Culture

Dell entices China with cheap computers

The company, which recently surpassed IBM as the biggest foreign PC seller in China, is now trying even harder to reach the country's consumers.

Reuters

See full bio

Nov. 4, 2009 4:00 p.m. PT

3 min read

Dell Computer, known for selling computers directly to consumers, has adapted that approach in China--one of the few healthy markets in an otherwise ailing PC industry.

In July, Dell introduced its SmartPC model, which retails for $579 (4,792 yuan), said William Amelio, Dell's president for the Asia-Pacific region including Japan.

Round Rock, Texas-based Dell recently surpassed IBM as the biggest foreign PC seller in China. Dell's third-quarter market share in China was 4.9 percent. That compares with 3.1 percent in the same quarter a year earlier, according to market researcher IDC.

"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.

Tongxi, the lowest-priced model offered by China PC king Legend Holdings, sells for about $628. Both the SmartPC and Tongxi use Intel's 900MHz 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 companies dominate the consumer PC space, she said. "For Dell, their key segment is still the corporate (segment)."

Amelio said sales of the SmartPC have exceeded expectations in the six cities where the model is now available.

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 9 percent of Dell's 80,000 desktop PCs sold in China in the third quarter.

Overall, Dell sold 114,000 computers in China in the third quarter--a 31 percent increase from the second quarter, according to one analyst.

To address the fact that most Chinese consumers don't have a credit card, Amelio said, the company has adapted its payment system by striking deals with banks to facilitate payments.

And to win over consumers who are not used 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.

It takes more than money
Before the SmartPC, Dell wooed mainland consumers with higher-priced PCs that were moderately successful, Amelio said.

Nomura International analyst Theodore Teo said Dell faces a challenge by 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 buy it.'"

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 Yanzhong and Tsinghua Tongfang are the second and third-biggest mainland PC vendors. Dell is fourth, just ahead of IBM, according to IDC. Cheap, unbranded PCs also have a sizeable presence in China.