In the PC Wars, the Asians Have a Clear Advantage

As the balance of power in many domains shifts from the U.S. to China, computer makers are also refocusing their strategies to include a larger China component. China is critical as both a market and a supply base. And Asian vendors have become serious rivals to the top U.S. companies, many of which are beset by persistent management dramas and palace intrigue.

For years, the equation was clear: Large PC brands were American, the big makers were Taiwanese, and China was, at best, a low-cost production site. Today several of the former Taiwanese makers have become international brands, and mainland China has risen to become a full player as both customer and supplier. The Chinese leader, Lenovo Group, is the fourth-largest PC vendor in the world. No. 2 is Taiwan's Acer.

So who's winning? My call is that the Asian brands have a long-term advantage. Top-ranked Hewlett-Packard (HPQ) and No. 3 Dell (DELL) share characteristics absent in the Asian vendors: Both face various legal troubles and leadership turmoil. Both have seen a string of executive and board departures. Dell has been able to settle most, but not all, of its lawsuits. HP faces yet another regulatory probe over its split with former chief Mark Hurd. Both continuously bleed high-level talent. Meanwhile, Acer, Lenovo, and Asus, another Taiwanese firm, now in the sixth spot, slowly and steadily build their international presence.

The U.S. and China represent big battlegrounds for all these vendors, must-wins in the market share wars.

Across the Strait

In China, the Taiwanese are striving to overcome an important long-term handicap: They are identified with what Chinese political leadership regards as a renegade Chinese province. Recently, however, commercial relations between Taiwan and the mainland have become so intermingled that money, people, and technology now flow between the two relatively freely, characterized by the resumption of direct air service in 2008.

Principal competitors in China include Lenovo, with a 29 percent share, and HP and Dell, with about 10 percent each, according to IDC. Acer, Asus, and domestic players Tongfang (600100:CH) and Founder Group all have market shares in the single digits. In the U.S., the picture is quite different: HP and Dell are the clear leaders, Acer is half as large as either of them, Lenovo is half the size of Acer, and Asus is half that figure.

The path the Asians are on does not lead straight to the top, however. Until about six months ago, they were on a steady march, gaining in share and making an early mark in a new popular category, netbooks. These low-cost notebooks added substantially to unit shipment numbers but little sales or profit. Meanwhile, the U.S. companies, struggling with management departures, boardroom issues, and federal investigations, appeared to be losing focus.

Shift to Mobile Gizmos

The picture changed again, however, in the latter half of 2010, when the big bets Acer and Asus made on netbooks started to unravel in the face of Apple's (AAPL) introduction of the iPad and the subsequent flood of Android (GOOG) tablet introductions. High-mobility products, such as smartphones and tablets, have been added to the conversation; the landscape is shifting away from traditional PCs.

But this market shift gave the Asians a chance to show they are nothing if not nimble. Asus announced Windows 7 and Android tablets and several smartphones at January's Consumer Electronics Show. Acer showed two Android tablets, one running on a Qualcomm (QCOM) chip and one running on Nvidia (NVDA) silicon. Lenovo came up with both tablets and phones at the show. In essence, the Asians may have missed a turn but they are likely to catch up fast.

Meanwhile, HP is saddled with its Palm acquisition, obligated to get some mileage out of the $1.2 billion it spent. That means HP is not as free to pursue Android as other vendors are—and Android may be the only viable platform in the tablet arena besides Apple's iOS. Dell, meanwhile, continues to struggle with consumers, making essentially no gains in that market in either China or the U.S.

Mainland End-Around

Acer, the worldwide leader in consumer portables, faces an uphill slog in China. When the company tried to buy Beijing-based Founder, it was blocked by the Chinese government and had to settle for a "memorandum of understanding." In October 2010, Acer said it was moving some operations to Chongqing, both to ameliorate rising labor costs on the coast and to establish a base from which to increase sales in China's interior. Acer, with 4.3 percent, is still barely a blip on the Chinese market-share radar. Asus toils away in Acer's shadow in most places, and will likely continue to do so, but in China Asus has managed to garner a 6.7 percent market share.

Lenovo represents the dark horse. For the most part, it is stuck in China—a market leader there but also a company that has done little over the past six years to exploit its acquisition of IBM's PC business. The company's luck may soon change, however. HP's ace marketing guru, David Roman, defected to Lenovo in 2010, and the fruits of his labor will soon be evident as he recasts the company's image. With a souped-up brand, Lenovo may at last be set to make headway outside its main markets.

It is too soon to predict who will dominate in the coming hardware wars, but it is clear the Asian vendors do not face the debilitating dramas that have become common in America. Either they know how to stay out of trouble, or they really do just stick to business.

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