October 30, 2007 4:00 AM PDT

Trouble on horizon for 'white box' PC makers

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Apple might be the flavor of the moment in the consumer PC world, but hundreds of thousands of customers every year continue to choose plain vanilla "white box" PCs.

Those purchases go on as Hewlett-Packard and Dell churn out millions of name-brand PCs every quarter, Acer enjoys double- and triple-digit growth rates, and Apple continues to be the darling of the hardware business.

At first glance, it would appear the white-box market hasn't changed so dramatically in the past several years. The share of white-box computers (which includes PCs without brand names and those from smaller manufacturers) has decreased from a 44 percent share of the worldwide market in 2003 to 37 percent as of 2006, according to market researcher IDC.

But the growing popularity of notebook PCs spells big trouble for the future of white-box manufacturing. The "white-book" market has dwindled from an already-small 8.5 percent share to a 5.6 percent share between 2003 and 2006. That comes while notebooks have, over the same period of time, become the dominant PC form factor for top vendors Hewlett-Packard, Dell, Lenovo, and Acer, accounting for two-thirds of consumer PC sales.

The smaller PC assemblers can't participate as easily in the notebook market. That's because their bread and butter--an oversupply of parts they can buy at a discount--are intended more and more for specific notebook models.

White box PCs

That fact is antithetical to what it means to do business as a white-box manufacturer. The key to the white-box market is opportunity. These smaller manufacturers make their money by taking advantage when major manufacturers make mistakes on orders, or by scooping up soon-to-be outdated parts when newer versions are about to become available.

"The thing about white-box vendors is they're opportunistic," observed analyst Roger Kay, president of Endpoint Technologies Associates. "They change their market model depending on market conditions."

That list of white-box manufacturers mostly reads like a who's-that list, rather than a who's-who. Companies like Systemax, ProStar, MicroPro, and CLT Computers put together custom PCs and offer them under a no-name brand or no brand at all. Sales are typically done on a direct basis, avoiding retail outlets, and often are bundled with services, software installation packages, printers, network cables, and warranties. Typical customers of white-box manufacturers are government agencies, educational institutes, small and medium businesses, and even individual consumers.

White-box makers thrive when the bigger guys mess up. Say HP over-orders hard drives: When HP tries to resell those hard drives to smaller players at a discount, white-box manufacturers will snap them up, throw them into some desktop boxes, and wait for sales. In that case, the assembler is making money on the PC with the name-brand hard drive that it got at a discount and put in a no-name box.

It's easy enough to do that with desktops or servers. But notebook form factors and their corresponding components present a challenge for manufacturers who want to mix and match. A motherboard created specifically for an HP Pavilion notebook, for example, can't be shoved into any old notebook, Kay points out.

"There's a great deal of integration and complexity, (which is why) there are hardly any white-box notebook vendors," he said. "The requirement (to be a white-box manufacturer) is a great degree of flexibility in the assembly process." That doesn't work when the parts for notebooks are specially made, and are designed to fit specific spaces inside a specific notebook, he added.

The mix-and-match model can work swimmingly for white-box desktop makers--and for the component makers and operating system makers.

Microsoft, for one, can benefit from having an alternative outlet to license its operating system. For example, HP computers account for just under 20 percent of the worldwide PC market, which affords the company a lot of negotiating power with Redmond. But Microsoft can try to regain the upper hand by having an option to license its products to smaller outfits that individually wield far less influence, said Kay.

Despite that, small and regional PC sellers still find it close to impossible to compete with the big guys. Ray Klammer, who has owned San Francisco computer seller Boxed CPU for a decade, has seen his business change with the PC market. He switched from building PCs to order to buying and reselling name-brand PCs seven years ago, after just three years in business.

"You can't sell computers for less than Dell," Klammer said. "Customers that need really specialized computers will (order white-box PCs), but otherwise, no one can build a computer cheaper by building with parts off the shelf."

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23 comments

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Whitebook market extremely competitive
It's very hard to compete with the major players in the laptop market. One problem is that AMD's and Intel's whitebook programs don't offer enough flexiblility to allow a partner to differentiate themselves from the major players. Most laptops are vertically integrated and sold as complete systems for the most part. Because parts are not standardized it's hard to get variety of motherboards for a given model. Because the big laptop companies jack up the price os their batteries the whitebooks have significant price advantage.

I do think that whitebooks could have a significant advantage if they offered features such as expanded memory or tougher case at a reasonable price.
Posted by rshimizu12 (98 comments )
Reply Link Flag
Will never happen
"I do think that whitebooks could have a significant advantage if they offered features such as expanded memory or tougher case at a reasonable price."

While that was the case with white-box systems, the form factor of most notebooks will make that impossible. Consumers want smaller systems with more features and the only way to do that is to design components that will fit in the small 1.3-inch x 2.1-inch space at a 90 degree angle that is available. A white-box notebook form factor would, ultimately, end up looking like a smaller white-box desktop.
Posted by thenet411 (415 comments )
Link Flag
Consumer is the looser.
Standardization is what made white-box assembly possible, and in particular the standardized mother board form factor. Manufacturers realized their "mistake" and now oppose standardization, preferring instead to go with their own proprietary designs. Great for them, bad for the customer. Why do you think the price of notebooks is two to three times that of desktops with equivalent capability?
Posted by rich015 (5 comments )
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Standards do work
Your exactly right when it comes to standards, they get everyone on the same page and make things interchangable. They do affect the cost of building systems, the huge spread between desktop prices and notebook prices are a perfect example of that.

The big OEM's have not recognized this as a mistake, they know the value of standards, and how they contribute to efficiency, and cost effectiveness. There are still a lot of standards being adhered to in the desktop products.

Notebooks have never had the benefit of an internal hardware format standard, and now days really can't. All of the personalization and the loads of options and configurations being crammed into such a small space does not lend itself to standard parts, there just is not the space for it in a notebook. With the recent trends in notebooks being a personal artistic expression, makes it even more difficult to even think of creating a "notebook" form factor standard, everyone is trying to differentiate their offerings not only with specs but appearance too. The size of a notebook is critical, the size of a desktop is not so critical, even fully loaded most desktops have alot of open air space within, notebooks have very, very little.

Because space is such a premium in a notebook, standard interconnections (like PCI) between components, are often sacrificed, for custom boards that contain all the options, all on a single board. There just is no reason to sacrifice the space for standard connectors between the PCI Bus and say the Network, Video, Audio, Drive controllers, video hardware, etc.

Additionally with so few Enigineering OEM's contributing to standards and PC Platform development, the platform is devolving into a mis-mash of competeing 'proprietary-standards' which yes is an oxy-moron...

Whats even worse is now Microsoft appears to have significant influence on these standards, which I think is a mistake. They have do not have any real hardware engineering or manufacturing experience, what right do they have trying to influence it.
Posted by chash360 (394 comments )
Link Flag
Nothing Changed
It would seem that a COMPLETE system has lessened, but more and more people are now building their own computers. Just recently I've built a new Gaming System worth $1000 after rebates and "hot" deals on the parts and case. Alienware would have charged me around $2200 for the exact same system.
Posted by Maarek Stele (170 comments )
Reply Link Flag
dell
I just built my son a mid level PC - about $600, no monitor, no OS. Could have baught the same thing from Dell for $550 including a 19 in. monitor. Never again.
Posted by gggg sssss (2285 comments )
Link Flag
Klammer is a moron...
Obviously Klammer has never tried to build his own box...

I put together a box that was at least 1/2 the price of a Dell box and had 2x the performance. Dell's materials are proprietary which means that their driver updates usually lag behind a lot.

Heck, I once read a forum article at the Dell website (that eventually got closed by Dell) having to do with their Creative Labs Live PCI card they had. People tried to do updates from the Creative site, and their driver update wouldn't even recognize that card as existing on the system.

That forum post was like 300 pages long with well over 1500 people responding to it fuming as to why that cards performance was so terrible. All that those people got in reply was a "Thank you for your concern, this topic has been closed".

That was a bogus way to handle it. And it still shows in their parts today! Try running an audio CD on an Optiplex GX620 and something else... you'd be amazed to NOT get any stuttering in the audio.

Dell uses overly costly crap parts, for PC's. If you give their pc's a workout, they fail. The only consolidation is their Server line, which has progressively gotten better.

The only part you benefit from is a cheaper OS. The rest is the Dell name. An expensive, under performing performance machine. So, you go ahead and dish out 5K for a XPS box while I build it to the same specs as a generic box for 3K. No thanks. *** does a performance gamer system need ECC ram for... Makes not a dang bit of difference, but hey... 2GB of RAM will only cost you $700 vs the 2GB of non-ECC at $300... stupid stupid stupid.
Posted by sniperdoc (61 comments )
Reply Link Flag
sniperdoc
I want to build my own gaming comp I think I know what I need but I am scared I can't do it. any advice
Posted by ratdog25 (7 comments )
Link Flag
I would say ...
... that computer industry eventually will follow the path of audio hardware manufacturers. Once the invention in the industry will slow down and the Moore's law will cease to work, the major players will have nothing left but to fiddle more with old technology producing various "blends" of products and will try even harder to make more profit at the cost of reduction of quality.
Good news is that it is not going to be happen tomorrow nor in the near future.
Bad news are that the practice of locking customers to the brands is becoming more fashionable than ever.
I agree that the notebooks putting a real thread at interoperability of computer components. And the more users are favoring the notebooks the more likely it would be harder in the future to get a system that is tailored to one's taste.
Posted by SneezingPanda (21 comments )
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At least white box shifters can sell a machine with no OS
Generally speaking, I've found that white box shifters tend to allow their PCs to be more customisable than the major OEMs, which can allow you to adjust the components to your liking and even remove some components you won't need (e.g. no keyboard, mouse or monitor needed if you're getting a replacement desktop PC).

In particular, many whitebox shifters let you buy a machine with no operating system - try doing that with the major OEMs for a desktop or laptop! Why should Linux users have to pay for an OS they're only going to have to wipe off as soon as they get the machine?

Having said that, I looked for a whitebox laptop with no OS pre-installed earlier this year and couldn't find one, instead settling for an Acer with XP pre-installed (which, yes, got wiped off and Linux put on it).
Posted by rklrkl (143 comments )
Reply Link Flag
Dell offers them, too
Dell offers some models with a free copy of Ubuntu in place of OEM Windows.

Price out an Inspiron 530N (with Ubuntu) against an identically configured Inspiron 530 (with Windows Vista Home Basic) and you'll find that the N costs $150 less.

Dell also offers a laptop with this cost savings configuration.

-Mister Winky
Posted by Mister Winky (301 comments )
Link Flag
Improve drivers and I'm back to whitebox
I bought a whitebox laptop a couple years ago. Driver support for it was pretty bad. The graphics card required driver updates from the vendor, Asus, who dropped support for it very completely just after I bought it. I don't like being stuck in time with an ancient driver. Newer driver installers fromthe chip vendor refused to install on my laptop, telling me I needed to get updates from the whitebox company, who offered nothing.

I'd also like to be able to get larger capacity batteries, which were not available for mine. I dont' even know where I'd get a replacement for the now dead battery that came with it.

Improve some of these issues and I'm there. I like having very fine-grained choice in what exactly is included in my computers, including not only which graphics vendor, but what particular chip from that vendor, CPU combination, screen size and resolution, etc.

I'd love to see a standard laptop motherboard formfactor, and be able to choose which exact motherboard to put into which exact laptop "case", select exactly what screen resolution, size, and finish to get, etc. It'd also be nice to see a standard laptop grahics card formfactor and other things like that, so I can create a laptop to the exact detail that I can create a desktop today. That'd be very cool.

But today I'm shopping for battery life and driver support, and I haven't heard very good things about these from the cheapo whitebox guys. I'm little concerned about the name brand that's winning my current shopping interest, as it has a lesser reputation for general reliability than others do, but they have the laptop closest to the exact specs I desire. They are not exactly what I want either, but I have not found a closer fit from any other brand, let alone one with a better reputation.
Posted by amigabill (93 comments )
Reply Link Flag
They should offer Systems without OS
I do agree that all the OEM's should offer platforms without an OS for a discount. I suspect the reason they don't is from a standpoint of support and percieved quality. Many people would order the OS-less system, and then call tech support on why they can't get some hardware to work, well thats because its a custom piece only found in this model notebook, to which you need such and such driver, etc. Support costs add to the cost of the system, a pre-installed OS, configured, tested and proven to work generates a lot less calls to tech support. The Big OEM's will not sell a machine without offering support for that machine, how do you support a machine that you did not configure in some predictable way?

Only the 'white-box' OEMs will sell systems without support, which has a tendancy to define their customer base of very tech-savvy users. Perhaps the Big OEM's could learn from this, in fact leverage it, with products and prices geared toward the Technical user who needs little tech support.
Posted by chash360 (394 comments )
Reply Link Flag
See above -- Dell does
<a class="jive-link-external" href="http://www.news.com/5208-1041_3-0.html?forumID=1&#38;threadID=32505&#38;messageID=328398&#38;start=0" target="_newWindow">http://www.news.com/5208-1041_3-0.html?forumID=1&#38;threadID=32505&#38;messageID=328398&#38;start=0</a>
Posted by Mister Winky (301 comments )
Link Flag
RE: they should offer systems without an OS
Well the big boys easily could
Apart from the support drivers issues there are other reasons
The pre-loaded software that you get has trial applications that the software developer pays for exposure
MS has great incentives
Also if you want to keep your low prices you need to keep the volume up
Posted by lookoutmama (9 comments )
Link Flag
You have a point
I bought a white box computer strictly because I could get one without an OS and without all the crapware on it. Ended up costing me a ton less than the equivalent would from Dell/HP/Acer etc and I did not have to bother with getting rid of an OS I would never use.
Posted by rhomp2002 (13 comments )
Link Flag
Is everyone blind? Dell offers Windows-free PCs for $150 savings
For everyone complaining that OEMs don't offer PCs without OSes, you're forgetting that Dell offers the Inspiron 530N with a free copy of Ubuntu or FreeDOS for $150 less than an identically configured Inspiron 530 with Windows Vista Home Basic. They also offer a comparable laptop model with free Ubuntu or FreeDOS.

All this talk about "I can build a PC that's twice as fast for half the price" is complete rubbish. If you're a gearhead and you want to build your own PC with specific components, that's fine (I've done it myself several times), but no one can compete with Dell's scale and buying power once you eliminate the OEM cost of a Windows OS.

-Mister Winky
Posted by Mister Winky (301 comments )
Reply Link Flag
DELL NO OS-NOT so
I know they refused to sell one without an O/S to my boss..this was over the phone. But really the big problem with Dell is their sorry tech support
Posted by fletchb (151 comments )
Link Flag
No OS not what average user wants
People want plug and play and that's what having a OS
preinstalled is all about. Sure, a few want Linux but most still
want a Windows flavor. I do think Apple has made some
headway because of all the hype about the iPod and the iPhone.
Plus, the fact that it can still run Windows if you decide you
don't like OS 10. Linux has started way late in the game to get a
big PC manufacture to offer and support a Linux computer. Even
though Linux has made strides in making the OS more beginner
friendly. It has a long way to go before mainstream user's jump
on the bandwagon. Apple is playing Microsoft's misstep with
Vista well so far. Gaining ground against the big giant. But can
Linux do the same?
Posted by jscott418-21618367473133020464 (1660 comments )
Reply Link Flag
Apple - Flavor of the moment?
Everyone on here will be on a Mac within 5 years.
Posted by AJ Pants (143 comments )
Reply Link Flag
um?
how do you figure?
Posted by RayGentry (20 comments )
Link Flag
wishful thinking
I'll be sure to read that from my Windows-based Intel Quad in 5 years...

like it or not, Windows isn't going anywhere. Never underestimate legacy. That's why computers still have printer and serial ports.
Posted by jrm125 (334 comments )
Link Flag
Not in this lifetime
I have to work on Intel Macs all day along with Window based PC's and I can honestly say I wont be moving to the Mac's. I would also like to add that I agree the notebooks are becoming more popular and have advantages but I will still stick with my white-box's for as long as I can.
Posted by drekow (1 comment )
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