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'White Box' Makers Take Up The Slack
n3hat writes: "This story in the business section of the Baltimore Sun points out that the 'pooter bidness isn't as bad as the publicly-traded companies report. Seems that as much as 45% of systems are assembled by screwdriver shops and other white-box makers, not the big guys." No huge surprises here.
'White box' makers fill niche, fuel optimism
Jay Hancock
Originally published Jun 23, 2002
by Jay Hancock
I BEGAN to worry about the technology industry and the American economy until I talked to Daniel L. Holt, office clerk, chief technician, general manager and owner of Plexus Computers LLC, in Millersville.
Plexus is not listed on the New York Stock Exchange. Plexus could not have swung an initial public stock offering even on the most drunken days of the technology investment binge. On a good day, Plexus has two employees.
But Plexus is helping to fuel the regeneration of U.S. commerce in an old-fashioned, surefire way, filling crannies in the world's vast menu of products and services, adding value to Maryland's gross state product and keeping Dell Computer and Hewlett Packard a little worried.
Plexus is one of hundreds of American companies that make no-name, "white box" servers and personal computers.
I guess I knew this industry existed. But I had no idea it was so big and important until two weeks ago, when IDC, a technology-research firm, was obliged to sharply increase its estimate for global computer sales last year because of surging white-box volume.
Industry analysts had long noted a discrepancy between reported sales of assembled computers and sales of components such as Intel Pentium microprocessors and Western Digital hard drives. Shipments of the parts often seemed to add up to more than shipments of the wholes.
IDC says it solved the mystery. The extra components were not revenue-inflating fictions or obsolete scrap. Instead, the parts were making their way into millions of machines flying way under the radar of analysts used to thinking that Dell, IBM, Hewlett, Acer, Gateway, Samsung, Toshiba, NEC and Fujitsu owned most of the personal computer business.
IDC had to raise its global shipment estimate for 2001 by a surprising 8 million personal computers, or 6.3 percent, to account for previously uncounted white boxes. And those were just machines the analysts had missed. All told, white boxes account for as much as 45 percent of PC sales, by some estimates.
Last year, the world's homes, businesses and governments bought roughly 60 million personal computers adorned by no recognized brand or no brand at all.
Plexus Computers made 150 of them.
Ex-real estate agent
Plexus, which started a year and a half ago, grew from Holt's experience with a previous white-box maker that he helped run. Once a real estate agent, Holt found himself in the mid-1990s assembling computers and fixing hardware and software for employers and colleagues.
He started assembling, selling and servicing machines for real estate offices, and the business expanded to title companies, small defense contractors and government agencies. Those organizations were often too small to employ computer-tech staffs, and they frequently had needs that weren't met by off-the-rack Dells and Hewletts.
Looking for bargains
Holt operates the way most white-box makers do, sifting the market for bargain motherboards, chips, disks, drivers, software and cases, assembling the parts into custom computers and staying close at hand for trouble and upgrades. In this fashion, he can often beat the Dells and Hewletts on price and says he always beats them on service.
One example: A local defense contractor bought dozens of name-brand computers that turned out not to support an expensive engineering program the company owned. Plexus built 20 machines, each with 2 gigabytes of processing speed and the ability to run the thousand-dollar video card needed for the engineering program.
About half of Holt's customers are government, 40 percent small business and the rest home users. He had about $350,000 in sales last year, and the computers he built ranged from powerful $7,000 servers to sub-$1,000 home units.
Ain't America great?
The Atlanta-based Association of System Builders and Integrators, the trade association for the white-box industry, has more than 8,000 members, says chief executive Douglas Daniel. Another Maryland white-boxer is Arundel Computers in Glen Burnie.
These companies, makers of what we used to call IBM clones, look very much like Dell and Compaq - lately bought by Hewlett - in their early days. Now Dell has a more potent PC brand than IBM itself, but it has matters of overhead and volume to grapple with and is dogged by new generations of nimble cloners.
Learning about the scale of the white-box industry, which is even more vibrant overseas than in the United States, was as surprising to me as finding out that half of the cars on the road are made in, say, Antarctica.
Outdoing brand names
Plexus Computers is probably not the next Dell, but it and other white-box sellers, though they have had their problems, generally did better last year than the name-brand makers, IDC reported. Among other things, they had a field day buying cheap components in the glut that resulted from the economic slowdown. Holt says he saw no sign of recession in his volume.
For all of its strength and success, Dell, whose stock has fallen 60 percent since 2000, holds only 23 percent of the U.S. market and 13 percent of the world market, according to Gartner Dataquest.
The lesson: Publicly traded companies are not the whole computer industry, and the publicly traded stock market is not the whole economy.