White-Box Fever: Servers Next On Dell's List

Such a move would expand Dell's Solution Provider Direct program into the higher-margin server segment, they say.

A Dell spokeswoman would neither confirm nor deny a planned white-box server offering.

Two members of Dell's Solution Provider Direct program, however, said that's what they have been told to expect. The solution providers previously built custom white boxes for their customers but said they found the work cumbersome without adequate profitability and now use Dell's Solution Provider Direct program.

Josh Ayars, president of Advanced Information Technology, a Mickleton, N.J.-based solution provider, said the Dell white-box program is helping his bottom line. "We did our own custom-built machine," he said. "We spent a lot of time configuring machines. It just made more sense to us [to turn to Dell. It costs me money if my guys can't bill time because they are busy fixing or building a machine."

Ayars said his company has sold $30,000 worth of Dell equipment in the past month, with an even mix of unbranded and branded systems.

Ayars said Dell representatives informed him the forthcoming white-box servers would be unbranded and based on Dell's PowerEdge product line. While Ayars said he would welcome the addition and expansion of the Dell white-box program, he also said he would like to see a wider array of form factors.

"It's a nice little white box," Ayars said. "The one thing I was concerned with was the color. All the components were black, but the case was gray." That caused some of his clients to pose questions about the design, he said.

Joe Fain, president of IT Enterprise Consulting Group, a Denton, Texas-based solution provider, is eagerly awaiting the new server line which he also expects early next year. "We're really excited about that," he said.

Executives at Systemax, Tech Data and white-box builders said Dell's white-box effort has not impacted their business.

Rich Pereira, director of components product marketing at Tech Data's Components Specialized Business Unit, said a recent meeting with solution providers who build and source white boxes from the Clearwater, Fla.-based distributor turned up a distinct dearth of interest in Dell's offering.

"We had some lively conversation," Pereira said. "I asked the question: 'How many plan to buy or resell a Dell white box?' There were zero hands in the air.' "

However, Pereira said, there is a growing concern that Dell will actually drive down margins across the white-box space,results similar to what the OEM has accomplished in the branded space.

"Dell has lowered the price in the market, which is making it tougher for [solution providers to get reasonable margins unless they can upsell like Dell is doing," Pereira said. "On the positive side, they all agreed there is a certain level of endorsement or legitimacy to the white box that [Dell is entering [the market. There is a double-edged sword."

Many solution providers say it is more profitable for them to build their own white boxes than sell a preassembled Dell offering.

"I received a white-box brochure from Dell advertising to my business," said JoAnn Evans, vice president of Net%5CWorks, a Minneapolis, Minn.-based solution provider. "Although in September, Dell listed a machine cheaper on its own Web page than its advertised white-box 510D [system."

Specifically, she said, a Dell white-box PC with a 1.7 GHz Celeron processor, a 48xCD-ROM drive and a 20-Gbyte hard drive was listed as $499, while a Dell branded system, with a 1.8GHz Pentium 4 processor, a 40-Gbyte hard drive and a CD-RW drive was listed as $459.

"Resellers such as myself will not save or make more money by going to Dell's white box," Evans said.

One criticism of the Dell program is that the vendor prohibits solution providers from selling the white boxes into large accounts, or government or education accounts. However, Fain said he has been led to believe some of those terms might be negotiable down the road.

"We're more interested in building a relationship with our customers," said Fain, whose company focuses on SMB accounts. "We are on the state [purchase list, but we can't sell [Dell white boxes into government [accounts."

However, Fain said, Dell has suggested that "if we have something that comes up, we just need to call them and talk about it. We are working on selling into government or education."