Canadian channel mulls Dell’s indirect moves

Dell Computer Corp.‘s recently-launched white box program is confined to the United States. . . for now.

Experts are split, however, on the potential impact on the Canadian market if the Round Rock, Tex., PC maker brought the

program north.

Dell announced earlier this week that it will start selling unbranded PCs through small dealers, for whom it will also provide financing and dedicated Web site access. The move is in stark contrast to the company’s traditional “”by direct”” strategy, which encouraged customers to bypass the chanel.

According to Dell spokesperson Amy King, the American unit of its small business division drove the project and didn’t examine the suitability of other markets. The strategy is to target companies with fewer than 100 employees, where white boxes comprise of up to 50 per cent of the desktop market.

“”We’re constantly looking at the various markets and evaluating different opportunities and if the market dynamic is right and there’s customer demand there then it’s something we would consider,”” King says. “”But at this point in time the plan is only in the United States.””

For Tech Data president Rick Reid, it’s more of a “”when”” issue than an “”if”” issue. While experts disagree on the size of the small business white box market in Canada, Reid pegs it at about 50 per cent — the same as in the U.S. — and says if Dell comes calling, it will be successful despite little experience using the channel. And its success will come at the expense of distributors.

Reid says the chain of events is simple: Dell could steal business from Canadian system builders, who will in turn order fewer parts from distributors . This wouldn’t happen overnight, he adds, but it over time it could hurt the business.

King says Dell came to the decision after speaking to solution providers and small businesses as well as conducting market research. After discussions with solution providers, executives decided the company could leverage its distribution and supply chain capabilities to capture market share. Reid, however, isn’t convinced.

“”This has less to do with attacking that white box space and far more to do with attacking the whole HP/Compaq merger,”” he says. “”There’s no question as (the two companies) go through the integration they are spending time right now focused more on their organization and go-to-market models than they are on execution. It’ll be a very short-term phenomenon, but right now it’s a situation that’s bothering a lot of the resellers.

“”I’m incredibly optimistic that HP will get their act together –they’re showing great signs of that, for sure — but we can’t underestimate the challenges of bringing two very large companies together in a fairly short period of time. But during that short period of time they’re vulnerable and I think this is a recognition of that by Dell.””

Niagara Electronics Inc. president Joe Kollee says unless Dell offers systems at half the price, he isn’t very concerned. He says the only area where Dell has an advantage is on the software side.

“”Microsoft is going to give Dell operating systems for a quarter of the cost that we can and the most expensive part in the computer right now is Microsoft operating systems,”” Kollee says. “”I would seriously hope Microsoft would be able to work something out with the OEMs that we can compete on the operating systems side.””

Paul Edwards, director of strategic partnering and alliances at IDC Canada, says he isn’t sure launching white boxes in Canada would give Dell the market share gains it seeks.

“”There may be a slight impact on the smaller white box guys. The resellers themselves, I don’t think it would make a great impact on their business, considering we are talking about PCs that are pretty low priced, which means there is very low margin on them,”” Edwards says.

Despite the competing arguments, Reid remains unswayed.

“”I think that the manufacturers need to prove it to themselves that the issue is not in how you get to the end-user market, but rather how you manufacture the product,”” Reid argues. “”And until they get a just-in-time, build-to-order capability in the manufacturing community like the tier one builders, they will never recognize the true difference between themselves and Dell.””

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