The forward march of the personal computer industry in China is, for the first time, showing signs of faltering. So far it has been nothing but growth on an amazing scale. Now the forecast is that in China there is oversupply of personal computers, suggesting the industry is entering a period of slow growth.
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.
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%.
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.