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China's IT (information technology) market, which has been slowing down in recent years, appears poised for a mild recovery.
However, most IT products and service vendors are still encountering difficulties, as their profit margins continue declining amid red-hot competition.
China's IT market grew 23.7 percent, year-on-year, in the year's first half, indicates Beijing-based data tracking firm CCW Research.
For all of 2003, the IT market grew 11 percent.
In the second half of the 1990s, the annual growth of China's IT market hovered between 20 and 30 percent.
However, the hike in this year's first half was partly the result of a marked slowdown in IT spending in the first half of last year, after SARS (severe acute respiratory syndrome) broke out in China, CCW said in a report.
During SARS, consumers avoided shopping, except when absolutely necessary, which put a big dent in IT vendors' businesses.
CCW predicts the IT market, in the second half of this year, will maintain a high growth rate, but that full-year growth will slip below 23.7 percent.
Foreign giants are stepping up their marketing efforts in key IT product markets, and they are ready to continue cutting into domestic manufacturers' shares of the market, CCW warned.
Hardware
The PC market, plagued by lacklustre growth over the past three years, has steered itself away from the gloom, CCW said.
PC shipments in the year's first half reached 6.363 million units, up 21.9 percent year-on-year.
Desktop PC shipments grew 16 percent to 5.245 million units during the period.
Business desktop shipments reached 2.935 million, up 19.4 percent year-on-year.
Major business PC vendors - such as Lenovo, Founder, Dell, Tongfang and IBM - are focusing, in terms of competition, on costs and services.
Fewer firms are replacing their business desktops, due to the lack of new applications.
Consumer desktop shipments reached 2.31 million units in the year's first half, up 14.7 percent.
Continuing price drops, in addition to the sales boom of digital cameras and MP3 players, will boost the growth of the consumer desktop market, CCW said.
The research house predicts 11.4 million units of desktops will be sold in China this year, up 12.5 percent year-on-year.
For the past three years, the growth rates were 16.7 percent, 11.6 percent and 6 percent, respectively.
Laptops remain the shining light in China's PC market.
Notebook PC sales reached 980,900 units in the year's first half, up 53.3 percent. Revenues hit 9.71 billion yuan (US$1.17 billion).
The competitive landscape remained largely unchanged, with big names such as IBM, Lenovo, Dell, Hewlett-Packard, Toshiba and Founder holding a combined 68-per-cent share.
CCW predicts, for all of 2004, laptop shipments will exceed 2.1 million units, up 50.3 percent year-on-year.
For the past three years, the growth of laptop shipments hit 59.6 percent, 56.2 percent and 50.1 percent, respectively.
In the first half of this year, shipments of servers grew 21.6 percent, year-on-year, to reach 137,000 units.
Revenues hit 7.14 billion yuan (US$860.2 million), CCW said.
Business demands, brought on by online games, short messaging service (SMS) and video on demand (VOD) will boost the server market growth.
IT spending by some industries including steel, oil, engineering and non-ferrous metals - will likely decrease in the year's second half, due to the Chinese Government's recent moves to cool down the overheated economy.
However, the decrease is unlikely to have a major impact on the server market, as those sectors are not major buyers of servers, CCW said.
Falling prices have sparked a sales boom in digital cameras.
The average price of digital cameras dropped about 15 percent compared with last year, CCW said.
For some high-end digital cameras, the drop was nearly 30 percent.
Shipments of digital cameras more than tripled during the year's first half to reach 1.055 million units, while sales hit 2.65 billion yuan (US$319.2 million).
Compared with the second half of last year, growth in shipments and sales soared 80 percent and 61.6 percent, respectively.
The digital-camera buying spree boosted other sectors, such as the battery, storage product and printing and filming markets.
CCW predicts the size of China's market for digital-camera-related products will amount to 10 billion yuan (US$1.2 billion) within three years.
Yet, digital camera manufacturers face strong competition from mobile phone makers.
Global giants such as Nokia and Sony Ericsson have launched mega-pixel camera phones in China.
And numerous domestic manufacturers are also planning to launch such phones. Some will be enabled with three-mega-pixel built-in cameras.
That would apply great pressure on low-pixel digital camera manufacturers, CCW said.
The MP3 player market maintained its high growth in the year's first half, with shipments hitting 1.41 million, up 277.6 percent year-on-year.
Sales totaled 1.13 billion yuan (US$136 million) during the period.
Major global players, such as Samsung, JNC, Sony and Creative, dominated the high-end market.
Falling prices of flash memory cards sparked price drops of MP3 players.
The average price of an MP3 player fell from 1,100 yuan (US$133) to 700 yuan (US$84).
MP3 players that can hold up to 128 megabytes are being phased out of the market.
In the second half of this year, 256-megabyte MP3 players will be the mainstream, CCW said.
The firm predicts sales of MP3 players will reach 3 million units this year.
Big risks lurk, however, for makers of MP3 players, CCW warned.
Enhancements to handsets' functions and capacity expansion have already posed big threats to manufacturers of MP3 players.
Besides, the MP3 player market has become overcrowded, which will unavoidably batter profit margins.
The growth of China's network equipment market maintained steam in the year's first half.
Network gear sales - including routers, switches, ADSL (asymmetrical digital subscriber) lines and WLAN (wireless local area network) equipment - increased 24.2 percent, year-on-year, to reach 11.3 billion yuan (US$1.36 billion).
Sales of routers hit 2.55 billion yuan (US$307.2 million), while sales of switches amounted to 3.52 billion yuan (US$424 million).
Sales of WLAN equipment hit 380 million yuan (US$45.78 million).
An increasing number of small and medium-sized businesses and households are buying WLAN equipment, CCW said.
The firm predicts the size of the network equipment market will reach 12.5 billion yuan (US$1.506 billion) in the year's second half.
Software
China's software market grew 28.1 percent, year-on-year, in the first half of this year, to reach 25.1 billion yuan (US$3.024 billion).
Finance-management software, collaboration software and middleware were the three brightest spots, CCW said.
The management software market recorded 32-per-cent growth, year-on-year, in the first half of this year.
The size of China's ERP (enterprise resource planning) market reached 1.19 billion yuan (US$143.3 million) in the period, up 29 percent.
The HR (human resource) software market recorded an 80.4-per-cent increase.
The CRM (customer relations management) market sputtered: Its year-on-year growth stood at 2.2 percent.
It will take more than five years for China's CRM market to mature, CCW said.
The middleware market grew 32 percent, year-on-year, to reach 690 million yuan (US$83.13 million).
Middleware made by domestic companies is growing in popularity.
A survey conducted by CCW indicated only 11.5 percent of users think the stability of home-grown middleware must be improved.
CCW said home-grown middleware makers are likely to gain a breakthrough this year.
The research house predicts, for the full year, China's middleware market will grow 35 percent.
Over the next three years, the growth will be even faster.
The open-source Linux market grew 34 percent, year-on-year, in the first half of this year, to reach 34.5 million yuan (US$4.156 million).
That represented a slight slowdown compared with last year.
TurboLinux and Red Flag Linux performed the best in the Linux software market.
(Business Weekly August 19, 2004)
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