Chinese PC makers eye export markets as sales climb

By Fleur Doidge on Aug 17, 2004 12:00 AM
Filed under Hardware

The two biggest PC makers in China - Lenovo and Founder Electronics - have hinted at plans to strengthen their export strategies targeting other nations, including Australia.

Simon Ye, a Shanghai-based analyst at Gartner, said Beijing-based Lenovo and Founder Electronics currently exported very little. However, both companies had indicated that growing their businesses well beyond China was important long term.

"Certainly, the percentage is pretty low. But Lenovo is very interested to [expand exports]," Ye said. "With Founder, it's the same thing. They are not very good in the export market currently but they have the interest."

Lenovo - formerly known as Legend - exports on a relatively small scale to Europe and some other Asian countries. Founder Electronics' tale is similar, with other arms of the vast Founder group of companies targeting global allies and sales but limited exports of its hardware.

Ye said Founder Electronics had recently contacted Gartner, expressing interest in exploring further overseas investments. Both vendors had been concentrating on China, but the nature of the game was that continued growth would mean increasing exports.

"And Lenovo is a global sponsor for the Olympic Games. If they don't have interest in expanding their overseas business, they don't need to pay money to be a global sponsor," he added.

Gartner statistics on PC shipments - including desktops, mobile PCs and x86-32 servers - for Q2 show Lenovo as the leading vendor across the entire Asia-Pacific region. Lenovo shipped 870,700 PCs, growing its shipments year-on-year 22.3 percent to take 10.5 percent market share, and taking its number one spot back from HP.

HP grew strongly but couldn't keep the lead from Lenovo, which has led its home market sales for several years, while IBM and Dell came second and third. Nipping on Dell's heels was Founder Electronics, which grew its Asia-Pacific sales a staggering 70.7 percent year-on-year to ship 350,800 PCs across the region.

"However, Yang Yuanqing, Lenovo's CEO, has admitted that Lenovo has still not found a good way to expand its business to overseas markets," Ye said.

He said that when Lenovo and Founder do get around to targeting markets such as Australia, the established leaders here - HP, Dell, Acer, IBM and Toshiba - could have a race on their hands.

"In China's market, the most important thing is price, price, price. You cannot say which vendor and product is different from others. PCs nowadays are a commodity," Ye said. The fact Lenovo has just introduced an "extremely low end" PC for RMB2999 [approximately AUD$600] is indicative of the significance of price.

Vendors with high price tags, such as Apple, don't do so well in Asia. Just 0.1 percent of the Chinese market finds Apple's marketing triple-whammy of style, quality and innovation convincing, he said.

Lenovo's strategy has been to re-focus on its core hardware business - it recently sold off its IT services division two weeks ago - and increasingly target regional and rural areas that still have limited access to computing, Ye said.

And when the price comes down, tier three, four and five tier cities and smaller towns start buying, he said.

"RMB3000 was the psychological bottom line," Ye said. "And it was really a shock, and some of the other vendors are very angry about this. But I think it's a good and bold move."

Sharply lowered prices would force other vendors to do the same and would also savage reseller margins. "When Lenovo announced this, [another Chinese vendor] also announced a new one - a Celeron-based PC for RMB1999," he added.

Lenovo had also started working with AMD to further improve the price differential on some hardware and increasingly push into the home market, Ye said.

Sudden Acute Respiratory Syndrome (SARS) in Asia had been a limiting factor last year. This year, the anchors were off and Founder Electronics was forging ahead, he said.

"Founder was affected by SARS last year. They controlled the number of shipments," Ye said.

In China, the price differential between white-box and branded products had shrunk to 200 or 300 Renminbi, so consumers were now willing to pay the difference to get a branded product which might offer better post-sales support and service arrangements, he said.

That had proved particularly helpful to Founder, which was pushing hard for consumer sales.

"Founder has started to engage some supermarkets. Previously, most of the home PCs were sold by PC stores," Ye said. "Founder has opened stores all over the country - 200 or 300 in Q2 and planning to open more in coming quarters."

But to get extra growth, that company too would have to turn to exports, Ye said.