Will Dell Click in Asia?
Xu Changjiang's first computer was a home-built device, cobbled together from components bought at Beijing computer stores. Recently, Xu decided to buy a brand-name machine--one he could afford on his modest salary as an engineer at a cable-TV station. So Xu turned to the biggest PC maker on the planet: Dell Computer Corp. (DELL ) For $600, Xu got 128 megabytes of memory, a Windows XP operating system, an Intel Celeron microprocessor, and a monitor. Xu, who researched his purchase online, declares himself thrilled. "I got an international brand," he raves. "And it wasn't expensive."
Dell is going to need a lot more customers like Xu if the Austin giant is to realize its ambitious goals in Asia. With Dell pessimistic about the U.S. market this year, it is pinning its hopes on growth in China, Japan, and other regional markets. Eric Rothdeutsch, semiconductor and computer analyst at Robertson Stephens in San Francisco, expects Dell's Asia-Pacific revenues to jump 13% this year, compared with an 8% rise in the Americas. "As time goes on," he says, "more and more of the revenue needs to come from developing markets--and China is a big one."
There is plenty of room to grow in Asia. The region generates only $3 billion of Dell's global sales of $31.2 billion. The PC-maker's share of the Asia-Pacific market, including Japan and Australia, is a meager 5.3%, reflecting Dell's newbie status in the region, plus the power of such entrenched players as Legend, Acer, Samsung, NEC, and Fujitsu. And while the PC market contracted 5% globally last year, it managed to eke out 1.4% growth in Asia. Dell's unit sales there grew 28% in 2001, compared with 15% for the company as a whole. William J. Amelio, senior vice-president and the Singapore-based head of Dell's Asia-Pacific operations, says that its respectable Asian performance will continue. "We want to grow three to five times [faster] than the market," he says.
To do that, Dell is making a big push to lower costs and prices across the board--especially in the two largest markets, Japan and China. In the past, most of the Dell computers that ended up in Japan were built at the company's giant facility in Malaysia. Now, Dell is making PCs for the Japanese market at a factory in the southeastern Chinese city of Xiamen. The switch means Dell saves a third off its manufacturing and shipping costs, says Amelio--savings Dell can pass on to customers. Dell's market share in Japan jumped from 3.8% in 2000 to 5.8% in 2001, according to Gartner Group Inc. consultants, a surge that Dell execs attribute to better management and lower prices. The likes of NEC and Fujitsu are responding to the Dell threat by shifting production to China or Taiwan. "Japanese PC makers are concerned about Dell, so they're restructuring," says Kumi Shingyouchi, an analyst with International Data Corp. in Tokyo. "They're determined to fight."
Dell is gearing up in China, too. The key to its strategy is a locally designed PC called Su Ma--or Speedy Horse--which it hopes will draw sales away from the homegrown powerhouse, Legend. While Dell customers elsewhere can choose from hundreds of configurations, the Speedy Horse comes in three versions, ranging from the basic machine Xu bought to a top-of-the-line model. By restricting choice, Dell can cut costs--without alienating customers. Many Chinese are first-time PC buyers, says Richard M. Ward, general manager of Dell China's consumer and small-business arm. Hence they "want a relatively simple set of choices."
So far so good. But Asia is no slam-dunk for Dell. As a relatively late entrant to the region, it remains a minnow. In Taiwan, the company is in ninth place with less than 2% of the market. In South Korea, Dell hasn't even cracked the top 10. And the going could get tougher in China. For one thing, Legend is ramping up its own build-to-order business. Moreover, says Annie Chung, a Gartner analyst in Hong Kong, "the market is a bit saturated in the major cities." Chung adds that China's entry into the World Trade Organization, which gradually lowers barriers to imports, may prompt buyers to wait until prices fall. Dell, however, is counting on folk like Xu--people who have waited long enough.
By Bruce Einhorn in Hong Kong, with Andrew Park in Dallas, and Irene M. Kunii in Tokyo