China PC sales up 13.5 per cent

Increasing competition puts pressure on Lenovo's international expansion plans

Simon Burns in Taipei, vnunet.com 16 May 2006

Revenues from desktop PC sales in China increased 13.5 per cent in the first quarter of this year compared to the same period in 2005, market researchers have reported.

However, the total number of computers sold fell slightly, according to local research firm Analysys International.

Local firms, led by Lenovo, continue to maintain a strong presence in the desktop PC market. The three largest domestic PC makers are responsible for more than 60 per cent of sales. Lenovo alone controls 37.5 per cent of the market.

Foreign manufacturers, while strong in China's more profitable notebook and server markets, are poorly represented in the desktop sector.

The largest of them, Dell, has 8.3 per cent. The only other foreign players with significant desktop PC market share are HP with 4.2 per cent and Taiwan's Acer with 1.9 per cent, according to the research firm's data.

"Market demand was concentrated on low-end and mid-range products. 2.9 per cent of the total shipments in the first quarter were priced below $375, which were sold mostly in rural areas," said Analysys researchers.

"Prices of mainstream products continued to fall slightly in the first quarter, and the market profit margin further reduced."

While average revenue per customer is still increasing, the total number of units sold actually fell 3.3 per cent at 3.487 million desktop PCs shipped.

The saturation of the market is a particular challenge for the largest player, Lenovo, which is running out of room for growth amongst urban PC users.

"Within China our checks indicate that [Lenovo will face] growing competitive pressure from global and local players from the second quarter," Deutsche Bank analysts predicted in a research summary last month.

Lenovo is relying on a strong home market to drive an ambitious, but costly, international expansion programme which kicked into high gear when it purchased IBM's loss-making PC division last year.

More than $15bn worth of desktop and notebook PCs were sold in China in 2005, according to CCID Consulting, a government-sponsored research firm.

An additional $5bn was earned from sales of other kinds of computers, mainly servers. Earlier this year, CCID predicted that total sales of all types of PCs, including servers, would reach $30m in 2008.

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