Looking to extend its considerable reach, Dell Computer Corp. on Friday will begin selling unbranded, low-cost PCs starting at $499 to "white-box makers" that service the needs of many U.S. small businesses.
In contrast to such top-tier vendors as Dell and Hewlett-Packard Co., white-box makers focus primarily on providing hardware and services to relatively small companies, serving somewhat like outsourced IT managers.
While individual white-box makers are relatively small vendors, they collectively account for about $3 billion in annual U.S. sales, or nearly a third of the commercial PC market, according to International Data Corp.
Dells decision is designed to boost its bottom line by giving it access to small businesses that have traditionally avoided buying its products, preferring instead to deal with local companies theyve established close relationships with.
Dells goal is to garner about $380 million in sales in 12 months with its new small business initiative, which would amount to about 1 percent of the companys current annual revenues.
Beginning on Friday, Dell will offer an unbranded PC, the White Box 510D, to small computer vendors and resellers starting at $499 for a system configured with a 1.7GHz Celeron processor by Intel Corp.
To take advantage of the program, white-box makers must first register with Dell. While no white-box makers have yet to contract to buy the PCs, a spokeswoman for the Round Rock, Texas, company said Dell is optimistic small vendors will find its offering attractive.
"These solution providers sometimes buy white boxes and sometimes build their own, and as you can imagine the consistency varies across the board," said Dell spokeswoman Amy King. "We saw the opportunity to provide these vendors with a low-cost, high-quality manufactured product that suits their needs."
But at least one computer reseller says Dells move could backfire and undermine its own customer base.
"I think more than anything else Dell just did a big favor for the white-box industry by legitimizing that nonname brand computers are a legitimate business alternative for customer," said John Sheaffer, chief executive of Sysix Cos. in Westmont, Ill., which resells computing systems from major vendors such as HP, IBM and Sun Microsystems. "I think there are lot of major companies interested in using white-box makers, but for various reasons chose to stick with Dell who are now going to reconsider that decision."
Dell also contends its new small-business initiative is a natural fit with the companys direct-order model, an efficient manufacturing method that the company has successfully leveraged to undercut competitors prices and to gain market share. Currently, Dell is the worlds second largest PC vendor behind HP, which moved ahead of Dell in May when it acquired Compaq Computer Corp.
"This is not like a traditional channel program, and so theres no inventory," King said. "These solutions providers find out what their needs are, call Dell and order specially configured PCs, and then we ship those systems to them. So the tenets of the direct-model pretty much hold true."
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