Attack of the clones

Attack of the clones

Choosing between branded gear and clone computers is an age-old debate — with the usual suspects touting the benefits that both camps have to offer.

But now, resellers and system integrators can look to another option that’s creeping up on the market, managing director of BCN Technology, Ken Lowe, said.

The technology struck a balance between the branded product and a whitebox system, he claimed.

Enter the barebones PC, which is a ready-made system that has been assembled and tested in China before being exported to Australia.

Branded gear typically costs more and offers lower upgradeability due to proprietary configurations and components being used in manufacturing, he said.

“The whitebox PC assembled at the local computer store, on the other hand, offers more affordability, flexibility and localised service, but the drawback was often that the attention to detail, finish and quality control was lacking,” Lowe said.

So what’s the skinny on barebones? The technology, which typically refers to the small cube-like systems on the market, now comes in all shapes and sizes, he said.

It usually includes three key components: case, motherboard and power supply, he said.

Some factories add extra value through the inclusion of a keyboard and mouse.

Why the fuss? Resellers and system builders don’t have to import componentry from different vendors and assemble it locally.

The idea was to ease supply-chain management issues Lowe said. The barebones market was of particular interest to resellers catering to the SME space.

With branded players knocking down prices and offering slimmer margins, resellers needed to separate themselves from the pack and offer something unique and different, Lowe said.

“The resellers, particularly the SME players, need a new generation product to effectively compete with the branded product if they are still to attain profit from PC assembly,” he said.

BCN is offering four different looks in six models under the QPC brand produced by PC manufacturer QDI Levono (previously known as Legend). BCN has rolled out a standard tower type traditional PC system and a slim desktop micro system.

The barebones concept offered all the same features of a whitebox, but more flexibility to resellers, business development director QD Innovative Computer, Danny Wang.

He said it gave resellers even greater control of different specification requirements and slightly greater margins as there was the cost saving of the labour involved for assembly done by the supplier.

Indeed, within the whitebox PC market, some vendors were pitching the barebones concept to be a strong growth area in 2004.

So will it fly? Analysts say it hasn’t registered much in the local Australian market.

And while there was no specific data tracking the impact of the barebones market within the whitebox arena, the overall clone market was on an upswing — the Australian market captured about 45 per cent of the PC market, GfK analyst, Anna McGeown, said.

Gartner analyst, Andy Woo, pegged the whitebox growth at 16 per cent year-over-year. GfK offered a similar figure — about 18 per cent growth in volume in 2003.

Why the attraction to whitebox? Buyers continue to buy non-branded systems with the belief they are getting more, not less, for their money, according to a recent IDC study analysing whitebox market trends in the US. Consumers were attracted to the high quality concept at good pricing.

Locally, consumers were intrigued by lower prices, Woo said, and wanted to get their hands on specialised, more tailor-made gear.

Product manager of ASI, Craig Quinn, said home entertainment and multimedia aficionados were itching for whitebox technology because the large multinationals gear was often more restrictive.

For the traditional whitebox gear, Woo saw huge opportunity in the home space where users — particularly gamers — want flexibility and products that can be configured-to-order.

“Look for a strong pickup in the SOHO and SME space [with below 100 employees],” he said.

AMD’s country manager, John Robinson, said there was an overall trend in the whitebox space to sell into the government and education markets where general acceptability towards an alternative to the traditional Intel platform was starting to show.

“Buyers are now looking to these [non-branded vendors] for servers, portable PCs and complementary services,” the IDC study reported.

But will this general acceptability transcend into the barebones market?

Lowe said the barebones strategy was a smart choice for resellers as they could maintain product and service autonomy, while meeting consumer price demand, profitability and quicker turn around times on assembly and packaging.

The barebone could be further assembled by the resellers and end users, making it a finished product, he said.

“The nature of whitebox is that you have to deal with different distributors [different cases]. This way, it’s simpler and easier,” Lowe said.

The concept gave the power or visibility back to the channel, he said.

QDI’s Wang agreed the concept would find its footing.

He said the barebones concept, in fact, gave resellers more flexibility to fulfil customer requirements.

The company, which offered both traditional whitebox systems and barebones gear (a strategy it started four months ago), sells through a network of 250 dealers across Australia and New Zealand.

“Eighty per cent of resellers want a whitebox system, and the rest want barebones because it’s slightly cheaper,” Wang said.

Elegant and sleek

Retailers and some corporate dealers were attracted to the barebones business model because of the flexibility, he said.

“It’s equivalent to a car without the wheels and the engine,” Wang said. “Local dealers can put their own memory into the gear and can configure it — just as you’d add an engine.”

Alan Tran of Melbourne-based reseller, Amexcom, said retail was the major barebones play at the moment, but he saw it moving into other categories — including corporate — as the market matured.

The barebones machine was elegant, sleek and offered good performance, he said, and it looked good on a table. “Barebones is better looking,” he said.

It could also include LCD screen and save the reseller plenty of time when it came to assembling. The added feature of being able to be built upon was a bonus.

“At the moment it’s a new thing and we’re trying to push it into the corporate side. It is reasonably priced and it looks good,” Tran said.

The company also sold traditional whitebox systems.

He said the barebones market offered beefy margins (10 to 15 per cent), but this would probably change once the market was saturated.

In contrast, Tran said the traditional whitebox space offered about five per cent.

“At the moment, it’s like shopping for a Ferrari — it’s unique and so you make better margins” he said.

The company was peddling about 20 units a month.

Gartner’s Woo agreed market action for the barebones concept was further down the food chain and likely in the retail, SOHO and SME space.

Despite the praise, many industry proponents questioned the concept and said there were many challenges, including issues surrounding fluctuating component prices, quality assurance, and the high cost of freight and transport.

GfK’s McGeown said the barebones market — which didn’t involve many Australian players at the moment — would have to sort out two key questions.

“It appears there would be a lack of local control over production [for example, what quality controls will be put in place?]; and what about support [if something goes wrong, does it have to go back to China?]”.

But BCN’s Lowe said tier one manufacturers had paralleled quality control to the branded vendors.

“On the local level it is up to the local assembler to monitor their individual QC on their finished product,” he said. “Therefore, a whitebox that used a barebone has a guarantee of QC in between a finished branded product and a whitebox product.”

A competitor, ASI, a large system integrator with a beefy corporate and government client base, had no intention of going down the barebones path, director, Maree Lowe, said.

“Our customer base wants us to customise,” she said.

The government and corporate market wanted variety.

“At the end of the day, we customise and won’t go towards a defined box,” Lowe said.

ASI’s Quinn said the barebones model might be attractive to users who want a cheap box, but not for users who need a high-level of customisation.

It was not for users who were relying on a local player to ensure system compatibility (where the OS, applications and systems are certified) and deal with warranty issues and manage the hardware and software calls, he said.

Full solution

“Resellers don’t want to go down the path of offering half a box ... We don’t want to be involved in bringing in a box from China,” Quinn said. “The barebones might be applicable in retails — where you get a pick off the shelf — but not in the corporate or government space.”

Local players — including the likes of ASI — aren’t travelling the barebones route because they have a large investment and resources in local assembly, AMD’s Robinson said.

“It’s obvious that BCN doesn’t have the assembly facilities so there option is to buy from China,” he said.

ASI’s Maree Lowe said since assembly work was done locally by the company, the resellers could focus on offering the whole package and perform a lot more consulting work.

“They like us to handle the assembly — it lets them deliver a full solution,” she said.

ASI had about 12 key VARs in each state, Lowe said.

Managing director of whitebox components distributor and assembler Synnex, Frank Sheu, said he was sceptical about the barebones market taking off in Australia.

He said the concept has taken off in Europe and the US because of the retail models.

Fluctuating component prices and constant motherboard changes were key reasons why the market wouldn’t get its wings here in Australia, Sheu said.

“New and better motherboards are coming out every quarter, so if you go with one from overseas, the user might be stuck with an old version if not assembled locally,” he said.

Sheu said few players would dabble in this space since it involved shipping large volumes of product.

Only two per cent of partners — there were about 1500 whitebox PC assemblers scattered across Australia — push out more than 500 units per month, and an even smaller amount pumped out more than 1000 units per month, he said.

For the barebones concept to take off, large quantities have to be shipped over [given the high cost of shipment]. “So how can you justify bringing in the barebones from China,” Sheu said. “How can you afford to bring them in from a volume perspective ... Freight costs will offset local assembly costs.”

Robinson agreed that it wasn’t worthwhile.

“Sure it might avoid some supply chain management issues, but you’re paying a reasonable amount for bringing it in,” he said.

Big money was spent on freight and the time gap between getting access to the gear was also expensive.

“If you bring in readymade systems, you’re bringing in large volumes and so need the cash reserves,” Robinson said.

The volatility surrounding component prices is another sticky issue.

“While those PCs are on the water being shipped over, things happen,” Robinson said. “Price changes are out of their control.”

GfK’s McGeown said pricing would be an issue with fluctuating exchange rates.

“The largest cost component [which is labour] will experience much larger fluctuations, whereas local labour costs will be consistent regardless of the exchange rate,” he said.

Robinson said it was cheaper to rely on local assembly than farming it off overseas.

“There’s not much work involved in putting together a PC today [the case, power supply and floppy disk are built-in; along with motherboard, memory, CPU and cables], and it doesn’t make sense to go the barebones route,” he said.

“There is assembly cost involved in putting together local content, but it doesn’t offset the cost of bringing in gear from China.”

Locally, resellers and system integrators in the traditional whitebox space have an advantage in that they can configure at a moments notice, whereas barebones is more of a fixed configuration model.

“It doesn’t do a lot for local content — and there’s no added value to the local industry,” Robinson said.

Where the barebones shoe did fit, however, was in the notebook arena, he said.

“Barebones in the notebook space is starting to gain traction,” Robinson said.

AMD had 35 per cent of the whitebox market and spent all of its time and energy in the whitebox space in Australia, he said.

It works with a roster of large and small system integrators — and distributors including Avnet and Legend Performance Technology — in a bid to rev up the market.

“Assembly in the mobile space is a lot more intricate so it’s more cost-effective to go out and bring in a barebones,” Robinson said.

Taiwanese companies were building the notebooks en masse — they had production costs down to a minimum — and so it made sense for the systems to come readymade in the notebook space, he said.

Gartner’s Woo agreed there was a huge pickup in the whitebook arena. It was an area where the barebones concept made sense given the complicated design assembly.

“Two years ago, there were a handful of vendors,” he said. “But now the technology has progressed and the support from Intel has narrowed the gap between branded vendors and non-branded players.”

BCN’s Lowe said the company planned to roll out a line of whitebook barebones model in the coming months.

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