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Servers, Notebooks Drive Growth For Custom Systems Builders

The venerable white-box desktop, once the mainstay of the custom-system channel, is continuing to lose its luster with commodity pricing, weak refresh cycles and the ever-increasing popularity of notebooks.

The venerable white-box desktop, once the mainstay of the custom-system channel, is continuing to lose its luster with commodity pricing, weak refresh cycles and the ever-increasing popularity of notebooks, the 2007 CRN Leading System Builder Survey indicates.

Servers, notebooks, storage and "other" systems accounted for nearly one-third of the units assembled last year by the companies on the 36 Leading System Builders list. Desktops, meanwhile, grew a tepid 7 percent, falling below the overall 12 percent unit growth.

Even for some large system builders such as AMAX Information Technologies, Fremont, Calif., desktops are becoming less of a focus, accounting for just 8 percent of its total volume. AMAX President Jean Shih said she thinks the desktop is going to become a consumer-electronics product, like the television.

"We still have a lot of schools and a lot of customers buy our desktops, but we don't really market them anymore," Shih said. "We just market our servers and storage."

Source Code, a Waltham, Mass.-based system builder, reported an 8 percent decline in its desktop business last year, but it isn't worried, either. Overall unit sales were up 34 percent, aided by its acquisition of Jetta International, a notebook specialist in Monmouth Junction, N.J. Brian Corn, marketing director at the company, said Source Code had been trying to establish a notebook line for years, anticipating the market shift, and finally decided to buy one of the leaders after Intel revved up its Verified By Intel (VBI) program. "We're geared up to be greater than 50 percent notebooks and less than 50 percent on desktops," Corn said. "And we can let the desktop decline."

That was not true for everyone, of course. Among the top five desktop growth leaders were two gaming systems specialists—Puget Custom Systems, Portland, Ore., and AVADirect, Twinsburg, Ohio. Meanwhile, Datel Systems, San Diego, and Chipco Computer Distributors, Columbia, S.C., were doing a brisk mainstream desktop business, selling into education markets where spending on desktops continued unabated.

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For system builders, though, the question of whether Intel's retooled whitebook program will enable the channel to compete in the category looms large. And, here, the survey indicated the answer may be yes.

For the Leading System Builders, notebook sales rose to 12 percent of total volume in 2006, growing 27 percent over the prior year. The whitebook volume leaders included Equus Computer System, Chem USA, Newark, Calif., Computer Technology Link, Portland, Ore., Seneca Data, Syracuse, N.Y., and Jetta, now a unit of Source Code.

Next: Growth And Profitability


Corn said notebooks have been tough for system builders because volumes were too low to entice ODMs to work with the channel. But now he thinks Intel's program is working, at least, for larger builders. "Anytime you get somebody like Intel—or AMD—to stand behind the [Return Merchandise Authorization] process, you've got to take advantage of that."

That could bring others back into the market. "We really quit manufacturing notebooks and started moving more tier one," said Todd Swank, director of marketing at Nor-tech, Burnsville, Minn. "It's something I've kicked myself with. Now with the VBI initiative, it looks like something we should be experimenting with."

The real driver of growth and profitability for the custom-system channel, though, was servers. For the 36 leading system builders, servers rose to 15 percent of total volume in 2006 and unit sales grew 23 percent.

While system builders were finding that margins were compressing toward the lower end of the server market, where Hewlett-Packard was aggressively taking on Dell, there was no shortage of customers for servers of all types. AMAX, the server volume leader, was building a lot of appliances for small startups and ISVs, ranging from network and security appliances to Windows accelerators. "We're going deeper and deeper into appliances, and we see a lot of opportunity," Shih said.

Several builders cited high-performance computing as another hot area—and not only in the supercomputer arena. Nor-tech is marketing a Nor-tech Portable Cluster, priced at roughly $45,000, that can be moved and plugged into a regular wall socket. "We really feel like we might be on the edge of a tidal wave on this one," Swank said.

Storage remained a small category, comprising only 2 percent of total units, but volume was up 55 percent, carried along by server sales. Proactive Technologies, Carrollton, Texas, which builds servers for ISVs in the printing industry, grew storage unit sales 500 percent.

Other builders, such as Comprehensive Computer Solutions, Christianburg, Va., which builds systems that provide the human interface for industrial machines, are exploring the category. "Some of our customers have a lot of intensive data that they're processing and collecting, so they're asking for different storage solutions and redundancy around those solutions," said Gary Overstreet, vice president of sales and marketing.

Next: Top 5 Leading System Builders


Top 5 Desktop/Workstation Leaders
Company Units Built 1 Company Units Growth
Equus 135,000 Chipco 60%
Nor-tech 61,384 Chem USA 56%
Seneca Data 51,539 Puget 44%
CTL 30,597 AVADirect 40%
Datel 19,500 Datel 39%
Top 5 Notebook Leaders
Company Units Built 1 Company Units Growth
Equus 22,000 AMAX 700%
Chem USA 16,800 Expert 659%
CTL 9,671 Source Code 500%
Seneca Data 8,083 Chipco 150%
Jetta 5,721 LAM Systems 130%
Top 5 Server Leaders
Company Units Built 1 Company Units Growth
AMAX 33000 Chipco 200%
Equus 18,000 DTR 180%
ACMA 10,000 AVADirect 75%
Ace Computers 7,852 Cybertron 73%
Source Code 7,200 Expert 64%
Top 5 Storage Leaders
Company Units Built 1 Company Units Growth
AMAX 4,000 Proactive 500%
EBC 3,000 Equus 150%
Ace Computers 2,771 Vision 140%
Equus 2,500 AMAX 100%
Source Code 1,200 Chipco 100%
Top 5 Other/Specialized Leaders
Company Units Built 1 Company Units Growth
NCS 135,000 US itek 245%
Avantech 61,384 Hypersonic 131%
Fusion Micro 51,539 Cheap Guys 43%
US itek 30,597 NCS 25%
Cheap Guys 19,500 Fusion Micro 18%
Note: Only builders with sufficient volume were included in unit growth rankings.
Base: 36 system builders.
Source: CRN Leading System Builders Survey, 2007.

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