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White books: proceed with caution

It seemed like a good idea: Build laptops from components the way you build white boxes. However, despite soaring demand for notebooks, price-cutting by OEMs has put the brakes on the white books' potential

Five years ago a Toronto VAR called 2000’s Technology got into the whitebook business.

As a company that assembles its own brand of white boxes and sells brand-name PCs and laptops, it thought it had spotted a niche major component manufacturers were encouraging resellers to enter.

“At the time,” recalled Yama Niwand, the company’s sales manager, “notebooks were expensive. The custom-made notebooks were cheaper at the time due to the fact that they used desktop components such as desktop RAM and desktop CPUs.”

In the begining, the sales ratio of custom-built to brand-name wasn’t bad. “Until 2003, it was 30 to 70,” said Niwand. “Now it’s more like 5 to 95.

“The whitebook is actually declining in sales.”

That’s a disappointment to system builders who thought white books would lead to good opportunities. But over the past two years leading manufacturers have become increasingly aggressive in their pricing, making the white book market less of a sure thing.

Those who are in the segment caution resellers to look at the numbers carefully before entering.

It’s an odd turn of events, because laptops are in great demand. According to Evans Research, Canadian sales in this segment are growing at a rate that exceeds 50 per cent a year. Many are brand-name machines, but a surprising number are white books.

Two segments
Evans counts the white book market in two ways: One with Canadian-branded units such as Nepean, Ont.-based Eurocom Corp. and Calgary’s Voodoo Computers; and the other with unbranded units assembled by the channel.

Their combined shipments hit 138,500 last year, with sales projected to hit almost 150,000 this year, with moderate growth continuing to 2008.

But according to Evans analyst Michelle Warren, branded systems accounted for just over three-quarters of the sales in 2005.

Of that total, 10 per cent of Canadian manufacturers – companies such as Eurocom, Voodoo and MDG – assembled 90 per cent of the laptops.

Of the unbranded whitebooks, Evans estimates fewer than 32,000 were shipped in 2005.

“However,” Warren added, “there are also organizations – distributors, for example – that assemble systems for private labeling. We see large organizations and small businesses buying the technology, and that purchasing decision is largely determined by relationships with computer dealers, consultants or resellers.”

High hopes
One distributor with high hopes for white books was Tech Data Canada, which since the end of 2004 has been assembling white books to order for resellers based on chassis from Compal Electronics. It even offered an online configurator to help the process.

But Ray Gonsalves, Tech Data Canada’s director of product management, acknowledges the service “may be a little ahead of its time.”

Sales were “fairly modest” initially, then declined last year in the face of tumbling prices from OEMs.

Still, he said, distributors want the white book market to succeed.

There is some dispute about who is a white book manufacturer. Eurocom president, Mark Bialic, for example, insists his company isn’t in the category. Eurocom builds and sells high-end desktop replacement mobile computers, some of which are entirely too hefty to be considered laptops.

“White books are low cost,” he said. “They have no standing in the market, except a local presence. Eurocom has an international trademark.”

There’s an echo in that view from Simon Lai, vice-president of Markham, Ont.-based Peripheral Express, a VAR that makes white books and sells brand-name laptops.

“We service a niche market, for customers looking for high-performance notebooks,” he said. “We can tailor the system to what they need.”

It concentrates on well-configured machines. “For me to compete in $1,000 notebooks wouldn’t make sense,” he said. “People want fully loaded systems.”

On the other hand, 2000’s Technology’s Niwand said its most popular white book configurations are lower-priced units with big screens that cost roughly $1,199.

“I believe that customers that do want to buy custom-made notebooks do not want to spend too much just in case it was a bad choice for them,” he said.”

He also noted that OEMs allow some customization on high-end notebooks, making it harder for his company to compete in that segment.

One VAR that has taken the riskiest plunge is Toronto-based Computer Source, which only markets its own laptops. “You can get very cheap ones, and you can get very high end ones,” said director Razmig Sagharian. “You can customize the system to your needs and budget.”

His most popular configuration is what he calls a mainstream machine. The company’s customers range from consumers to SMBs, he said.

Still, he only moves 20 to 30 units a month.

Part of the problem is support. “The biggest concern from a customer perspective is the warranty,” said Lai. “We’re limited in what we can do. We offer a comprehensive warranty in Canada.”

To soothe uncertain business customers, he argues that if they have a problem with their laptop while out of the country they probably wouldn’t drop it off at a foreign repair depot. Instead they’d wait until returning home to have it serviced.

And then, he tells them, “We’ll take care of you.”

Good warranty
Sagharian, too, thinks the white box warranty he offers is very good compared to other vendors. He guarantees two-day turnaround on repairs, and often replaces a faulty part in one day.

For Niwand, however, support is one small issue in a litany of challenges involved in selling white books.

“Consumers are constantly bombarded with million-dollar ads by HP, Sony, Dell,” he said.

“How can we persuade them to buy our equipment? They want to go with the big name brands. They think that it will last longer and work better and have better warranty coverage.

“The way I address these issues is by telling them the advantages and disadvantages of each type of notebook. I do not choose which notebook to sell to the consumer, I choose the best solution for them. Sometimes it is custom-made and sometimes it is name- brand.”

“Before, it was easier to sell the custom notebooks, due to the fact that they were cheaper than name-brand,” he said, “but now you can buy a good name-brand notebook for $649. This notebook also comes with software bundles worth a lot of money. How can we compete with that?”

“Microsoft and the big name- brand notebook companies have a deal so they can buy Microsoft Windows for almost next to nothing . . . but we have to pay up to $250 for just Windows.”

“For mainstream consumers, the need is better served by the Tier 1 guys,” Lai agreed. “We have to go after the niche market. Our customers are looking for specific features.”

“The margins are way too competitive in this industry,” added Sagharian. “We offer services to compensate. If a notebook comes back that is not under warranty, it’s a gateway to other services we provide.”

His advice to resellers considering building white books is straight-forward: Have stable suppliers and come up with different configurations that make it possible to compete.

“I would advise them to have custom-made systems as a product that they sell,” Niwand added, “but do not invest heavily into them because right now the market is saturated by the better and cheaper name-brand notebooks.”

Blunt advice
Lai’s advice was more blunt. “I would say forget it – sell branded products and get it over with. (Resellers) have to have the volume and they have to have the training (to succeed with white books).”

Since system builders deal with a lot of small components in laptops, mistakes are all too easy to make, he said, and can be expensive. “You can blow out a $600 motherboard,” he pointed out. He invests several thousand dollars to train each technician; if resellers are not willing to make such an investment, and haven’t the volume to keep those skills fresh, it’s better to stick with OEM systems.

“The clients that do choose white books over name-brand are usually computer savvy themselves,” noted Niwand, “and would like the option to upgrade the CPU in the future by themselves instead of buying a new notebook.

“I would rather sell the name- brand notebooks, due to the fact that they are better built, have newer technology, better warranty service and technical support, better software bundles and they are cheaper.”

That means, he said, he “can’t compete with the big guys.”