Dell hopes to lure Chinese buyers with cheap PCs

Tony Munroe

HONG KONG: Top PC maker Dell Computer Corp, known for selling built-to-order

computers directly to buyers, is adapting that approach to tap the consumer

sector in China -- one of the few healthy markets in an otherwise ailing

industry.

In July, Dell introduced its "SmartPC" model, which retails for

just 4,798 yuan (US$579), said William Amelio, Dell's president for Asia-Pacific

and Japan. In a first for Dell, the computer comes with a "fixed

configuration" of hardware features.

The company has also adapted its payment system to address the fact that most

Chinese consumers don't have a credit card, Amelio said.

Texas-based Dell recently surpassed International Business Machines Corp as

the biggest foreign PC vendor in China with third quarter market share of 4.9

per cent. A year earlier Dell's China market share was 3.1 per cent, according

to International Data Corp.

"It was important for us to grab the hearts and minds of the

consumer," Amelio told reporters at a briefing in Hong Kong. Consumers buy

half the PCs shipped in China, which is the world's third-biggest computer

market.

"We're trying to drive the cost of a PC down to the price of a

television," he said.

Indeed, the lowest-priced model offered by China PC king Legend Holdings, the

Tongxi, retails for 5,199 yuan. Both the SmartPC and Tongxi use Intel's 900

megahertz Celeron chip.

"The price is definitely very competitive, even compared with the local

players," said Kitty Fok, PC industry analyst at IDC in Hong Kong,

referring to the SmartPC. Still, local firms dominate the consumer PC space, she

said. "For Dell, their key segment is still the corporate."

China and beyond



Amelio said sales of the Smart PC have exceeded expectations in the six cities
in which the model is now available, but would not elaborate.

Encouraged by the response, Dell has begun selling the same PC under the

SmartStep name in the United States and is looking at other potential markets,

Amelio said. IDC said the SmartPC, which is made under contract by a

manufacturer Dell would not identify, accounted for nine percent of Dell's

80,000 desktop PCs sold in China in the third quarter.

Overall, Dell sold 114,000 PCs in China in the third quarter, a 31 per cent

increase from the second quarter, according to an analyst. To get around the low

penetration rate of credit cards in China, Dell has struck deals with banks to

facilitate payments.

And to win over consumers unused to making a big-ticket purchase without

having seen or touched the actual product, Dell holds hands-on promotional

events in shopping malls. The company is also advertising through newspapers and

direct mail.

Before the SmartPC, Dell wooed mainland consumers with higher-priced PCs that

were moderately successful, Amelio said.

Nomura International analyst Theodore Teo said Dell, gaining market share in

the China commercial segment from US rivals IBM and Hewlett Packard Co, faces a

tougher challenge relying on its direct-sales model to attract mainland

consumers. He said Chinese consumers don't buy purely on price.

"You definitely need a channel presence for consumers," he argued,

referring to retail outlets. "You need to do a lot of educating the buyer

in China. You don't just say: 'This is cheap, so but it.'"

And Dell, despite gains, remains a bit player in a country dominated by

Beijing-based Legend, which has market share of 30 percent and a ubiquitous

presence in big city retail outlets.

Shanghai Founder Yanzhoung and Tsinghua Tongfang are the second and

third-biggest mainland PC vendors, while Dell is fourth, just ahead of IBM,

according to IDC. Cheap unbranded PCs also have a sizeable China presence.

(C) Reuters Limited.