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IBM eyes 50% market share
(China Business Weekly)
Updated: 2004-09-24 10:17

International Business Machines Corp (IBM) is reaping the rewards of a decade-long push into China's business computer market, and is eyeing upwards of a 50-per-cent share, China General Manager Henry Chow said.

Citing industry figures, the world's largest computer company boasts a 43.6-per-cent share of China's market for business computers large and small, the computers used to operate everything from State-run banks to e-commmerce websites.

Its global business computer share is 32 per cent.

"I would not say we do well enough," Chow said in a deliberate understatement of the company's recent momentum in business computers.

"We are not yet over 50 per cent," Chow said in an interview late last Monday.

But while hardware remains its mainstay in China, IBM is focusing on new hiring and investment on software and services, where it sees even stronger growth.

"While the rest of the world has moved to a software and services market, China's industry remains hardware-centric," said Chow, chairman and chief executive of IBM China.

"We have seen in the past five years, and will see that in the foreseeable future," he said.

In its most recent quarterly results statement, Armonk, New York-based IBM singled out China, for the first time since it opened offices in the country 20 years ago, as a key driver of its overall corporate results.

Big emerging markets such as China, Russia, India and Brazil grew a combined 35 per cent in the first half of this year, or five times faster than overall revenue growth of 7 per cent.

Currently, the bulk of IBM's China revenues -- 70 per cent -- come from hardware, while only 30 per cent on software and services.

That's roughly the reverse of its global revenue mix, where services lead with 57 per cent of sales.

But the percentage of its software and services business is increasing as the economy matures, Chow said.

While the typical business technology buyer pays a premium for its foreign-built computers, customers have traditionally expected hardware vendors to throw in technical services for free.

Software has been developed and maintained in-house, a legacy of the self-sufficiency forced on State-supported firms.

IBM's closest competitor in the server market is Hewlett-Packard Co, with a 26-per-cent share.

Crucially, IBM leads across all four segments of China's server market made of PC servers, Unix, minicomputer and mainframes.

Sun has 12.4 per cent, Dell holds 7 per cent and China's leading PC brand, Lenovo, has 2.2 per cent, indicate the latest data from market researcher IDC.

IBM is a lesser player in the highly competitive desktop PC market -- where its five big rivals each have larger shares -- but leads in the more profitable market for notebook computers used by business travellers, with nearly 24 per cent.

IBM has been profitable in China for 11 years.

IBM is taking aim at software and services in China because the sector is projected to climb in excess of 20 per cent.

Industry sales of personal computers are expected to grow 15 per cent this year, and servers and data storage equipment should rise by 13 per cent, indicate IDC's estimates.

"Most people we hire now are in software and services, because customers are telling us they want to change," said Chow, a 36-year veteran of IBM China.

He started as a programmer in Hong Kong, and has become a top business figure in China.

Under government prodding, China is undergoing its own merger wave, as State-run enterprises at the provincial level combine into nationwide organizations so they can become more globally competitive.

IBM China counts 3,800 employees, just a little over 1 per cent of the company's global headcount of 320,000.

Most are in sales, consulting, software or research. Another 4,500 work in IBM's Chinese manufacturing operations.

IBM's global strategy of hiring away the internal staff of major corporate customers under long-term outsourcing contracts doesn't work in China, where private companies and government organizations still see technical labour as cheap, plentiful and best-controlled in-house.

"Right now, we have a minimum of outsourcing contracts in China," Denis Yip, IBM Asia-Pacific director for one of IBM's business computer lines, said in a separate interview.

"We are making a lot of investments in IBM consultants -- that will be our next wave of growth."

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