White boxes remain the silver lining in the cloud that shrouds the PC market.
According to market analyst IDC, the white-box segment has enjoyed a reasonably strong quarter in an economic climate that has left many in the industry struggling. The components shortage which last year dogged assemblers has not only eased, but prices on these parts have dropped, despite the low Australian dollar.
IDC senior analyst for servers and workstations Tom Minarik said white-box vendors were generally very strong in the home and small-to-medium enterprise (SME) segments of the Australian PC market, which accounted for 74 per cent of the shipments placed during 2000. This has been further bolstered by a constant component supply and to some extent the economic situation.
"Other factors such as the supply of hard drives and processors improving in Q1 this year over the second half of 2000 have helped to assure customers that prices will remain relatively stable," Minarik explained. "In light of worsening economic conditions - either real or perceived - and the price sensitivity of users in the home and SME segments, white-box vendors can typically capture market share based solely on price differentials. Despite brand-name vendors cutting prices to compete, tightening purse straps mean that even a marginal price difference between the two vendor-types can sway a customer to purchase a white-box system."
System integrator Compucon has found that despite a general slowdown in the retail market, its sales to that sector continue to go from strength to strength.
"We have been doing very well in retail with Harris Technology and Harvey Norman," said marketing manager Sean McDonough. "Things haven't slowed down in that segment at all for us."
National PC sales manager for Total Peripherals Group Timothy Strachan agrees the market has been quite strong, particularly in the white-box server segment.
"With the market very tight at the moment people are reluctant to spend money on new hardware," he said. "So businesses are upgrading their networks and trying to get increased life out of their PCs by buying better servers."
Things may be good in retail, but Compucon's McDonough admits the corporate market is "still a little bit quiet". He said the company is currently finding success in affinity programs in the education and corporate markets, and has also found direct marketing opportunities through online partners.
IDC believes opportunities exist for PC vendors to target upgrade cycles in all business segments, with systems priced between $1500 and $2000 during 2001.
It is good news for unbranded assemblers who can take advantage of the weak dollar to win back some of the market share branded vendors pinched last year.
"The weak Australian dollar will probably not impact white-box vendors as much as it will impact name brands," Minarik said. "Name brands will have to keep prices down to compete with the white boxes while still hitting their sales targets. This could be a tall order, considering that white boxes now have better access to components at discounted prices and the downswing in the economy will start to stamp its mark on overall business confidence."
McDonough points out that the success of unbranded machines in the market place is dependent on more than just price points.
"Our success is because we offer a three-year on-site warranty as a selling point. We try to avoid getting into the trap of competing solely on price because if you get into a price war at the low end of the market it is a downward spiral," he said.
Minarik believes there is little scope for white-box servers to develop a huge presence in the Australian market since the share of standard Intel architecture servers' (SIAS) revenue sub $US25,000 was around 6 per cent. However he concedes that possibilities exist within the small business market where organisations are expanding rapidly.
"Many would be buying a server for the first time, moving away from a peer-to-peer network model, and white-box vendors provide a low-cost alternative," he said.
According to Strachan, overall white box sales were "much stronger" this time last year, but the company's server sales are up.
"You are getting similar if not higher specifications, equivalent quality at lower price and more flexible configuration," he said.