Non-Branded PC Market Positioned For Growth

Non-branded PC makers, who control more than a quarter of the desktop market, are in position to take advantage of an improving economy to boost their share of notebooks and servers sold in the U.S., a market research firm said Thursday.

While so-called "white-box PC" vendors suffered in the economic downturn with the rest of the computer industry over the last three years, they also benefited from better prices and marketing support from component vendors hungry for their business, International Data Corp. said.

In addition, consolidation in the PC manufacturing industry, demonstrated by last year's $19 billion merger of Hewlett-Packard Co. and Compaq Computer, has pushed component makers further toward non-branded manufacturers to dilute some of the market clout of the large PC makers left standing.

"The component guys don't like to see consolidation at the top," IDC analyst David Daoud said. "They rather see a much more vibrant market for their products, instead of counting on a shrinking number of top-tier players."

Chipmaker Intel Corp., for example, started a couple of years ago programs to encourage non-branded manufacturers to use its products and display the "Intel inside" logo. Such developments have boosted buyer confidence by building the perception that white-box makers use the same components as bigger vendors.Component makers have also offered special pricing that helps non-branded manufacturers stay competitive with the large PC builders.

In 2003, white-box PCs accounted for 28 percent of desktops, 14 to 15 percent of notebooks and 22.6 percent of servers sold in the U.S., IDC said. The server figures are preliminary.

If the economy continues to improve, then non-branded PC makers are poised to boost market share in two years, particularly in the notebook and server segments, Daoud said. Their share of the desktop market is expected to remain about the same, as more and more businesses and consumers turn toward portable PCs.

"Everything depends on the performance of the economy, but where the economy is right now we don't know, except that it's showing signs of growth," Daoud said. "Volume wise, (white-box PCs) will continue to grow, but in terms of the speed with which they'll grow, it will depend on demand."

Manufacturers usually sell more non-branded PCs a year after the economy recovers, Daoud said. The reason is the majority of buyers are state and local governments, and small and midsize businesses.Government needs higher tax receipts before it can start buying, and cash-strapped SMBs usually don't have reserves and have to wait for higher sales.

If current trends continue, however, traditional buyers are expected to stay with their local PC makers, taking advantage of face-to-face tech support, flexible payment terms and competitive prices.

"White-box makers have shown that they're very, very flexible in dealing with their customers -- a lot more flexible than large players," Daoud said.