With Facebook sharing its server design and use of Quanta for its server supply.
There are now bunches of IT purchasing departments looking to save money by buying direct and cutting out the middle man. I’ve been laughing with my friends who have managed outsourced manufacturing projects on how naïve people are to how complex and difficult it is to buy direct from a manufacturer. I got most of my hardware sourcing experience taking dozens and dozens trips to Japan, Korea, Taiwan, and China while I worked for Apple Computer, managing various peripheral projects for the Macintosh. There is a huge reason why many companies have dual suppliers to manage price and quality, keeping the supplier constantly competing and knowing they will lose business if they can’t keep up.
To give you an idea of what few will hear about the Quanta Servers going to Facebook, check out this rumor of Quanta getting 20% margin on servers when their typical OEM server margin is 4%.
Order by the Facebook server Quanta: gross margin over 20%
April 18, 2011
Beijing the morning of April 18, according to informed sources, Taiwan’s contract manufacturers Quanta Facebook server to obtain orders, gross profit margin as high as 20% or more.
Reportedly, these servers will start shipping this fall, the order is Quanta gross margin is 5 times the daily orders, up to 20%.
Quanta declined to comment on.
Facebook server orders usually get HP and Dell. The Quanta favor, marking the influence of Taiwan’s contract manufacturers is growing.
At Apple we had teams who knew component cost, quality and performance issues. They managed Bill of Materials (BOM) had HW engineering, Quality engineering, and purchasing expertise. This is a big part of Apple’s IP that rarely gets out, and they’ve been working on outsourced manufacturing for decades. Who would leave Apple’s HW team to go work on Amazon Kindle, HP, Barnes & Noble, etc. I worked in the Apple purchasing group 25 years ago, and it was a blast in the Mac days.
Even the Wal-mart purchasing staff don’t know how to do things at Apple’s level. Have you ever seen a retail hit coming with a Wal-mart brand that was designed and developed by Wal-mart?
Dell has attempted to educate some people with 5 points to consider in when choosing a server vendor.
A whitepaper came out a little while ago from the management consulting firm, PRTM, that gives a perspective on the server industry. The paper, which Dell was one of the contributors to, specifically focuses on something near and dear to our hearts, hyperscale data centers.
The paper, entitled Hyperscale Data Centers: Value of a Server Brand, talks about what organizations who are looking to build out these ginormous data centers should consider when selecting a system vendor.
But, there will be many who will dismiss this advice coming from a server OEM.
Want to know if I am right? Watch the Server ODMs profit margins increase as many more people buy direct.
What most people don’t know is the ODMs are very clever in making it appear like they are supplying high quality just as good as the OEMs. Cut out the middle man drop the price a bit. But, there are many ways to cut costs which gives the ODM a 20% margin vs. 4% going through HP and Dell. So, you think you have the game figured out and want a lower price. And, the ODM looks for more ways to cut costs.
Can you outsmart a huge team of Chinese engineers and business people with your one, two, maybe three people spec’ing a server?
Do you Trust your server supplier?
We’ve all seen disastrous product recalls on technology products. Imagine 100s or 1,000s of servers being recalled.
For example, the unsexy capacitor has caused millions of dollars of damage.
Faulty capacitors have been discovered in motherboards as old as Socket 7 and have affected equipment manufactured up to at least 2007. The motherboard companies assembled and sold boards with faulty caps sourced from other manufacturers (see below). Major vendors such as Intel, Dell and HP were affected. Circa 2005 Dell spent some US $150 million replacing motherboards entirely and another $150 million on the logistics of determining whether a system is in need of replacement. HP reportedly purged its product line in 2004. The motherboards and power supplies in Apple iMac G5s and some eMacs were also affected.
Welcome to the world of managing a ODM. Late night regular phone calls to Asia, last minute war room meetings to address quality or supply issues. Making the decision after weeks of phone calls, faxe’s, and e-mails, you need to get on a plane to China to resolve the issues.
Oh one other thing, at Apple it was worthwhile to do all this because the volumes were in 100,000s per month. Only the server OEMs buy in this quantity. As soon as you drop to 10,000 per month or less, you lose a lot of leverage with the ODM and you don’t have the benefit of large volumes to spread out your support costs.