODMs have massive economies of scale. Acer, Asus and the rest put hardly anything into building brand awareness.
“We buy competitively and there’s no way we can compete with Acer,” he said. “We used to build low-end notebooks for Mesh, but now they go to Asus.”
On top of this, sources within the industry point to inventory clearouts and stock write-offs by big, publicly-listed vendors that have to maintain their image, and so dump product on the market, or make their low-end laptops loss leaders.
In short, integrators taking a punt at the whitebook market have to have deep pockets and be willing to work either in volume or in the high-end, specialist market. There is not much margin in-between. Over the last three years, Context’s figures on laptop shipments by the channel have showed that bargain basement notebooks are the strongest sellers; consumers want cheaper laptops as they replace clunky old desktops with something that can be hidden in a drawer. SMEs like the idea of portability, but do not want to entrust more than £1,500 of hardware to their staff while they are out on the road.
However, there are other reasons to opt for whitebooks. The services side can be lucrative, and if a reseller wants to brand hardware as its own to keep cus tomers, going for a semi-custom whitebook with your badge on the front can be an excellent idea.
However, even this has led to a few problems, even for giants such as Mesh. It’s an open secret within the industry that many assemblers at this level buy in and rebadge notebooks from ODMs in much the same way that tier one vendors were accustomed to going to Asus and Acer for their lower-end notebook models in the past. You could be forgiven for thinking that not much has changed.
“Intel’s vision of migrating its PC-builder channel into the whitebook market hasn’t happened to the extent that Intel would have hoped,” Edwards said. “Whitebooks are less differentiated to the reseller compared with white box, not least because of the limited configurations.
“Now the ODMs themselves are trying to target the market with their own boxes. Integrators that have had strong businesses in Europe are having trouble maintaining their business. Traditionally strong brands from a desktop background such as Unica in France and Crystaltech in Germany are going away. These names will continue to disappear.”
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