by Clement Teo, Bryan Wang, Katyayan Gupta (this blog is also published by Clement Teo)
We recently met with Huawei executives during the launch of its latest product in China, the S12700 switch. The product, which ships in limited quantity in Q1 2014 is designed for managing campus networks, and acts as a core and aggregation switch in the heart of campus networks. While wired/wireless convergence, policy control and management come as standard features, the draw is the Ethernet Network Processor (ENP). The ENP competes against merchant silicon in competitive switch products, and Huawei claims to be able to deliver new programmable services in six months, compared to one to three years for competitive application-specific integrated circuit (ASIC) chips. This helps IT managers respond quicker to the needs of campus network users, especially in the age of BYOD, Big Data, and cloud computing.
Microsoft recently announced an education promotion for its Surface RT tablets that offers deep discounts to schools and universities. Under the program, Microsoft will offer Chinese students the 10.6” Surface RT tablet at $199 (versus a list price of $499), with official Office applications standard. With e-education a critical part of education reform, Forrester sees two key trends driving strong tablet adoption in the education sector:
· Continuous government investments in e-learning. At both the central and local government levels, e-learning programs are underway to improve students’ information literacy as well as narrow the education resource gaps across the different regions in China. For example, the “Digital Education Resources Full Coverage Project" was launched in November 2012 by the central government with funding of RMB 308 million ($49 million) to equip digital education devices for teaching venues across China.
· Explosive growth in tablet adoption.Forrester forecasts the number of tablets for business, government or educational use to increase from about 19 million in 2012 to more than 83 million in 2016 in APJ, with China as one of the key growth engines. Noticing this growing opportunity, multiple city governments (e.g. Beijing, Shanghai, Nanjing, Guangzhou, etc.) have announced projects to purchase tablets for students’ usage in class.
In China, mobile commerce has become one of the top priorities for organizations in retail, hospitality, transportation and other services industries, given the dramatic growth of smartphone adoption and the exploding e-commerce spending. Alipay, the leading third-party online payment platform in China and sister company of the country’s largest C2C website Taobao.com, claims 60 million mobile payment users and estimates 10% of its 2012 transactions were from mobile devices.
In terms of mobile payment, mobile proximity payments and mobile remote commerce have gained momentum through early industry implementations and government support. Starting 2011, the variety of technologies and platforms available in the market has grown significantly.
Under such circumstance, many IT organizations are interested to understand more about the landscape of the mobile payment space. They are also seeking information about the multiple platforms that will be enabling them for their corporate mobile commerce strategies, especially considering that the mobile payment market landscape in China is dramatically different from other parts of the world.
Forrester’s Asia Pacific (AP) team has just published its 2013 predictions report, focused on regional IT spending, technology adoption, and vendor dynamics. The predictions that will most affect the Chinese market:
Transformation imperatives will drive IT spending growth. China’s top government priorities for 2013 are ensuring economic stability during the ongoing political transition and counteracting the negative external market factors that have led to an economic slowdown. For 2013, Forrester expects the government to continue economic reform and invest in specific areas: infrastructure, education, and new technologies. We expect these initiatives to positively affect IT-related spending, which will grow approximately 11% in 2013 in local currency versus 9% in 2012.
Many device manufacturers will struggle despite surging demand. We expect that sub-$100 and even sub-$50 Android devices will hit the market. With rapid standardization and commoditization of smartphones in AP, tier two device manufacturers will further struggle to differentiate their products and maintain their margins. White-label or original design manufacturers (ODM) from mainland China are leveraging the opportunity to build their own brand and sales channels to gain share from tier two device makers from Japan and Taiwan. Forrester believes that 2013 will be a tough year for vendors like Acer and Asus in the smart mobile device and tablet space.
China has always been a problem for Microsoft. With much higher software piracy rates and a less mature enterprise sector than other major international markets, Microsoft has had a hard time reaching its potential in China. However, Microsoft has made a series of announcements in the past three months that will finally give China a place among the company’s top international markets:
Making China one of the first countries where Windows 8 and the Surface tablet were commercially available (late October).
Officially launching Office 365 and Windows Azure cloud services in China through partnership with 21ViaNet, an Internet data center player in China.
Forming a partnership with HTC, Nokia, and all three Chinese mobile operators to make the Windows Phone 8 available (December).
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.
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.
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.
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.