White box from the beginning
First, let us define a white box server. A white box server (sometimes referred to as a beige box) is a machine without a well-known brand name associated with it. White boxes are usually made en masse by Asian original design manufacturers (ODMs) such as Quanta, Wistron, Inventec and Wiwynn. They are also produced by system integrators who build systems assembled from parts purchased separately to create bespoke systems.
OK, so where do black boxes come from? In the traditional IT procurement model, enterprise customers buy from original equipment manufactures (OEMs) such as HPE, Dell and IBM. The OEMs in turn outsource the manufacturing of hardware to the ODMs. It is at this point you are buying a branded, closed, black box server.
This model has lead to Asian ODMs building up substantial knowledge in server design and datacentre performance. This, in part, is where the changes are starting to happen. In this business model the OEMs make roughly a 26% gross margin while the ODMs of the world only make around 7% gross.
White box servers today
With the onset of webscale services and cloud offerings, customers are voting with their feet. Customers with huge datacentres that do not want to pay the extra hardware costs associated with black box servers are driving the change. Internet companies like Google or Facebook and telecom operators like AT&T, Verizon and EE are forging a new business model by going directly to the ODMs and cutting out the middle man. Typically, white box servers suit customers that look for more open solutions that will be managed by in-house software.
What does it all mean?
At the end of the day, it is not as clear cut as this and we may have to redefine slightly what an ODM looks like. Two examples come to mind:
HPE created a joint venture with Foxconn, the world’s biggest ODM, to create HP CloudLine for hosting service providers that require continuous large unit volumes. The emphasis is on pushing open standards hardware via the Open Compute Project.
More recently the distribution giant Tech Data announced a Europe-wide partnership with Quanta Cloud Technology (QCT). QCT specialises in white-label server, storage, and network infrastructure technology for use in cloud datacentres and hyperscale environments. This partnership sees more opportunities for channel partners that did not exist before from an ODM.
Either way, there is no doubt about the rise of the white box. This shift can be seen looking back to 2015. There was a 12.6% collective growth of direct ODM sales resulting in revenue of $4.56bn. This represents 12.3% of the worldwide total. If ODMs were taken as a single entity, this would be enough for them to be placed third in the vendor league table.