The Round Rock, Texas-based company is embarking on the new plan as a way to enter the "white box" market, which it estimates to be worth $3 billion annually. White-box PC sales have grown quietly over the last five years to represent roughly 30 percent of the market, according to a recent report from market researcher IDC. These PCs are assembled or purchased and resold by small outfits that range in size from single-owner or family-owned shops to larger, regional PC sellers.
By offering the PCs to distributors, Dell essentially joins the party, allowing the companies to sell and service Dell's $499 unbranded computer as they would if they had made it themselves. Meanwhile, Dell can offer the dealers discounts, favorable leasing terms and other sales incentives, representatives said.
The new desktop, dubbed White Box D510, will offer an Intel Celeron processor and a one-year warranty. Buyers will be able to configure it to their desired specifications, increasing memory allotments, for example.
Even though any given white-box maker is tiny compared with the heft of Dell's 30,000-plus employees, the collective market represents an untapped portion of worldwide PC shipments. As Dell tries to gain market share worldwide, white-box makers are in many respects one of the company's biggest competitors in the consolidated PC industry.
That's largely because white-box makers are known for offering low prices. They have also expanded in the last few years to provide technical support, network installation and other services needed by small and medium-sized businesses--all serving to make them formidable competitors in the market. These services, as well as dealers' close proximity to their customers, help generate sales.
To reflect previously uncounted white-box units, IDC increased by 8 million units itsDealer's choice for the size of the entire 2001 worldwide PC market. As a result, it also lowered the relative market share positions of the biggest vendors, such as Dell.
Analysts said Dell's move could help it gain market share, if enough resellers sign on to offer the new PC.
"Dell's still very reliant on box sales," said Toni Duboise, desktop analyst with ARS. "So it makes sense that it would penetrate every single outlet for box sales."
Indeed, Dell is even testing the waters with, where consumers can test-drive its products before ordering them online.
However, it's largely up to the dealer community to determine how well the new PC will be received.
Two things may hold Dell back. First, $499 for a desktop PC without a monitor is a low price, but not dramatically so. Competitors can likely beat it. Second, Dell could risk cannibalizing at least some returns from its efforts to sell directly to small businesses, Duboise said.
Ultimately, the white-box PC "may not do as well as (Dell hopes), but it will probably be able to grow share," Duboise said. "I don't know if it's going to be as big as they're planning."
Rivals reacted to the Dell news with skepticism. In a statement, Hewlett-Packard said that Dell's move will not change the competitive landscape.
"HP has a long-term commitment and long-standing history with the channel. We have deep partnerships, an extensive service provider network, and proven support and certification processes," the company said. "You can't just throw boxes into the channel."
Dell is going after buyers at small businesses, but it views the dealer as its true customer. The company estimates that about 60 percent of dealers in the white-box realm buy their PCs as opposed to building them. Dell asserts that it can supply these dealers with a better-quality machine at a similar or better price than others, without cutting into its own profitability, a company representative said.
Dell would make about the same percentage of profit on the new small-business PC as it does on one of its regular desktop computers.
Part of the key to retaining profitability is to avoid building PCs for inventory. Dell will not build any of these small-business machines ahead of time. Instead, its dealers must order each PC needed for their customers. Deliveries from Dell usually take about three to five business days.
Distributor Doug Lynn, who owns Lynn Computer, said he would take a look at the Dell white-box desktop, especially if customers asked for it.
"I would sell any quality product, and I would say Dell is a quality product," Lynn said. In general, "It doesn't pay to sell junk. You may pay more, but you get a better product."
Lynn Computer, based in North Lauderdale, Fla., sells a wide range of computer products, from Compaq desktops to components such as Athlon processors from Advanced Micro Devices.Though Dell expects that it will be able to expand its reach with the new desktop, it is making the move with some initial caution.
"We're going to wait and see how this goes. The only plan at this point in time is to offer the desktop product," said Amy King, a Dell spokeswoman. "We will evaluate the market and see what demand is like and take it from there."The move isn't really a major departure for Dell, which has experience working with dealers. Dell sold PCs through dealers, including retail outlets, in the early 1990s before making a total switch to selling directly to customers.