Contract Manufacturing Meets The Channel
As custom-system solution providers move beyond the box, components distributors are following them with a wider variety of house-brand products and contract manufacturing services. How far this trend will go remains to be seen, though. While supermarkets have been populating their shelves with house-branded products in nearly every category, as well as offering a variety of specialty prepared foods, technology products are hardly toothpaste or tuna salad.
If they build it, will you buy it?
A growing number of distributors are offering unbranded products to solution providers—and it’s not just PCs anymore. Distributors are selling unbranded servers, monitors, security appliances and other IT items to bring low-cost alternatives to the channel.
In many cases, distributors are able to offer the products through direct ties with Asian manufacturers or by leveraging their own configuration facilities in North America.
For custom-system solution providers, whose customers have long eschewed tier-one brand labels in favor of the service, support and solutions the solution provider delivers, ties between distribution and contract manufacturing could mean richer margins, a greater ability to customize solutions or an ability to find products not available elsewhere.
Synnex, Fremont, Calif., has had a contract manufacturing business for years, building thousands of servers a year for Sun Microsystems. Recently it began building Intel servers on behalf of solution providers looking for Linux cluster solutions. Its most-touted example is the 4,096-processor cluster it built for California Digital last year—the world’s second-largest supercomputer at the time.
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Sun still accounts for about 94 percent of Synnex’s contract assembly business, but the distributor is looking to increase its other assembly business, particularly with solution providers, said John Paget, president of North America and COO of Synnex.
“Steve [Ichinaga, senior vice president of systems integration] has done a good job reaching to higher-end systems builders, attracting them into our channel assembly business to build their nodes and racks,” Paget said. “These are build-to-order products. They are products designed by our customer or a manufacturer. We are not putting product on the shelves.”
The distributor also markets home entertainment products and PCs and notebooks to retail customers under the brand Datago, but it does not expect to offer custom-built PCs or notebooks to solution providers, Paget said. For solution providers, Synnex will continue to focus on servers and appliances. “I prefer higher-end server products,” he said. “That’s where our expertise and return for our customer happen to lie. There’s a low return if we were just building PCs.”
About 5 miles down Interstate 880, distributor ASI is building a variety of systems on behalf of solution providers. Since acquiring contract manufacturer Nextrend in December, its assembly business with vendors and solution providers has grown markedly, said Brian Paterson, vice president of product marketing and product management at ASI, Fremont.
“We wanted to better position ourselves for contract manufacturing with the hopes of taking over production aspects of our customers. We want to help them focus on selling more solutions, software, security, networking,” Paterson said. “There is value-add in physically building machines because there [are] not enough margins for our customers to maintain their own production staff, especially for SMB customers. If you can have a branded PC with a solid warranty built for free, it’s hard for customers to justify spending money on labor.”
ASI, a major components distributor that has long provided PC assembly services for solution providers, has been putting increased emphasis on building its nSpire brand in the channel, along with offering other nSpire-branded products. Jesse Meuller, owner of Blue Screen Computer, a Mount Jackson, Va.-based solution provider that relies on ASI to build its systems, said he would be interested if ASI and other distributors offered more unbranded products such as monitors and printers.
“I don’t think it’s terribly important to my customers. Rarely am I asked for a Sony monitor,” he said. “I’d be interested in anything they had as long as it was still a quality product and the price was there. I don’t care who builds it.”
Like Synnex, ASI has its eyes on building more complex and a wider variety of products for solution providers. “We’re building routers, NAS boxes, disk array boxes. We’re very open to getting into new areas,” Paterson said.
The distributor also is able to private-label computer cases, LCDs, memories, external drive enclosures, MP3 players, cameras, portable DVD players, USB drives and other products, Paterson said.
While Ingram Micro has no plans to do contract manufacturing on behalf of vendors or solution providers, it has started branding its own products for solution providers. The Santa Ana, Calif.-based distributor has launched a V7 line of monitors in North America, after having success with a similar offering in Europe for several years, said Paul Bay, senior vice president of vendor management at Ingram Micro.
Ingram Micro also is exploring other products to offer, including printers and cameras to fill voids in certain marketplaces, Bay said. While the distributor has not worked with its suppliers to provide private-label peripherals for customers, that would be possible. “If a customer wanted it and the terms worked out, we could do that,” he said.
When it comes to computer systems, many solution providers say they can build the machines just as quickly and just as cheaply as a distributor, but a distributor backing the warranty is enough for some to outsource the manufacturing to a distributor.
“If they are willing to warranty it for up to three years, they must be fairly confident with their builds,” said Les Arnold, CEO of Americad, a system builder in Alpharetta, Ga. “And when we figured out they were sourcing the same product we were—Intel motherboards and processors, Seagate and Western Digital drives, Sony DVD drives—I didn’t have a fear factor involved.”
In the past, Americad has purchased ASI’s nSpire monitors, which were well-received by customers. “I don’t see a problem with a [distributor’s] decision to brand their own products. I’m amenable to all these things,” Arnold said.