White boxes serve up feast

Market analyst IDC is set to release its most extensive study ever of the clone market, with the report's author predicting huge opportunities for resellers in white box servers.

Bernie Esner, IDC's PC consultant, has written the report, to be released on November 30, based on sales research as well as interviews with distributors, manufacturers and component suppliers.

Titled A Study of the white box market in Australia, Esner's study reveals statistics on both units shipped and revenues and deals with the market sector that generally appears in the "other" category on IDC mainstream reports.

Esner's research reveals there is well in excess of 1000 white box assemblers in Australia, many of whom could evolve into the far more profitable area of servers where service is also more lucrative.

Meanwhile, he said he was "truly surprised by the level of competence" shown by those dealing in this space.

"Where the white box server guys have it all over the brands is in the SOHO market," Esner said.

"These assemblers already have the localisation and intimate customer knowledge.

"In desktop hardware, no one is making any money on the box any more - it is all to do with value-added services and there is so much more potential for server services. There are still good margins in value-adds like storage and racking," he said.

Esner added that he expects white boxes to penetrate the server market to the same depth they have in desktops within 18 months.

The white box server market is the great unwashed channel opportunity which very have realised, according to Siltek Asia Pacific MD Hugh Evans, one of the first to be accredited under an Intel-certified server program.

"What people don't realise is that only 6 per cent of the servers required to sustain the Internet have been deployed," Evans said.

According to Evans, the total white box server market was worth $44 million last year and is expected to hit $55 million in 1999, rising to $80 million by next year.

Siltek Asia-Pacific's recent purchase, Agate, was recently appointed by Intel as one of the few companies licensed to build white box servers based on its motherboards.

According to Evans, the channel has had enough of over-priced servers from manufacturers such as Compaq and IBM that traditionally sell the boxes direct to the end user.

"The channel is getting really annoyed by this," he said.

Evans said white box servers ship with exactly the same components as vendor boxes, but offer a compelling price advantage. "It's the same product without a $5000 badge," he said.

Max Mentiplay, MD at Adelaide's Microbits, another on the Intel white box program, said customers have rapidly accepted its standard and customised white box servers "at the price-sensitive end of the market".

He said many customers he built desktop systems for went looking for brands when they first started buying servers, "but now they are coming back" as they see it offers the same performance and reliability.

"Basically, it comes down to the fact that we are local and that we can supply spares and better support," Mentiplay said.

He added that he always liked the quote he heard from someone at Novell stating the amount of data on the Internet would increase 100-fold in the next five years and that 94 per cent of the servers that will house that data are yet to be sold.

"If this proves to be the case, that is a lot of servers that are yet to be sold and I think there is a portion of that for assemblers such as ourselves.

"The other thing to remember is that the majority of servers already deployed will be obsolete in two years. I think the potential is there to grow the market 25 times," Mentiplay said.

Bruce McCabe, research director with GartnerGroup's Australian office, agreed there is significant opportunity for assemblers in white box servers but said it is a window which won't remain open forever.

He suggests that continued consolidation of manufacturers will eventually eliminate the viability of white box assemblers but in the meantime selling them is a great vehicle for companies to migrate to a services-based business model.

"In five years from now, you will have trouble naming more than 10 suppliers in any particular hardware category," McCabe said. "It is already hard to name 10 notebook suppliers."

McCabe doesn't see a huge role for white box servers in large corporate or government space.

"Hardware is such a small component of the overall spend. There are much bigger considerations and I think that the large users will tend to stick with the global brands," he said.

Phil Burnham, senior research analyst with channel analyst Inform, agreed that the server market is looking strong and thought there would be a big role for white boxes in the SME market as there currently is with desktops.

This obviously opens an increasing role for white box server assemblers which he sees as a logical evolutionary step from what many companies in the channel are already doing.

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