China's economy is now the second largest in the world, and it's growing at an impressive rate, especially for a goliath. China now accounts for more than 20% of PC unit shipments worldwide. It's no wonder PC makers are looking to China for growth.
There are two ways to win. First, grab a piece of a growing pie. Second, get a bigger share of pie. But market share is a zero-sum game. With every player hoping to gain market share, some companies -- and their shareholders -- will be disappointed. Let's hope you're not among them.
The comeback kid?
Notably, management dodged questions about year-over-year comparisons. Gee, maybe that has something to do with last year's missteps dealing with faulty graphics chips from NVIDIA
HP eventually stepped up in China with extended warranties and compensation. Its early bungling also led to an apology. But saying "I'm sorry" only does so much to heal wounds. According to IDC, HP lost half of its China PC market share in one quarter.
Right place, right time
To continue its growth, Dell expects to spend a formidable $250 billion in China during this decade (largely thanks to procurement of PC supplies), including plans to establish a presence in 800 smaller cities by the end of this year. Dell seems to have learned that its Internet sales model wasn't working in emerging markets. That said, the company has struggled with retail kiosks and stores in the United States. What reason do we have to believe they'll get it right in a foreign market?
Home field advantage
Lenovo was the biggest beneficiary of HP's missteps in China last year. It already held a solid market share lead. With HP's help, Lenovo went to 29% share from 26.5%. Lenovo has almost three times the share of No. 2 Dell. That could drive some tremendous scale -- especially cost -- advantages.
Lenovo is the Chinese company that bought IBM's
It's a mobile market
PC unit shipments in China grew a paltry 4% last quarter. For many people in emerging markets, their smartphone is their computer. Internet access is limited, making mobile more practical. In addition, the high cost of mobile devices and PCs relative to incomes makes it tough to afford both. Thus smartphones, and potentially tablets, are important offerings for any PC supplier in these markets.
HP's smartphone and tablet strategy revolve around proprietary WebOS devices stemming from its Palm acquisition, putting HP into head-to-head competition with Apple ... without the prestige.
Lenovo introduced its LePhone in 2010, going after the iPhone with an aggressive price point on a device running Google's
Dell's smartphone and tablet efforts center on Android, putting it in head-to-head competition with Lenovo.
Rapid growth of consumption in China provides attractive opportunities for companies riding that wave. But market share gains are a zero-sum game.
Apple's prestige and mobile device mojo could serve it well in the expanding affluent segment of the market. Lenovo's home team advantages -- a strong brand name and local presence, loyalty to a domestic supplier, and low cost structure -- are formidable challenges for foreign suppliers of undifferentiated products.
Share gains could prove elusive for both HP and Dell. HP is counting on a PC comeback in China to reaccelerate growth later this year, creating risk to investor expectations for 2011. Looking longer term, Dell seems to be relying on competitor missteps and large investments in unproven strategies to improve its position.
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