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Approaching a crossroads
HOME > PAST ISSUE > MARKETS > Industry OverviewMay 2007
Oversupply is undermining continued stellar sales in China’s personal computer market
According to CCID Consulting, sales of hardware, software and IT services reached US$15.8 billion in the first six months of 2006 with a growth rate of 15.8%. Desktop shipments rose 17% year-on-year to 4.1 million units, but revenues only grew by 11%, indicating shrinking profits of computer makers.
Sales of computer monitors even suffered a negative 4.8% growth, though the shipments rose 15.4% to 5.08 million units. These figures may be skewed by the fact that there is a move from the old cathode-ray tube (CRT) to the new liquid crystal display (LCD) monitors.
At the same time, the global trend is from desktop machines to laptops, a shift that could have grave consequences for China's vast array of PC and component makers. This serves to reinforce the fact that there are two very separate markets here: China itself and the rest of the world.
PR problems
The biggest domestic manufacturer of PCs is Lenovo, and although it is the only one which has a serious direct export market - thanks to its acquisition of IBM's PC division - it has an image problem outside of China.
Australian Connection Research Services recently completed a survey of personal computer sales in Australia. Only three out of over 1,000 respondents knew of Lenovo. This is a reflection of what appears to be a worldwide situation.
Technology Business Research (TBR) analyst Martin Kariithi wrote in a report published earlier this year: "Given the competitive dynamics and aggressive attempts by top-tier vendors like Hewlett-Packard and Dell to increase market share in the region, TBR believes Lenovo's market share in China is close to reaching a saturation point. TBR expects the company's market share gains to taper off as Lenovo approaches the 39% market share level."
For the fourth quarter Lenovo's market share in China stood at 36.2%.
Processing power
However, there are a few bright spots, such as the domestic market for central processing units (CPUs). China started CPU R&D in 2001, and the first chip, Godson I, came out in September 2002. The Institute of Computing Technology (ICT) under the Chinese Academy of Sciences now has a five-year agreement with STMicroelectronics to sell the current chip offering which is Longsoon-2E, a 1GHz processor that is manufactured using a 90-nanometer process.
It remains to be seen how well the chip can do in world markets. It only offers the same performance as Pentium III and Pentium 4 processors but doesn't use the x86 instruction set found in chips from Intel and Advanced Micro Devices.
Dell has launched a low-cost PC for China which uses very little power. Prices range from US$335 to US$520. It is claimed that Hewlett-Packard plans to follow suit, teaming up with Taiwan's little known chipmaker Via Technologies. Their PC is projected to cost under US$520 complete with basic software.
With Dell and Hewlett-Packard bringing low-end products into China to complement their higher value ranges, the domestic PC industry is at a turning point. Companies are faced with a choice between supplying their home market directly - almost by definition the low-cost end - or creating and assembling parts for overseas companies.
Only Lenovo has any export volume to speak of and it is clearly relying on the 2008 Olympic Games, of which it is a sponsor, for a push forward. Problems will arise, however, if this is not enough.
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