Apple, Lenovo set for head-on collision in China

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.
Written by Larry Dignan, Contributor

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?

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