JD.com (JD +0.55%), the biggest direct retailer in China, recently announced new partnerships with four American tech companies: PC maker HP (HPQ +0.27%), software giant Microsoft (MSFT 1.28%), DRAM module maker Kingston, and hard drive maker Western Digital (WDC +8.60%). Let's see how working with JD could help these four companies.
1. Partnering with HP for "consumer to manufacturer" sales
HP was one of the first brands to partner with JD in C2M (consumer to manufacturer) sales. In a C2M model, a consumer pre-orders a certain product, and the manufacturer only produces the product when a certain number of orders are reached.
This approach lets a manufacturer produce a set number of products for a niche market without being burdened with excess inventory. HP has used this C2M approach to sell its OMEN gaming PCs on JD.com since 2015, and it recently named JD as its "best worldwide partner" for the OMEN brand. That slow-and-steady approach is working, and HP plans to sell 100 new C2M products on JD.com within the next two years.
Image source: JD.com.
Doing so could boost HP's laptop and desktop sales, which together accounted for 61% of its top line last quarter. It could also strengthen HP's Asia-Pacific business, which generated 23% of its revenue. Moreover, strengthening its PC business could offset the sluggish growth of its printing business.
2. Promoting Microsoft's Office 365 and smart retail efforts
China has been a tough market for Microsoft, due to software piracy, tense confrontations with the Chinese government, and competition from Alibaba (BABA +0.76%) and other rivals in the cloud market.
To give Microsoft a boost, JD will partner with Microsoft to promote Office 365 with trial experiences for Chinese users. Doing so could strengthen Microsoft's commercial cloud business, which generated $11.6 billion in revenue, or 35% of its top line, last quarter.
JD also noted that it had been "partnering closely" with Microsoft in smart retail experiences in recent years, and that it used its sensors and software to power its brick-and-mortar JD Retail Experience shops in Wuhan, Suzhou, and Meizhou. That partnership complements Microsoft's partnerships with brick-and-mortar retailers across the U.S., and could encourage other Chinese retailers to follow JD's lead and adopt Microsoft's technologies.
Image source: JD.com.
3. Reinforcing Kingston's lead in DRAM modules
Kingston is the world's largest maker of DRAM modules, which combine DRAM chips with PCBs (printed circuit boards). It buys DRAM chips from a chipmaker like Samsung or Micron and produces the finished memory module, which can be installed into a computer. It also sells flash memory products and other computing devices.
JD initially signed a 10-year partnership with Kingston in 2009. At CES, it announced that it would commence a second 10-year partnership targeting $800 million in sales over the next three years. Kingston is privately held, so it doesn't regularly disclose its annual revenue. However, Trendforce estimates that it generated $11.95 billion in DRAM revenue in 2018 -- so its deal with JD could generate a low single-digit percentage of the division's total sales.
4. Selling WD's hard drives to enterprise customers
JD stated that it was cooperating "strategically" with Western Digital to sell "tailored products, supply chain, and marketing solutions" to enterprise customers. JD also sells a wide range of WD's hard disk drives (HDDs) and flash-based solid state drives (SSDs) to mainstream consumers. WD also named JD as its "most valuable" worldwide partner for 2019.
That partnership complements WD's joint venture with China's Unisplendour and Unisoft Group to develop data storage systems for the Chinese market. WD doesn't disclose its total revenue in China, but working with JD and the Unis joint venture could bolster its Asia-Pacific revenue, which hit $1.9 billion last quarter and accounted for nearly half of its top line. It could also widen WD's moat against its rival Seagate.
The key takeaways
JD often works with American companies. Walmart and Alphabet's Google own major stakes in JD, and both companies have been collaborating with the retailer on various e-commerce projects.
Pulling tech giants like HP, Microsoft, Kingston, and WD closer complements those deals and widens JD's moat against Alibaba and other e-commerce rivals in China. These deals won't boost JD's near-term revenue, but they'll reinforce the company's reputation as a tightly controlled online marketplace for high-quality goods.
