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White Box Server Market Evolves Past Commodity Status

By Drew Robb (Send Email)
Posted Jan 6, 2011


There is not a lot of room for white box servers in the market these days. According to IDC, five companies -- HP, IBM, Dell, Oracle and Fujitsu –- account for 90 percent of total server sales. That remaining 10 percent accommodates a multitude of server vendors including Lenovo, Apple, Appro, Penguin, Supermicro, Intel, Cisco, NEC, Stratus, Bull, Verari and others.

White box vendors were once known for being an inexpensive source for hardware. Today, with IBM, Dell and HP selling commodity servers at similar, and sometimes lower, price points, these companies must find an underserved niche if they are to survive. Electronics Nexus is one company that has been able to this by selling high-end custom servers and GPU supercomputers to SMBs.

That doesn't leave much room for white box vendors in terms of revenue.

On unit sales, however, white box vendors fare slightly better. IDC estimates that the white box market has shipped approximately 140,000 to 150,000 units worldwide on a quarterly basis for the past year. This represents between 7 percent and 8 percent of total server shipments worldwide.

"This percentage is down slightly from a historical average of approximately 10 percent," said Jed Scaramella, an analyst at IDC. "This was a result of more market consolidation and an increased competitive environment during the downturn; as the tier-one OEMs' server business was impacted, they sought new channels with competitive pricing."

Ben Ranson, owner of white box server vendor Electronics Nexus, concurs about commoditization and cut-throat competition. These days, basic servers are sold for a pittance. A quick check of Dell's website, for example, revealed a PowerEdge T110 with an Intel Xeon X3430 2.4 GHz processor and 2 GB of RAM for $399. It's very hard for small businesses in the white box field to compete with such rates.

Ranson said the change at the low end is particularly sharp since the economic slowdown.

"Server sales have slowed significantly in the last three years, especially in the commodity 1P and 2P markets," said Ranson.

Beforehand, Electronics Nexus didn't have to do much pro-active marketing and sales. Google pay-per-click ads provided pretty much of its business. Since the crash, however, Ranson has had to get more aggressive in finding new leads, including cold-calling.

Beyond Low End and Commodity Server -- Finding a Niche

Although Electronics Nexus' prices have compared favorably with those of Dell, HP and IBM, Ranson still hasn't been getting many orders. His suspicion is that these OEMs cut special deals with businesses if they buy more than a handful. As a result, Electronics Nexus focuses on SMBs that require more personalized attention in sales and support. In addition, the company services some customers in local government, federal government (mostly military specialist applications), digital content creation (special effects rendering), and university science and engineering departments (pure number-crunching applications).

"Larger businesses are pretty much a no-go territory for us, as they are actively targeted by the OEMs, and the IT admins in such companies are not going to get fired for ordering from a Tier-1 OEM in the 1P/2P commodity server market," said Ranson.

As a result, the company now focuses on more customized models, such as specialist 4P AMD servers, as well as unusual form factors and Graphics Processing Unit (GPU) supercomputers, where he said there is no real competition from the large OEMs.

GPUs garnered a lot of attention in the latest Top500.org list of supercomputers. 17 systems on the list made use of GPUs including, 4 of the top 10. As the name implies, a GPU accelerates graphics rendering from the processor due to a highly parallel structure.

"Sales of our GPU servers have grown very strongly in the last year, especially with the launch of ECC-memory supported GPU cards from NVIDIA," said Ranson. "They’ve become popular because in the right applications they can provide one or two orders of magnitude (i.e., up to 100x) improvement in speed over conventional CPUs."

GPUs, however, are not right for traditional server applications. Bottlenecks, for example, can occur between memory and processing, and custom programming is often required.

"GPU applications are restricted to relatively simple calculations that must be duplicated many billions of times (e.g., scientific and engineering modeling, and image and video processing)," said Ranson. "For server applications such as email, web and database serving, they provide no benefit, so there is a future for the traditional CPU."

As well as custom servers and GPU supercomputers, Electronics Nexus has been doing a healthy business in workstations.

"Our workstation sales have outstripped those of server sales by about 4 to 1 in the last year, which is a dramatic shift from the 1 to 1 ratio of 5 years ago," said Ranson. "I believe that this is because our potential for value-added customizations is much greater in a workstation compared with servers and with the vanilla offerings from the big OEMs. Workstation users want everything just right. By looking beyond the main OEMs, they have a better chance at getting it how they want."

Drew Robb is a freelance writer specializing in technology and engineering. Currently living in California, he is originally from Scotland, where he received a degree in geology and geography from the University of Strathclyde. He is the author of Server Disk Management in a Windows Environment (CRC Press).

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