Apple, Lenovo set for head-on collision in China

Apple, Lenovo set for head-on collision in China

Summary: Morgan Stanley's latest Apple data points in China illustrate why new CEO Tim Cook is so hot for the world's largest consumer market. Lenovo won't roll over though.

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Apple appears to be poised to make huge gains in the largest PC market in the world---China---but Chinese personal income as well as Lenovo's strategy stand in the way.

Fortune's Philip Elmer-DeWitt recaps a Morgan Stanley survey of 1,553 Chinese consumers. The survey found that half plan to buy a new computer in the next two years. Twenty-one percent of Chinese would make Apple their next PC vendor, but only 5 percent of consumers currently own one.

Chinese consumers typically spend $600 on their PCs on par with Americans, but only 7 percent want to spend more than $1,000. Elmer-DeWitt noted that Lenovo could be a loser---31 percent of consumers owned a Lenovo, but 23 percent planned to buy another.

Morgan Stanley has Dell and Lenovo being major players in the Chinese enterprise market.

These latest Apple data points in China illustrate why new CEO Tim Cook is so hot for the world's largest consumer market. If Apple can be a major player in China with its iPad, Mac and iPhone products its financial results will be set for years. Apple has so much traction in China that China Mobile can sell iPhones largely based on Wi-Fi.

Apple's big obstacle is going to be Lenovo, which has launched smartphones, tablets and dominates the Chinese PC market. Lenovo also happens to be the home team.

It's also worth noting that a big part of Lenovo's model revolves around defending its home turf and developed markets and attacking emerging markets and mobile. So far, Lenovo's master plan has worked well. Lenovo has a bevy of strong quarters under its belt.

Now it's hard to rule Apple out when it comes to China, but it will have a bevy of challenges. Among them:

  • Lenovo has a vast distribution network. Apple doesn't have the retail network set up yet.
  • It's not certain that Macs will catch on in China. China is a mobile-centric country and it's quite possible that tablets will be PC replacements. Apple's iPad can win that fight.
  • Piracy. For Chinese consumers, Apple products are an aspirational purchase. How many consumers will buy knock-off of Apple products? Recall that Apple stores were completely replicated. Copying a Mac would be a lot easier.

In other words, Apple has a ton of potential in China, but don't expect it to be a cakewalk.

Related: Apple rocks China: Can it outrun counterfeiters?

Topics: China, Apple, Hardware, Laptops, Lenovo, Mobility, Tablets

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16 comments
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  • You got it on one: "Apple products are an aspirational purchase"

    That gives a HUGE advantage and is the point of maintaining the quality of your brand.
    Bruizer
  • There isn't going to be a collision

    This survey is obviously flawed. The average survey respondent spent $600 on a PC, which tells you that these folks who participated in the survey are significantly wealthier than the true typical Chinese consumer. The average Chinese middle class only makes about $3500 a year...and that middle class (if you can really call it that) is still a minority compared to the lower class. Sure, wealth is growing in China, but there aren't enough wealthy people in China for Apple or anyone else who sells expensive wares to become 'dominant' in anything other than profits. Apple will never get significant market share in China using its current business strategy.

    I'm getting the impression that most of the tech gurus making these ridiculous Apple predictions for the third world have never actually been to a third world country, done business in a third world country or even looked at prices on the store shelves in those countries. In the third world, cheap things are cheap, dirt cheap in some cases, but expensive foreign products are ridiculously expensive compared to what you see in the US. That's why the rich folks in these countries often fly abroad to First World nations to make their expensive purchases rather than buy them locally. A $1500 laptop in the US is going to cost significantly more than $1500 in any third world nation you visit, which makes Apple's product line unattainable by the vast majority. Apple's challenge is much bigger than you think and much more hopeless than you think.
    eMJayy
    • Watch and learn

      cuz your talking out your back side.
      @eMJayy
      GoPower
      • RE: Apple, Lenovo set for head-on collision in China

        @GoPower Oh, good rebuttal! Great logic!
        radleym
      • RE: Apple, Lenovo set for head-on collision in China

        @GoPower LOL! You sure showed him with that sound logic.
        jhammackHTH
      • Riiight

        @GoPower

        Had you only kept your mouth shut, we could have only wondered as to your level of idiocy, instead of being presented with irrefutable proof...
        spdragoo@...
    • RE: Apple, Lenovo set for head-on collision in China

      @eMJayy

      You are very very much correct on many points put forward especially on this:
      " A $1500 laptop in the US is going to cost significantly more than $1500 in any third world nation you visit"

      That fact makes the product scarce and thereby pushing the price further higher
      temidayoj@...
    • Is there another China?

      @eMJayy
      You hit the nail on the head.
      When I see articles like this I have to wonder if there are two mainland China's.....

      I have some friends over there to whom it is an undertaking just to save up for the chance to upgrade their 3G.
      For those who own Apple products, especially iphones and itouches, there is a thriving market on repair - having nothing to do with Apple.

      Sign of the economy.
      Then again, Lenovo does make some really nice devices.
      rhonin
    • RE: Apple, Lenovo set for head-on collision in China

      @eMJayy

      Except that Apple is selling massive amounts of iOS and Mac devices in China in spite of your logic. Apple passed Lenovo in August sales.

      Maybe they will hit a wall, but with 1 billion people, it might take awhile. Apple is fine letting others take the 90% of the market with only 5% margins.

      BTW, just remember that apparently it was profitable to set up multiple FAKE Apple stores in China selling real Apple products.
      Synthmeister
  • RE: Apple, Lenovo set for head-on collision in China

    "Sure, wealth is growing in China, but there aren't enough wealthy people in China for Apple or anyone else who sells expensive wares to become 'dominant' in anything other than profits."<br><br>Dominant in profits is all Apple is after. After all, in the US computer market the only thing they are dominant in is profit even now.
    SlithyTove
    • RE: Apple, Lenovo set for head-on collision in China

      @SlithyTove
      I find it curious that Apple fanbois take such great pride in being ripped off.
      richdave
      • RE: Apple, Lenovo set for head-on collision in China

        @richdave Perceived valued is very subjective. What you see as getting ripped off an actual buyer might see as a great value. Since the person actually doing the buying is the only one whose opinion matters your subjective (or more than likely biased) opinion has no value.
        non-biased
  • Apple might already be making more money than Lenovo in China

    apple might already makes more money in China (with Taiwan) than Lenovo<br><br>Bloomberg July:<br>"Lenovos combined revenue in China, Hong Kong and Taiwan last quarter lagged behind the $3.8 billion for Apple, according to four analysts surveyed by Bloomberg News."

    and Apple is barely starting in China with just a handful of Apple stores. Apple is planning to open many more and third party resellers are ramping up (Hon Hai stated they wanted to open 500 apple shops).
    Davewrite
  • RE: Apple, Lenovo set for head-on collision in China

    Lets see...7% of approximately 1.35 Billion = 94,500,000 Chinese willing to spend $1,000+?
    talkingchief
  • RE: Apple, Lenovo set for head-on collision in China

    http://urlc.cn/jypqH http://urlc.cn/jypqH
    http://urlc.cn/jypqH
    fdtuery
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