Slowed Growth In China's 2012 IT Spending Won't Carry Through Into The New Year

Ongoing global economic uncertainty has affected the Chinese economy by reducing demand for exports and shrinking domestic investments, resulting in turbulence in China’s tech market. My latest report, “China Tech Market Outlook: 2012 To 2013,” describes how Forrester has revised its 2012 growth forecast for this market from an original forecast of 13% in January 2012 down to 10% (measured in local currency). Major technology vendors, including both local and MNC vendors, have seen the growth of their China operations slow down.

However, the Chinese tech market is still one of the fastest-growing IT markets in the world. China’s $105 billion of annual technology spending ranks third in the world after the US and Japan. However, per-capita IT spending in China is only 4% of Japan’s and 3% of the US’s — highlighting the long-term potential in the country.

 

Some of the key findings for the tech market trends in China in 2012 and 2013 include:

  • Computer equipment and peripherals, as the largest segment for tech spending in China, will grow 8% in 2012 and 13% in 2013. Chinese customers continue spend on more hardware. Strong cloud momentum in China will drive significant new data center investments from telecom operators and local governments, with a positive impact on technology vendors selling servers, storage, networking, and other relevant technologies.
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Lenovo Eyes Global Enterprise Market In Partnership With EMC

In July, I wrote a report entitled Huawei Takes On The Global Enterprise Market, which outlined Huawei’s ambitious targets to diversify into the global enterprise market. This morning (August 1), Lenovo announced a strategic partnership with EMC in Beijing which shows that it has similar ambitions to broaden beyond its current base of business into the global enterprise market. There are three key components of the partnership:
  • Joint server development. Lenovo and EMC will form a server technology development program to develop X86 server products. Lenovo will ship these servers (likely Lenovo’s ThinkServer brand, announced in June 2012) to the global enterprise market. As a next step, EMC will integrate Lenovo server products into its existing storage product line and offer them to its global customers.
  • Lenovo will OEM and resell EMC storage products. Lenovo will OEM and resell EMC storage products as part of its enterprise product portfolio. Sales will start in the mainland China market and gradually extend out to the global market as part of Lenovo’s enterprise vision.
  • A joint venture for NAS products. EMC’s Iomega division will be put into the new joint venture, of which Lenovo owns 51% and EMC the remaining 49%. The JV will produce NAS products targeting SMBs and branch offices for large enterprises.
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National Broadband Network (NBN) In Singapore Bringing New Thinking Of Selling Consumer Services

I was in Singapore two weeks ago and had the chance to meet Malcolm Rodrigues and Greg Mittman from an emerging broadband service provider called MyRepublic. MyRepublic is a new service-based operator (SBO) licensed in Singapore in 2011, purpose-built for Singapore’s national broadband network (NBN). Since the launch of the NBN service in Singapore, it has created new opportunities for SBOs to lease the network from OpenNet, the company that operates the NBN in Singapore and sell high-speed fiber broadband services to consumers and businesses in the island country. And MyRepublic is one of the most interesting companies I have seen, with an innovative business/go-to-market model that:

  • Has an operational model based on light assets. Leveraging the NBN network and a neutral operation company, MyRepublic is able to get access to the nationwide fiber broadband network at the same price as other established telecom operators in Singapore, including the incumbent SingTel. It only needs to put its own gateways and other limited network assets at OpenNet for service provisioning, network monitoring, billing, etc.
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Sustaining Growth In China: IT Vendors Must Target SMEs

On Monday, March 5, China announced that its GDP target for the full year 2012 is 7.5%, lower than the government target of 8% in 2011. This number is also lower than many financial analysts’ estimates and the IMF’s latest estimate of 8.2% in February. At the same time, the government also announced that its consumer price index (CPI) growth estimate is 4% — the same as the 2011 target.

This slight decrease is in line with our recent observations of the overall China economy. Some key reasons for the reduced estimate include:

  • State-owned enterprises (SOEs) have slowed down. In the banking sector, growth from private banks in 2012 is expected to be at least 10% to 20% higher than the “Big Four” banks.
  • Government investment in infrastructure has been revised. For instance, many new high-speed rail projects were put on hold after the Wenzhou train collision in July 2011.
  • Increasing labor costs in China have hurt exports. Foxconn, the largest employer in the manufacturing sector in China, has again increased workers’ base salaries by 16% to 25% beginning in February 2012.
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