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Extinction or Evolution?

Extinction or Evolution?

While it may not be quite as depressing as some of Dickens' novels, the outlook for many in the whitebox market is less than rosy. Analysts will tell you the once celebrated segment is copping a few hard knocks of late.

The market is proving increasingly tough for local players as multinationals continue to tighten their grip on government, education and enterprise business, according to IDC PC analyst, Mike Sager.

There is also no doubt the price gap between the multinational players and whitebox providers is shrinking.

As a result, Gartner analyst, Andy Woo, said five per cent had been shaved off the market this year, if the figures for Q1 2005 and Q1 2004 were compared.

"The whitebook is being [especially] restricted," Sager said.

"The growth in multinational vendors in Australia has made the local portable market hyper competitive and the whitebook market has suffered accordingly. IDC does not see any growth potential for this market until at least 2006."

Whitebox woes
Super competitive pricing strategies and powerful brand awareness campaigns by the multinationals were giving whitebook players a run for their money, Woo said.

"When you can buy an Acer and Dell at sub-$1000 levels, why would you buy a non-branded notebook?" he asked.

Indeed, plummeting notebook prices changed the game this year for the local whitebook player. The multinationals also got an edge by capturing education tenders and more enterprise business.

ASI Solutions' communications manager, Craig Quinn, said the whitebox prowess of the past was fading. Partners need to regroup and focus on other areas.

"We used to have a price advantage [roughly five to 10 per cent] over the multinationals," Quinn said, "and we also had quicker go-to-market with new technology, but now that's being matched by the tier ones."

It was hard to compete against the multinational powerhouses, Woo said.

"These players have scalability, deeper pockets, and a better supply chain," he said. "Vendors have the capability and the capacity to play the game. It all boils down to the bottom line."

"The channel would rather push a branded PC - it's a no-brainer to go after an Acer, HP, LG or Asus - over a Mom and Pop Centrino-based notebook," Woo said. "How do you get into the mindshare of the channel - you build end-user brand awareness."

And the multinationals are speaking out about their market wins.

Acer senior notebook manager, Antonio Leone, said the company's supply chain model gave it an edge in the cutthroat notebook market. Lenovo offerings manager, David Nicol, said the education space was particularly strong.

But Optima notebook manager, Henry Lee, said the company was not deterred by the recent contract losses to its multinational cousins. It still saw strong opportunity in the education and government segments, he said.

"There's always space for us against the multinationals," Lee said. "We will continue to get contracts because of flexibility, quick time to market and good warranties."

Digging deeper, whitebox players can get some traction in the home market, Gartner's Woo said. "Let's be honest, the main areas will be home and SOHO, perhaps some SME."

But Plus Corporation managing director, Nigel Fernandes, said it wasn't worth bothering with the low end home market because Dell has it all wrapped up. Even the low end server market is being hogged by Dell, he added.

"There's been a drop in business in the home user market at the low end, and you can thank Dell for that," Fernandes said. "We can't fight Dell pricing there, and I don't know how anyone else can.

They have the $700 to $2000 desktop space cornered."

But the company could hold its own in the high-end gaming and high-end server markets, Fernandes said. High end gaming, in particular, had been booming.

"While there's been a slight increase in overall turnover of about five per cent over last year, the increase in gamer machines [which range from $3000 to $6000] has been about 15 per cent, so that's the sweet spot."

How was the company dealing with the market heat? Simple, Fernandes said. "We can offer the latest technology, dual core processing on desktops and servers, and feature-rich machines with the latest graphics cards and processors. We offer quick-to-market, which a Dell just can't do."

Meanwhile, rolling out different and unusual product lines was all part of the game plan for whitebox player Pioneer Computers.

Managing director, Jeff Li, said the company recently launched the Tube, a thermal efficient computer with the new Intel BTX form factor along with a notebook with face recognition technology and a set-top PC that can be plugged directly into the TV, which is all part of the funky and unusual product mix.

"The Tube is a new breed of PC with a funny shape," Li said. Slung over the shoulder, the Tube is equipped with a built-in handle so the PC can accompany the consumer on the road.

Offering these and other types of small form factor PCs was one way to stand out from the crowd, Intel channel marketing manager, Andrew McLean, said.

"There is a lot of exciting development in this area by the Taiwanese ODMs," McLean said.

Small is beautiful
System builders could start peddling small boxes, including appliances driven by remote control that offer niche applications, McLean said. Steeped in the small form factor arena, Ipex was acquired by Volante in 2002.

Strong in the corporate, government and education sectors, its ultra small form factor PC (dubbed the AllStation X) was able to accommodate the widest range of chipsets, as well as a variety of technology (TPM security and IAMT management), which reduced total cost of ownership, Ipex technical director, Yaron Schwalb, said.

"We try to offer unique form factors and unique features and additional R&D," Schwalb said.

The company is working on a type of Media Center PC, which will look more like a stereo, he said.

"Why would a person fork out over $5000 for a plasma and then put in an ugly mini tower? It just doesn't make sense," Schwalb said. The goal is to deliver a model by Christmas.

Busily crafting small form factor designs, the company wasn't strictly focused on the hardware side of things, which gave it a leg up in the dog-eat-dog-world of the whitebox market, Schwalb said.

Instead, the company had a toe dipped in the R&D, integration, technical and services side of the market, so it wasn't under the same pressure as many local whitebox players, he said.

"A lot of whitebox players are hardware-centric and evolving into integration," Schwalb said. "But we've always had both."

Intel's McLean said the whitebox market was still thriving and offered a host of tips for resellers.

"Business is still good in this space," McLean said.

"There are pricing pressures on local players, but there's nothing to suggest a trend. There have been a few deals where the multinationals have been sharp on pricing, but there are still lots of other deals where local players can get an edge."

New battleground
The whitebook market, thanks to the consumer's growing appetite for mobile computing, was a hot area of opportunity, he said.

"The whitebook is the real area where local organisations can focus on and increase their presence," McLean said.

He suggested whitebox players hook up with an ODM partner.

"The player will need to align with one or two ODMs in Taiwan [the ones building the barebones mobile platforms]," McLean said. "Or align with an Australian distributor representing the ODM [such as TodayTech]."

Once established, partners can find an edge by offering a speedy turnaround time.

"Configure a system very close to the point-of-sale: flexibility is the key," McLean said.

"We are seeing a fair bit of noise towards built-to-order notebooks. It's a way to differentiate and a trend we're seeing."

He cautioned partners not to compete strictly on price (and become obsessed with driving cost out of the notebook), which will often result in putting in cheap batteries and focusing too much on the number of USB ports.

"These are ways to drive costs out, but are you still able to give value to the end-user," McLean said. "The consumer will start getting savvy."

Instead, plan to differentiate by offering customers multimedia functionality, and pitch notebooks built on the 915 chipset, which offers faster bus speeds, faster memory, and better graphics capability.

"Most of what end-users are looking for are better graphics and widescreen," McLean said.

Offering a Media Center PC is another market opportunity.

"Build ones with interesting form factors, making them smaller and quieter is important," he said.

It was also important to prepare for the roll out of dual-core processing technology. This would offer enhanced speed and boost application performance.

The technology, which places two CPUs on a single piece of silicon, cut costs and thermal emissions, McLean said.

"The channel has to innovate and be first to market with this type of new technology," he said.

While not rocket science, partners should plan to provide customers with a total solution, McLean said. "If you look at any multinational, they have the whole range," he said.

"So local builders need the whole range, and need to drive their own brand rather than try to get price leadership. It's all about the brand."

To get an edge, analysts claim whitebox vendors need to continually adopt a value-added proposition - since they don't often have a price advantage anymore.

Some value-adds could include extended warranty support, asset management, channel support and outsourcing back-end tasks.

In fact, there was still something to be said for traditional whitebox skills, including quick time to market, flexibility, build-to-order, and added customer service, Impact Systems managing director, Peter Agamalis, said.

"The company stays competitive by offering great deals and value add," Agamalis said.

Impact recently inked a deal with MSI in a bid to distribute its mid-range line of notebooks.

"It's evident many people think entering the whitebook market is suicide; however, we feel quite the opposite," Agamalis said.

"We believe there's an opportunity for us to enter the market, and support our channel partners on a more personal level than a Synnex or an Ingram Micro can.

"These companies have so many product sets and find it difficult to offer personalised relationships with partners."

ASI's Quinn said whitebox players also need to offer a range of infrastructure services.

"The whitebox itself is not going to be the guaranteed source of income," he said.

There's even talk of the industry forming a whitebox alliance, ASI Solutions director, Maree Lowe, said. "We are all regrouping and thinking of the opportunities, which is an interesting concept in its own right," she said.

"What can we do? There's a chance to form a consortium or an alliance to gain volume buying power, and work together to deliver a variety of services. Because we all know a box is a box, which can deliver the same components at the same time. So offering the services infrastructure is the edge."

Project-based services could include offering a migration path, as well as fleet management; commissioning ad decommissioning; the transfer of data technicians at multiple sites; and a complete server or desktop refresh.

"Companies need the whole project plan and need services like installation, training, and data migration," Quinn said.

"The next level is to offer management of multiple sites and remote management in a strict time frame."

Services strategy
Getting involved in the entire IT strategy and policy planning is the way to go.

"There is a big move towards outsourced services. In addition to warranties and maintenance, offering outsourced services is making life easier." Hosting websites, along with managed security, are some business options in the outsourcing arena.

Today, services account for 53 per cent of the ASI business.

"We are seeing strong demand with corporate customers, the 50-1000 users," Quinn said. "There are two growth areas: organisations with multiple sites, or companies that are joining together. Their IT has grown substantially so they want to go the outsourcing route."

Other growth areas include storage and voice over IP (VoIP).

"Data storage and server consolidation are other top areas," he said.

The whitebox server, for example, made good headway this year.

At this pivotal time of change and stiff competition, players were taking stock, Lowe said, pointing to opportunities in the document management space.

"What we're all doing is looking at our core strengths, what are we good at, and trying to deliver these products and services to a wider market," he said.

"We have the perfect model to deliver managed services - and we're on a push to attract more corporate activity."

AMD marketing manager, Caroline Francis, said the whitebook channel was one that would develop as the notebook market became even more competitive.

The $2000-$2500 space is heating up the whitebook arena. The Turion mobile platform was well positioned to take advantage of the action, she said.

"The Turion 64 offers DVD-burners and 60-80GB hard drives - the sweet spot for notebooks," Francis said.

Top considerations in the whitebook space included price and performance, she said.

"Competitive price at a really good spec is important," Francis said.

And while AMD was well positioned to take advantage of the market opportunities, it would take another 12 months to get things really percolating, she said.

While suited across the board, the Turion is ideal for the digital entertainment platform. At present, Avnet and Legend are distributing the Turion 64 mobile technology locally.

Francis said local whitebook players could standout from the pack by offering strong warranty and service offerings.

"The three-year warranty is a great opportunity for the whitebox player to step up to the plate," she said.

"The norm is one to two years. It will be interesting to see how it all plays out."


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