White box builders do not generally like being referred to as white box builders. For some, the 'white box' label implies that they are somehow inferior, likening their offerings to those cheap, non-branded goods you get in certain supermarkets.
There might be nothing wrong with them but it's obvious that no one buys them out of choice. Since it is now clear that businesses are increasingly buying white boxes out of choice, they have a point.
It is also worth bearing in mind that the traditional white box builder is slowly but surely evolving into a different breed of systems supplier.
The actual box is just the tip of the iceberg for this new system builder, where solutions positioned around the system are driving new sales.
Like everyone else in the IT arena, system builders face the prospect of extinction through global recession, and this has accelerated the evolutionary cycle of the sector.
The cycle has also been helped along by the ever increasing efforts of big-brand players to make their systems and services more attractive to the sectors that system builders excel in: small to medium sized enterprises (SMEs), government, education and enthusiasts, among others.
Most noticeably, Dell has announced its intentions to enter the US white box market, the impact of which has yet to be seen, and Computer 2000 has signed a pan-European deal with Supermicro, the leading US manufacturer of white box servers and motherboards.
There have been very few positive markets over the past 18 months, but the one to emerge the least battered and bruised has been the SME sector.
While large corporates have been practising the Ebenezer Scrooge spending plan, SMEs have been more forthcoming with the cash. And it is the system builders that have been reaping the benefits.
Now that the SME sector has been officially marked as an untapped goldmine, the big PC players are desperate to get in there, having watched their corporate revenue dry up.
This is not to say that big brands do not have a foothold in the SME sector. They do, but there are hundreds of thousands of small businesses in the UK and worldwide that still prefer to deal with their local system builder.
Rob Epstein, general manager of Computer 2000's components division, said: "The industry is suffering and the white box arena is too, but the difference is that white box players address the SME arena.
"Since this arena is the only one spending, white box builders are not suffering as badly as the branded players in the corporate arena."
Luke Ireland, logistical director at Centerprise, added: "The past year was pretty bad but the white box sector has not suffered as much as the branded PC sector.
"This sector is broadly split into two areas: the consumer side, which is still pretty weak, and the business and education market, which remains strong.
"In the past eight weeks business for us has jumped by 15 to 20 per cent. There has generally been a lot more activity than in previous months and it's a lot better than this time last year."
Ian French, president of Bell Microproducts Europe, parent company of Ideal Hardware, said: "I think the white box sector is alive and well and doing better than most people think.
"We sell an awful lot of drives and components, so we know where they go, and we are selling a surprisingly large number of them to [white box] players."
Daryl Ganas, Intel's director of reseller channel operations for EMEA, agreed. "The white box market across EMEA is extremely healthy," he explained.
"In the third quarter we are having record sales in this sector across EMEA and quarter-on-quarter growth in the UK. In the past two years the white box channel has consistently out-performed the main PC channel.
"The number-one reason is that these players are still focused on growing segments such as SME, education and government and, to a lesser extent, retail.
"The SME market is very important because it is the fastest growing sector at the moment. Our channel partners and white box integrators know this market better than anyone and we know that the more we help them, the more we get out of it."
So what do the market experts say? Is the white box market as vibrant as it seems, despite the economic gloom? It is, and in fact the white box sector is proving to be the white knight of the PC industry.
This summer, analyst IDC revised its PC shipment figures for 2001 because it had miscalculated the number of systems sold by white box builders.
Instead of the original figure of 125.5 million PCs, notebooks and PC-based servers shipped in 2001, IDC raised the figure to 133.5 million. The 'missing' eight million were attributed to the white box sector.
Even better news was that white boxes sell more than brand PCs. IDC found that 500 white box vendors, spread across 55 countries, captured more than 58 per cent of PC sales last year.
And last year, as everyone knows, was a lot worse for IT than this year, so the signs for continued white box success are promising.
A lot of it has to do with the changing perceptions of white box builders and what they offer. At the time of the report, one of the IDC analysts, Loren Loverde, said: "At one point, people looked at white box players as low-cost, but we are seeing a different picture now. They are helping people with their IT solutions."
And that's just it. White box builders are now solutions providers in their own right. Their attention to low-cost, tailored solutions, combined with personal attention, has paid off.
The big guys know that they have missed the SME space and are crash dieting to fit their offerings to a market that demands more than a quick sale and a pat on the back.
"White box builders have the flexibility edge," explained French. "The reason that the so-called 'A' brands are hurting is not through bad products but a lack of foresight and long lead times.
"They have to decide what to build three or six months in advance, with very slow supply chains. If they get the timing, the specification or the price wrong they are in trouble. That's why they are desperately trying to trim their supply chains.
"The white box builders, though, are far more nimble and are able to tailor their offerings to what the market wants."
Epstein added: "The big players don't seem to be able to communicate very well with that segment of the market. They still need to figure out how to keep their costs low.
"The build-to-order ability of system builders is still important, but it is more so in some sectors than in others. It's in services that system builders excel, and that can be as simple as being around the corner from the user.
"It's all about trust. SMEs are not IT experts, and when they ask for a desktop or internet solution they want their system builder to come up with it, install it and take care of it."
Ganas suggested that one of the things on which system builders are very focused is build-to-order. "They also offer a good level of services and can be very flexible with their offerings," he said.
"That keeps them one step ahead of their bigger rivals. Some of our white box firms have found very successful niches, such as education and mobiles, but not only are they the fastest out with new technology, they can move into new sectors quickly."
Ireland agreed. "The white box sector does better because it offers customers more value-add," he stated. "The level of customisation that SMEs want can be provided only by white box suppliers.
"Also, since a lot of these companies are reducing their IT headcount, they want more services from their PC suppliers, from build-to-order PCs and specially configured software to more hands-on support and services.
"The bigger brand players can't offer a lot of this because they are geared towards mass-volume markets, not individual customers."
So as white box players expand their role from box-shifting to solution provision, where to next? They are already successful in the SME, education and government arenas, not to mention with very small local businesses and PC enthusiasts.
The retail sector has been touted as a potential next step for certain white box suppliers, but the reality is the opposite, at least in the UK. In fact, the idea that retail is ripe for white box builders is more landmine than goldmine.
"In the retail sector, brand is still important, and Dixons largely controls the retail space by offering branded PCs and even their own brand," said Ireland.
"Anyway, the UK retail sector is different from the rest of Europe, where the retail sector often takes massive orders from white box suppliers in order to get a new technology out before the big brands.
"That doesn't really happen over here and even if it does, the big volume white box players will dominate here as the volumes needed will be very high."
French added: "Dixons is so powerful in the UK - maybe too powerful - that the retail channel is stifled. That dominance has had a powerful effect on the UK market and there is not really a healthy white box channel to retail.
"There are a number of e-tailers hanging in there, such as Mesh, but even they are being squeezed by the really low-cost assembly people like Medion and the branded PC vendors getting more aggressive."
French pointed to another cultural difference between the UK and Europe: the customer. "The UK as a culture is very brand-conscious. Typically, people are more comfortable with branded cars, clothes, washing machines and PCs," he explained.
"Even people that are not earning a lot aspire to owning an 'A' brand. However, if you look at Dell in Germany, for instance, it is dead on its feet. It has maybe three to five per cent of the market - a long way behind system builders such as Medion and Vobiss."
Epstein claimed that there is space in the retail game for white box builders, but only at the very low end of the market.
"Ultimately, Dixons is on top of the retail sector, but there is a white box opportunity through small retailers, even if it's just one guy in the back of a shop knocking out two to 50 PCs a month," he said.
"However, they need to differentiate their offerings from the rest by customising them with the latest gadgets like clear chassis or blue LED fans that make the whole system glow.
"People have been doing this customisation for years with cars and it's starting to appear in the PC sector. It's specialist, consumer-oriented kit like this that can differentiate a system builder offering in the retail sector."
So what about the arrival of big, bad Dell in the US white box sector? Everyone is watching this closely because they know that success over there will mean Dell will be heading for Europe. That does not mean success over here, but the pressure on white box suppliers will be intense.
Computer 2000 will be hoping for some breathing room in order to get its recent alliance with white box server and motherboard giant Supermicro up and running.
"It is too early to say how Dell will do in the US white box market but I hope it doesn't come over here," joked Epstein. "That said, it might not work for Dell in Europe because of the fragmentation.
"In the US there is one landmass, one language, one channel infrastructure and one set of logistics. Now try doing that across 30 European countries with different languages, different customers, different market forces and different infrastructures."
French added: "The US has a very well-structured channel, something Europe does not have, and Dell already does a lot of business in the US channel. This announcement is just another clever move; more marketing than substance.
"Everyone is running scared of Dell right now because it is very efficient. But it's now bigger than ever and it is in danger of becoming like Hewlett Packard, for instance, getting more cumbersome."
But Ireland is less sure of Dell's master plan. "Dell is just trying to crack a new business opportunity but I'm not sure how it is going to operate," he said.
"Is it a Dell or isn't it? What kind of advantage will the buyer get, and will Dell be relying on the value-added reseller doing the support?
"If you go to Dell's website there is no mention of it, so if it is not pricing the systems via www.dell.com how is it pushing this entire programme? I don't think it's going to be a success."
Small is beautiful
With a wait-and-see attitude in place about Dell and the retail sector looking too risky, what is an already successful system builder to do?
The notion of expanding and growing to survive is a retail and corporate concept that simply does not hold true in the white box sector. In fact, staying small and personal with your customers is exactly what makes white box suppliers successful.
It's also what is stopping big brands taking away their business. One thing that is changing, however, is that big brands are closing the gap in the technology race, and they will eventually reduce their costs to make their offerings more attractive.
"The delta between the 'A' brands and white boxes has narrowed," said French. "The time-to-market advantage is less now, and the price competition is fiercer. The march of the 'A' brands continues and there is a certain inevitability that they will finally crack these niche markets, albeit slowly."
This is why adding layers of services on top of basic offerings, and nurturing the trust factor with customers, is more important now than ever. Staying small has worked for system builders so far. Why change now?
Centerprise (01256) 378 000
Computer 2000 (0870) 060 3344
Ideal Hardware (020) 8286 5999
Intel (01793) 403 000
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