Competition heats up for Dell in China’s PC market

Is Dell losing ground to competitors in China’s PC market? The answer is yes, according to market analyst Gartner, but the Round Rock, Texas, PC vendor remains a force to be reckoned with.

Dell was the fourth-largest PC vendor in China during 2004, falling two spots from the No. 2 position held by the company in 2003, according to Gartner.

With a 7.2 share of China’s PC market in 2004, Dell trailed market leaders Lenovo (25.1 percent), Beijing Founder Electronics (9.9 percent), and Tsinghua Tongfang (7.8 percent), Gartner said. But Dell’s share of the market remained larger than foreign PC vendors, including IBM, which ranked No. 5 with a 5.1 percent share of the market, and No. 6 Hewlett-Packard, which has a 4.8 percent share of the market.

Dell’s PC shipments in China rose by 29 percent last year, well above the 15 percent increase in overall PC shipments, according to Gartner. But Dell — which saw its PC shipments in China surge 63 percent in 2003 — was outpaced by its main rivals, which all posted larger percentage gains.

For example, Lenovo posted a 34 percent increase in PC shipments last year while Founder and Tongfang saw their shipments rise 80 percent and 71 percent, respectively, Gartner said. IBM and HP also outperformed Dell with respective shipment increases of 38 percent and 71 percent in 2004, it said.

“Lenovo, Founder, and Tongfang really did a good job last year,” said Simon Ye, a principal analyst at Gartner, in Shanghai. All of the top Chinese vendors had increased sales to education and government customers, he said.

Among the foreign vendors, IBM did well in the mobile computer space and HP’s sales were boosted by its re-entry into the market for consumer PCs, he said.

Lenovo did particularly well in smaller Chinese cities, where consumers responded well to the company’s low-cost Yuanmeng line of PCs based on processors from Advanced Micro Devices (AMD), Ye said. That success is significant for Lenovo because most of the growth in Chinese PC sales is taking place in these smaller cities, he said.

But others warned about reading too much into Gartner’s most recent numbers. The numbers do not necessarily indicate Dell faces trouble in China, but they bear watching closely, said Helen Lau, an analyst at Celestial Asia Securities Holdings, in Hong Kong. “I would like to still wait for several more quarters … to decide if Dell is really falling behind,” she said.

“Dell is a very formidable competitor,” Lau said.

Dell spokeswoman Judy Low did not comment specifically on the Gartner numbers but she noted that competing figures from market analyst IDC tell a somewhat different story. (IDC is owned by International Data Group, the parent company of IDG News Service.) “Our 2004 growth was comparable to the local vendors,” she said.

Kitty Fok, vice president of IDC Asia-Pacific’s Central Research Group, said IDC’s numbers likely differ from Gartner’s figures due to different survey methodologies employed by the two companies.

According to IDC, Dell’s PC shipments increased 29 percent during 2004, a higher percentage increase than top-ranked Lenovo, which saw its PC shipments rise 17 percent during the year. Moreover, Dell’s growth rate evenly matched both second-place Founder (29 percent) and third-place Tongfang (28 percent), it said.

But IDC’s research also shows Dell giving up ground in China to both IBM, which saw its PC shipments rise 37 percent, and HP, which grew its shipments by 67 percent.

Looking ahead, Lau said Dell needs to broaden its reach in China to include smaller cities.

Gartner’s Ye agreed. Dell is too focused on China’s largest cities, where the company offers mostly high-end PCs designed for corporate customers. But these markets have become saturated and PC sales have slowed, which prompted a price war last year among vendors, he said.

To avoid falling behind local rivals, Dell needs to revamp its strategy and expand into new markets within China, Ye said. “They need to consider how to penetrate the low-end market and the rural areas, because they don’t have coverage there,” he said.

Moreover, Dell needs to move quickly to set up a presence in smaller Chinese cities before domestic rivals like Lenovo become well entrenched there, Lau said. “The later Dell gets to these small cities, the worse it will face,” she said.

Building a presence in these smaller cities won’t be easy for Dell. The company’s direct sales strategy has worked well in the major cities but is unlikely to be as successful in smaller markets, Lau said. “The smaller cities are not very familiar with this sales model or comfortable with it,” she said.

However, IDC’s Fok downplayed the need for Dell to urgently move into smaller cities in China. Growth in the larger markets within China may be slowing, but they continue to post healthy increases on already large shipment volumes and Dell is very competitive in these markets, she said.