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Dell, the Other White Box Vendor
The name "Dell" is one of the most recognized brands in technology, but Dell the company is going after the no-label PC market in a bigger way in the coming year. No-name PC vendors fill the landscape from coast to coast serving many verticals, but Dell is ready to challenge them.
Dell's (NASDAQ: DELL) OEM business has been around for years, and has quadrupled in size over the last five years, according to Rick Froehlich, the vice president and general manager of Dell OEM Solutions, who said the company is targeting even more growth.
"By all accounts we think we're the largest supplier to OEMs in the world today. Bigger than Supermicro, and I think they are bigger than HP and IBM," he told InternetNews.com. Servers sold through third parties to vertical industries made up a respectable percentage of Dell server revenues last year, and that piece of the pie is growing.
Dell launched the OEM business 12 years ago and has grown it entirely organically, no acquisitions or anything like that. "Customers asked us to do this because they were paying a lot of money for a custom whitebox or had to go to an ODM in China to get it done. They knew we had an efficient supply chain and asked if we could do it," said Froehlich.
Dell will expand not directly, but through the sales forces that serve vertical industries. In the medical arena, for example, it would go through the big pharmaceuticals. In the security market, it would target Trend Micro and Symantec, while in industrial manufacturing it would sell to Tyco and others.
It's a sign of just how intense competition has gotten that Dell is going after this market, notes Richard Shim, research manager at IDC. "There's a lot of questions of how big the market is and how big of an opportunity it is. It's a market that's not easy to define. A new provider can pop up over night," he told InternetNews.com.
On a sheer dollar scale, IDC said white box, OEM PC builders owned about 30 percent of the PC market in the third quarter of this year.
Whether a PC carries the name Dell or no label, they often have the same parts inside: Intel chips, Samsung memory, a Seagate hard drive, graphics from Intel, AMD or nVidia. At that point, Dell's advantage is volume discounts for parts.
"That enables us to leverage a huge procurement advantage we have but at the same time give customers the customization they need so they don't have to go to a custom whitebox shop and pay more," said Froehlich.
The PCs are often different than what you find on Dell.com. For instance, Dell sells an OEM long-life workstation that has a lifespan of three to five years, longer than the one to three year warranty coverage for a standard desktop. It also offers customized systems with special cards or software for specialized use cases, like information kiosks.
The OEM market also becomes an incubator of sorts for Dell where it can explore other technologies before the company introduces it to the general market. One such example: ruggedized notebooks, which Dell first sold to OEM customers before coming out with their own branded solution. "This allows us to test individual vertical solutions before we productize it on our own," said Froehlich.
In mid-January, Dell will release a new desktop line called the Optiplex XE and Precision 5500 that will be used in places like industrial automation, information kiosks, and medical centers. These will have that three to five year lifespan and focus on stability rather than cutting edge technologies, he said.
Dell will also begin expanding into Asia by launching a customization service to perform factory integration in China. Right now that work is done out of Austin, which can cost a quite a bit. "We want to source it out of Asia as opposed to them having it all out of Austin and shipping it around the world," said Froehlich.
IDC's Shim understands Dell's scale advantage but wonders if it can be nimble enough to compete. "These system builders do tend to create some sophisticated systems and are able to react faster than the big multinationals. Dell has the advantage of scale, but again the competitive advantage of being small is not clearly defined. When they go up against HP they know what to expect," he said.
"There's a lot of risk. You have to respond very quickly to customers. With some of these system builders, they are in contact with their customers all the time. It's a small town mentality. They have to respond quickly to unconventional requests," he added.