Customizing the Laptop

While the notebook market remains solid as desktops falter, the makers of components for white-box computers have not gotten into the notebook business. They are missing out on a strong market. DisplaySearch, a market research firm that focuses on the flat-panel display sector, estimates that global notebook sales in 2002 rose by 17.5 percent, to 29.3 million units, and will grow an additional 17 percent in 2003, to 34.3 million units. PC sales for the past two years have been largely flat.

So why are white-box laptops as scarce as profitable Linux vendors? It's partially business-related, but mostly it's for technological reasons. Fewer vendors are in the laptop parts market, for starters. While there may be dozens of ATX cases to choose from, only a handful of companies are actually making the notebook shell. The same goes for LCD monitors. With fewer vendors to choose from, that means less price competition.

One of the reasons there is such a small number of vendors in this market is that laptops are not as easily constructed as desktop PCs.

A white-box laptop can be built in a few minutes and, as long as all the wires are connected properly, it will work. There's very little room inside the case for the necessary components, there's very little room for error, and it's easy for the thermal envelope to get fouled up, turning a laptop into a hot plate.

Because a laptop's monitor is attached to the computer, delicate wiring has to be run through the hinges of the shell, so it has to be carefully assembled by skilled technicians.

Finally, there is no standard form factor for laptop cases like the ATX standard for the desktop PC. With the desktop PC, almost any board will fit in pretty much any case, and the screws to mount it inside the case are in the same place, regardless of the manufacturer.

"No matter how you look at it, you are looking at a motherboard and screen designed for the case," says Rob Enderle, vice president with The Giga Information Group, Santa Clara, Calif. "After that, the only thing you are looking at is memory and a hard drive."

A small company can buy cases, motherboards and screens that are matched to case, and do their own preassembly and configuration to order, like WinBook Computer, a subsidiary of Micro Electronics, has been doing. But because of the margins involved, it simply isn't worth it for the small shop.

"By the time they are done, they might as well buy one from WinBook and put their logos on it," Enderle says. WinBook offers its J4 in two models,one "value-priced" at $999, the other touted as a desktop replacement for $1,799.

Still, some systems builders are trying to compete. On the low end of the market, Sotec America, Foothill Ranch, Calif., the American subsidiary of Sotec Co. of Yokohama, Japan, has been producing a low-end series of laptops. In November, the company announced it would bundle Roxio's Easy CD Creator 5.3 Basic with its Sotec 3120X notebook, which lists for less than $1,000. The computer is available in a variety of retail stores, including Office Depot, Wal-Mart and Sam's Club, as well as online at bestbuy.com, officedepot.com, walmart.com and samsclub.com.

On the high end, Miami-based Alienware has been producing custom-built laptops, called Hive-Mind, which are as highly customizable as a desktop, with the exception of the video, because it's integrated into the motherboard. Each Hive-Mind system comes with an Intel Pentium 4 Mobile Processor, something not previously available from an Alienware laptop. In addition, each Hive-Mind system comes with an ATI Mobility Radeon 7500 with 64 MB of DDR memory.

One of the barriers to entry that Alienware has encountered, and all would-be system builders will also face, is the volume that the parts suppliers demand.

"We wanted to go into this market for some time, but finding the company that would work with our quantities and give us the credit line and RMA policies we're looking for took some time," says Kevin Wasielewski, vice president of marketing for Alienware. "When we started, everything was out of Taiwan. You had to RMA 50 or 100 parts at a time. You had to do a certain amount of units per month just to get their attention."

Regional VARs who want to sell white-box laptops, but can only guarantee "x" number of machines for that region, will have a difficult time finding vendors that want their business, Wasielewski says.

ION Computer Systems, Hauppauge, N.Y., has its share of white-box desktop sales as well as notebook sales, but it prefers to go with brand-name notebooks because warranty service for white-box notebooks is far too much of a burden.

"If you run into major warranty issues, you could lose your margin," says Paul Scheremeta, vice president of marketing for the solution provider. "White-box notebooks are not warranty-issue friendly. Even though desktop margins are single digits, they aren't bounced around like a laptop. They come back a lot, even the branded models," he says.

Because there are so many support issues surrounding notebooks, and the white-box vendors aren't willing to support them, ION is staying out of that market in favor of its core business,servers. "They [need to] present a logical business plan for me to move into that market," Scheremeta says.

Enderle is very bullish on Alienware's custom laptop efforts, even if it is aimed at gamers more than the corporate market.

"The Alienware experiment is important because if people take this concept of wanting a laptop specially built, to do that you need a high level of standardization," he says. "Once you've got that demand, the market tends to fill that demand."

Alienware's Wasielewski says white-box vendors need to keep on top of the parts makers to bring down costs: "Someone's going to have to come up with a system to bring down the minimum quantities to do business," he says.

Asia has an overcapacity of manufacturing, so those manufacturers are looking for new markets, and the custom-built market is still a green field. When there is an oversupply, then the market gets commoditized, and the way you get to a commodity market is through standards.

"They don't have a choice," Enderle says. "They need to standardize the parts to get the cost down to address a market that wants to pay $900 [for a laptop] and still wants customization."