Dell packs up white-box program

PC maker says it discontinued program after determining customers wanted Dell-brand computers over no-name boxes.

Desktops
Dell has closed the lid on its white-box PC.

The Round Rock, Texas, PC maker has discontinued its program to sell unbranded desktops--an effort it launched in August 2002 to compete with smaller PC assemblers.

The company determined that customers were more interested in Dell-branded hardware, a spokesperson said, signaling the confidence the PC market leader has in its brand name and the PCs that carry it.

News.context

What's new:
Dell is axing the white-box program it started in August 2002 to compete with smaller PC sellers.

Bottom line:
Despite Dell's decision to mothball the white-box program, PCs remain at the center of the company's strategy. The company, analysts say, has realized it can explore different sales channels without having to stray from its name brand.

More stories on PC sales

"We end-of-lifed the white-box line earlier this year based on customer preference for Dell-branded products," Dell's Roe Thiessen wrote in an e-mail. "We are still offering the full line of Dell-branded and third-party products to solution providers that add value to our customers."

Dell, which continuously experiments with new ways to market its PCs, has seen a number of forays into new PC-related products, such as printers, bring favorable results of late. According to figures from Technology Business Research, Dell's printer sales went from zero in March 2003 to $1.3 billion, or 2.6 percent of the $49.2 billion revenue total for its fiscal 2005, which ended in January.

But the company has always been quick to shutter efforts that didn't meet expectations. It discontinued the slow-selling WebPC in 2000 and axed its Internet music player in 2001. It also put its low-price, fixed-configuration SmartStep desktop and notebooks for consumers on indefinite hold, saying customers were more interested in configuring their own standard Dell systems.

Thus, the white-box program--which some participating dealers said had gotten off to a slow start during 2003--likely ran its course, analysts said.

"I think the company has realized that it can explore different sales channels without having to stray from its name brand," said Brooks Gray, an analyst at Technology Business Research. "The Dell brand is so strong in the United States and Dell's market penetration is at such a high level that the real value for a white-box endeavor for growth potential may have been overseas."

PCs still at the wheel
Despite Dell's decision to mothball the white-box program, PCs remain at the center of the company's strategy. Although Dell has recently entered a number of new markets, including printers and consumer electronics, analysts still expect PCs to be the main engine that drives the company toward its goal of $80 billion in annual revenue. Technology Business Research, for one, believes Dell will get there during 2009, which is Dell's company fiscal year 2010.

"PCs were the main driver of the $23 billion (annual revenue) increase we've seen over the last four years and they will be the main driver of the $25 billion we will expect to see over the next five years," Gray said.

Dell executives are planning to discuss the $80 billion goal--which was first put forth during Dell's fourth-quarter earnings conference call in February--in more detail at its analyst meeting, scheduled for early April. At that event, they're likely to acknowledge successes in printers and consumer electronics, but are also likely to point out that Dell places most of its emphasis on business-oriented offerings such as servers, storage systems and professional services, and will look more to those product lines as well as PCs for growth. PCs, which now account for more than 60 percent of Dell's revenue, according to Technology Business Research, are likely to continue to make up the bulk of Dell's revenue growth, Gray said.

"It's almost surprising to see how much of the growth relies on the core PC products," Gray said.

In its current fiscal year, Dell is expected to tote up $55 billion in revenue. Still, it will have to add about $25 billion more to its annual revenue in order to hit the $80 billion mark. About 60 percent of that, or $15 billion, is likely to come from PCs, Technology Business Research estimates. Printers, although they are likely double in revenue during the same amount of time, are only likely to total some $4 billion, or about 5 percent of the projected $80 billion in revenue.

Looking ahead, much of Dell's growth will come from expanding its presence in so-called emerging markets such as China and India, and also from taking market share from rivals, instead of efforts such as selling white boxes or working with resellers, Gray predicts.

"You have to expect (Dell is) going to be the leading vendor--unless IBM-Lenovo somehow usurps it--in driving low-cost systems throughout the emerging market, en masse," he said. "HP is completely vulnerable right now and a sizable portion will come from HP market share acquisition."

But Dell is also putting pressure on white-box makers themselves, said Roger Kay, an analyst with IDC.

Most white-box companies are small and sell to local governments, educational institutions or small businesses, which often know their proprietors. But like other players in the PC industry, white-box makers are under assault from Dell, which can also offer low prices, and which has a good reputation for service, despite some hiccups.

Most of the growth in the PC industry of late has gone to Dell, Kay said, meaning times have changed for the white-box market since Dell launched its white-box program in 2002.

White-box makers are "doing OK, but not great," he said. "Growth has certainly slowed and life is tough."

Although Dell is no longer dabbling in the white-box PC market, it is still working with resellers, both in the United States and elsewhere, to sell Dell-brand products.

Dell, for example, offers a reseller program for Eastern Europe, the Middle East and Africa, sometimes dubbed EMEA, to foster more sales in those regions.

Some dealers would like to see Dell do even more with reselling.

"You could expand it a lot if Dell could give (bigger) discounts on retail products," said Doug Lynn, proprietor of Lynn Computer Products, a North Lauderdale, Fla., systems integrator.

Lynn generally hand-builds the specialty computers, such as graphical workstations, that he sells. But he uses a white-box maker to put together low-price PCs. Generally, he said, resellers would like to see more built-in profit than the 4 percent or 5 percent Lynn says Dell offers him now.

Close
Drag
Autoplay: ON Autoplay: OFF