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White box servers offering channel customisation opportunities

White box servers have been one of the few areas of the server market that have been in growth and that could be a positive for the channel

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If there’s one thing that everyone can agree on, it’s that the white box server market is growing. The latest figures from IDC merely serve to reinforce the point, with the revelation that the ODM Direct group of vendors grew revenue by 41.8% in the first quarter to $1.2 billion, accounting for 10.4% of the market, at a time when overall server revenues declined by 4.6%. Rival researcher Gartner painted a similar picture. Against a backdrop of an overall global decline of 4.5% in server revenues in the same period, revenues in the “others” category rose 4.4%.

Commenting on the figures, Gartner research director Adrian O’Connell said: “Leading server vendors will be doing all they can to ensure that service providers don’t continue to shift their server purchases toward ODM suppliers. Combined with the significant inroads made by China-based suppliers, we expect to see continuing challenges and downward price pressure across the EMEA server market for some time to come.”

At the same time, it’s probably worth pointing out that white box servers have been the coming thing for quite some time. As far back as February 2008, IDC estimated white box accounted for 10% of the x86 server market. In September 2014, Gartner was predicting that sales of servers by ODMs direct to customers would account for 16% of global x86 server shipments by 2018. Three months later, IDC revealed that ODM sales had grown by 44% in the third quarter to reach 9% of total server sales.

It’s easy to see why white box servers were generating such attention. As a special report by Deutsche Bank Markets Research noted in December 2014, there were a number of trends driving the white box trend. For example, the growth of large-scale public cloud providers, was “poised to cut out the traditional IT hardware suppliers, as many of these hyperscale vendors are using ODMs to build custom- designed systems and are not buying traditional server and storage systems”.

The paper also argued that the ODM segment of the volume server market represented most of the growth in the overall server market. “As cloud providers become a larger percentage of the market, we would expect ODM sales to continue to cannibalise and outpace traditional vendors,” the report stated.

If we put the figures next to each other, how dramatic has the increase in ODM sales in recent years actually been? In 2013, according to IDC, ODM Direct revenues were 5.7% of the market for the year. A year later, ODM Direct revenues had risen to 7.8%., but were up only marginally at 7.9% in 2015.  By the fourth quarter of 2016, ODM Direct revenues were still at 7.9%. If you put all those figures together, it suggests that, despite some significant increases in certain quarters, ODM Direct sales have increased only slightly from 9% in the third quarter of 2014 to 10.4% in the first quarter of 2017.

Traditional vendors have adopted different approaches to the threat posed by white box vendors. HPE struck a deal with Foxconn to sell white box-like servers to cloud and telco providers three years ago. But CEO Meg Whitman recently admitted that server sales had been affected by declining orders from a single customer, which sources have speculated is Microsoft. She added the vendor was “really thinking hard about what the future strategy is for tier one” in what she described as a “low calorie business”. Dell also has its own white box servers.

One of the best known ODM suppliers is Supermicro. In February this year, there was intense speculation, neither confirmed nor denied, that Intel was the unnamed customer in a deal for more than 30,000 Supermicro servers for a data centre in Silicon Valley. While that sounded like quite a coup for the ODM vendor, it was partially eclipsed a couple of weeks later by stories that Apple had cut ties with Supermicro in 2016 after uncovering a potential security vulnerability in one of its data centre servers. Apple is also reportedly using servers from Inspur for its iCloud data services.

From a channel perspective, Tom Cox, general manager for white box servers at Hammer, argues that white box “enables the traditional hardware, software and maintenance sell to be deconstructed, to form a de-coupled, optimised stack to suit each requirement. Scaling up or out independently as businesses evolve has never been easier”.

Through its white box operation, Hammer can create purpose-built, complete solutions that are optimised, tested and certified in its on-site integration centre. According to Cox, “white box is the fastest growing element” of the distributor’s portfolio. “All of our builds are fully supported and we supply some of the world’s largest system integrators, data centres and cloud service providers,” he adds.

The benefits of white box solutions are that they can be tailored to a partner’s exact needs “in an efficient, reliable and performant way”, and resellers can “maintain more margin, become more agile, add more value and differentiate themselves in a competitive market”.

Cox says that Hammer works closely with partners to help them win business through support services, integration, configuration, on-site maintenance, in-depth partner training, user visits and partner go-to-market strategies.

“White box is an element of IT which is growing exponentially – at a CAGR of 19.5% to 2020 according to analysts – and Hammer’s success in this market is undeniable; growing 46.2% since last year alone,” he claims. “White box requires an extra level of expertise, so resellers can glean that from distributors and offer that expertise to their customers to create a compelling business opportunity.”

That’s an interesting perspective because it suggests that despite the common perception of white box servers as cheap and cheerful, there is scope for channel partners to pitch them as more tightly configured and closely aligned with a customer’s requirements than the generic servers they might purchase from the more established server vendors. Above all, it provides an element of choice for channel partners and their customers over and above anything they would get from their traditional server vendor partners.

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