From...

May 10, 1999
Web posted at: 2:15 p.m. EDT (1815 GMT)

by Tom Spring

(IDG) -- Buying generic toilet paper is one thing, but what about buying no-name PCs?

When it comes to generic, PCs are popular fare. So called "white box" computers have grown commonplace at businesses, say analysts, who estimate that 30 percent of PCs sold to this market are made by computer makers as obscure as they are plentiful.

Lumped together, the 40,000 little-known PC makers easily outsell even big brands such as Hewlett-Packard and IBM. According to International Data Corporation, white-box PC makers account for more than one-fifth of the domestic PC business and 30 percent of PCs sold to small and midsize companies.

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The no-name game

White-box makers can build PCs cheaper and are smaller and nimbler than the Compaqs of the world, ultimately saving you money, says Bruce Stephen, president of PC research at IDC. Local manufacturing, support, and low overhead can translate to prices that are $200 to $300 below brand names.

Even more important, while large computer companies have little or no contact with their customers, local white-box makers can offer personalized service.

Most of their machines are sold to local resellers who target regional small to midsize companies--a market they say big national manufacturers can't reach.

IDC's Stephen says buyers are caring less about PC brands since Intel and Microsoft now set technology standards for PCs. Those brands are more powerful than those of the big computer makers.

Technology standardization also has helped white-box makers overcome incompatibility glitches (a big problem years back).

The white box connection

These opportunities attract even well-established firms like PC Connection, the direct marketer of brand-name personal computers. This week the company threw its hat into the ring of white-box PC makers, launching the Epiq PC Systems line.

PC Connection's strategy is to use standard name-brand components, such as Intel's Pentium II processors and Western Digital's hard drives, build generic computers designed for small to medium-sized businesses, and price them aggressively.

Epiqs have the same innards as brand-name machines without the markup, and PC Connection has more control over the customization of systems and when things get built, says Tracey Turner, vice president of corporate communications for PC Connection. Moreover, she claims the company can offer a better service at a lower cost and give customers more choice in components, while responding to price and technology changes more quickly.

Working with resellers near you

In recent years when cost-cutting moves by the brand-name manufacturers shrunk the price gap to a few hundred dollars, experts predicted the white-box party was over.

However, generic PC makers have thrived with basically the same game plan: cut-rate pricing, customization, and personal service.

Their lack of overhead makes it easier to live with low margins. And unlike their larger competitors, instead of investing in sales forces and costly ad campaigns, no-names sell directly to schools, businesses, and value-added resellers.

Resellers love white-box makers' lower prices, and they pad their own profit margins further by loading software, installing networks, and sometimes conducting training.

"Value-added resellers don't just sell our boxes, they sell the whole farm," says Michael Shabazian, chair and chief executive officer of Arbor Computer, a white-box maker in Walpole, Massachusetts.

Typically resellers can make double-digit profit margins when they resell the machines, compared with single-digit margins on name-brand machines. Customers know that if they have service problems, they can deal with someone nearby. And delivery of PCs is often quicker--Arbor can do it within three days, Shabazian says.

Fighting an unnamed war

Brand-name makers aren't taking this loss of market share sitting down. Name-brand PC makers emphasize quality and support, and try to bolster relationships with resellers.

One large PC maker, IBM, reportedly now aims to get its PC prices within 5 percent of white boxes' sales tags.

Others like Compaq and Hewlett-Packard want to be more efficient, and they have relied increasingly on "channel assembly," under which distributors like Ingram Micro and Tech Data build their computers.

But now Ingram and Tech Data have both started building white boxes in the same factories where they assemble name brands.

"Longtime white-box computer makers are under increased pressures on a number of different fronts," Stephen says. But until the IBMs of the world figure out how to deliver that local touch, he says, the white-box market will thrive.

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