White-Box Market Posts Healthy Gains

Sales of desktop PCs grew to an estimated 6.5 million units, an increase of nearly 10 percent above the 5.93 million units sold in 2002, according to research conducted by NOP World Technology, an independent market research unit. In addition, 643,000 white-box laptops and notebooks were sold in 2003. In the server market, an estimated 688,000 units were sold in 2003, up nearly 5 percent above the 657,000 units sold in 2002.

The estimates are based on a telephone survey of 400 organizations that assemble and sell or resell white-box systems in North America (United States and Canada). White-box systems are defined as either self-built (the organization buys components, integrates them and sells the systems) or prebuilt (the organization buys generic systems and resells them with minimal integration, such as software or customization). The following brands are explicitly excluded from the survey: Acer, Dell, eMachines, Fujitsu Siemens, Gateway, HP (Compaq), IBM, Micron, NCR, NEC CI, Sony, Stratus, Toshiba and Unisys.

An estimated 34,200 organizations in North America sold white-box systems (PCs, servers or both) in 2003, which is the highest population of white-box assemblers and reseller organizations since 1999. The population of white-box assemblers and resellers has grown steadily since hitting a low point of 25,900 organizations in 2001.

NOP World Technology partly attributes the increase in the organizational population and white-box unit sales to the continuing trend of falling PC and server component prices. As prices of processors, hard drives and other components decrease, white-box assemblers are able to derive profits through bundling these components into systems. Organizations that assemble and resell white-box systems report that they are realizing higher gross margins on these systems compared with brand-name systems.

Asked to identify their primary reason for selling white-box PCs, more than one-third of the organizations surveyed point to profit margins. The second most popular reason for selling white-box PCs, cited by 28 percent of the organizations, is flexibility of configuration.

In the white-box server market, the reliability or quality of the components is the most popular reason for selling white-box servers (30 percent cited this factor). Profit margins are a close second, with 29 percent of the organizations identifying this reason.

Small Business Drives Sales
The increase in technology expenditures by small businesses--which appear to be spending more freely these days on computers than larger businesses--is also driving sales. That's good news for white-box assemblers and VARs because small businesses are their primary market.

Nearly half of all white-box servers (46 percent) are sold to businesses with one to 20 employees. Another 21 percent of the white-box server volume is sold to businesses with 21 to 100 employees, which means two-thirds of the white-box servers sold are being purchased by businesses with 100 or fewer employees. A similar scenario exists for white-box PCs. Nearly six out of 10 white-box PCs are purchased by businesses with 100 or fewer employees. Consumers and individuals are also becoming a key market for white-box PCs, accounting for 16 percent of all white-box PCs sold in 2003.

Price a Major Factor
Why are these consumers and small businesses buying no-name, white-box PCs instead of well-known, brand-name systems? Clearly, low price is a factor. More than half (54 percent) of white-box assemblers or VARs completely agree or somewhat agree with the statement that the average selling prices of their white-box systems must remain at least 10 percent below the prices of comparably configured major brand-name systems. This competitive pressure on white-box systems appears to be building: In 2001, only 36 percent of white-box assemblers and VARs completely agreed or somewhat agreed that their systems had to remain at least 10 percent below comparably configured brand-name systems.

Still, a sizable number of white-box assemblers and VARs apparently are immune to this price pressure. More than one-third (35 percent) of them say they somewhat disagree or completely disagree that their white-box systems need to remain at least 10 percent below comparably configured brand-name systems.

Richard March is senior vice president for NOP World Technology, a joint business unit of RoperASW and NOP Research. He can be reached at [email protected], (914) 698-0800, ext. 223.