Last Stand: Can Intel Rescue The Whitebook Market?

System builders are pinning their hopes on the 'Verified By Intel' program. Now Intel needs to deliver.

By Joseph F. Kovar, Kristen Kenedy, ChannelWeb
9:00 AM EDT Mon. Oct. 23, 2006
From the October 23, 2006 issue of CRN
Page 1 of 2

It might just be the whitebook's BEST HOPE.

After what some system builders charge has been several years of neglect at the hands of component manufacturers, whitebooks are finally getting some backup in the form of Intel's "Verified By Intel" program.

This is Intel's second go at attempting to develop traction for a custom notebook market that has suffered from service and pricing issues. While notebook sales have boomed, whitebooks have not.

"We've been promised we can build our own notebooks by Intel for three years," said Tom Derosier, co-owner of CPU Guys, a solution provider and system builder in Hanson, Mass. "But it never got down to the channel."

System builders are hopeful this go-around will address key issues, but some caution this could be the whitebook's last chance to gain credibility with the channel. If Intel fails, "they run the risk that the system builder community loses the ability to differentiate themselves and will need to look to a new value-add," said Dan Schwab, vice president of marketing at D&H Distributing, Harrisburg, Pa. "Hardware is the only way for the system builder community to differentiate itself."

The stakes are high for both Intel and custom-system builders. Intel launched the Verified By Intel, or VBI, initiative in March and promised broad reinforcements in the form of first-level support, rebates for custom-system builders and, most importantly, a good supply of quality, standardized components such as power supplies, batteries and LCD panels.

As can happen in aggressive campaigns, some of the reinforcements were late in arriving. Original design manufacturers (ODMs) failed to deliver an adequate supply of VBI components during the program's early months. Steve Dallman, Intel's director of Americas distribution and channel marketing, acknowledged the problem in August but said Intel, which is acting as a kind of aggregator for VBI components, began shipping additional supply to its North American distributors ASI, Synnex, D&H and Tech Data Canada.

And now, more than six months after Intel's enthusiastic VBI launch, the chip maker believes it finally has all the required elements for a comeback attempt. VBI is an important initiative for Santa Clara, Calif.-based Intel, which derives about 30 percent of its revenue from the channel, and may be even more important for custom-system solution providers.

Custom desktops are still strong sellers for many of these companies, but the market—both business and consumer—has been shifting to mobile systems. Currently only about 18 percent of solution providers offer whitebooks, according to CRN's latest Solution Provider Survey in July, and fewer still build their own.

The reasons why whitebooks have failed to gain traction are many. But one important reason, a variety of channel executives believe, is that ODMs have been reluctant to support the whitebook channel, either because they were more focused on high-volume OEMs or because they did not want to anger their big OEM customers, or both.

Some of the executives, speaking on condition of anonymity, said ODMs have been shipping substandard parts for their whitebook offerings, saving their best parts for high-volume OEM clients. One executive who has worked with ODM suppliers claimed some ODMs were using LCD panels that had failed quality testing for branded models in the whitebooks.

Whether a system builder was having problems with quality or not, most report some level of service issues. With whitebooks, system builders have not been able to service the units in-house, but are required to return them to the supplier and hope for the best.

Whitebook makers have "traditionally been very poor at supporting the channel," said Todd Swank, vice president of marketing at Nor-Tech, a system builder in Burnsville, Minn.

CRN contacted the three main ODMs participating in VBI—Asustek, Quanta and Compal—but they declined to comment. But one executive with a large Taiwanese contract manufacturing firm, who asked not to be identified for fear of offending large OEM customers, said he did not think the VBI program would work.

"Intel wants to get whitebooks to the channel at the same price as the OEM price, but I doubt that will happen," the executive said. "Name-brand vendors account for 50 percent of desktop PC sales and 80 percent of notebook PC sales."

By working with ODMs, Intel plans to attack the whitebook dilemma on a variety of fronts.

Making service parts available to the channel has been a critical issue. To ensure parts are available for service, Intel worked with the ODMs to develop what it calls common building blocks—a standardized set of parts for whitebooks that include power supplies, batteries, LCD screens and drives. The idea is to remove the proprietary nature of these components so that solution providers can easily source the parts when servicing customers.

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