CCID Consulting Co Ltd, a Ministry of Information Industry think-tank, held its annual China Information Technology (IT) Forum in Beijing on Monday. The firm, one of China's biggest information and communications market research companies, released its latest reports on the IT market at the meeting. Excerpts of its findings follow.
CCID Consulting's 2003-04 China Computer Market Research Report indicates that sales of the computer market in China reached 332.69 billion yuan (US$40.18 billion) in 2003, with 15.4 percent year-on-year growth.
Digital products were the stars of the market, with sales of 12.23 billion yuan (US$1.48 billion), 77.4 percent higher than in 2002.
IT services and network products also performed strongly with sales of 54.4 billion yuan (US$6.57 billion) and 17.11 billion yuan (US$2.07 billion) respectively. Service products grew by 26.7 percent and network products by 23.9 percent. Sales of computer systems and peripherals rose more slowly. A total of 103.68 billion yuan (US$12.52 billion) in computer systems was sold, up 9.2 percent on 2002. Sales of peripherals reached 44.34 billion yuan (US$5.36 billion), up 8.8 percent.
As consumers learn more about computers and better products become available, Chinese computer firms are also maturing. Companies like Legend, Langchao, Dell, Unisplendor, Samsung Electronics, Canon, TCL and Intel led the computer hardware market with their advantages in products, technologies and services. UFSoft, Oracle, Langchao Universal Software and Neusoft took the biggest market shares in their product categories in the software sector. And HP topped the IT services market, attributing its success to its global operations, strong professional team, advanced solutions and project implementation experience.
In 2003, as the industry on the Chinese mainland attracted more and more attention worldwide, manufacturing bases also moved northward.
They shifted from the Pearl River Delta in the south to the Yangtze River Delta in the east and the Bohai Bay rim in the north.
The focuses of supply and demand also continued to shift to software and IT services. With the resurgence of the Internet and the popularity of broadband networks, the convergence of the industry became more significant and Internet applications and network services also presented many opportunities. Small and medium businesses and non-commercial sectors like government and education were very profitable for market players.
But the future growth engines for the computer market will be traditional industries such as manufacturing, logistics, medicine, construction and regions such as western and northeastern China.
CCID Consulting estimates that in the coming five years, the Chinese computer market will grow by a compound average rate of 18.1 percent every year.
Sales will reach 763 billion yuan (US$92.15 billion) a year.
Personal computer market
A total of 12.94 million PCs were shipped in 2003, growing 17.4 percent year-on-year. Sales were 92.20 billion yuan (US$11.14 billion), rising 9.9 percent over 2002.
CCID Consulting believes 2003 was a year of steady growth for the PC market. The reasons are:
First, although the spread of the severe acute respiratory syndrome (SARS) had some negative impacts and shipments in major cities like Beijing dropped, consumption rebounded after the epidemic ended in June. The market began to recover in the second half of the year.
Second, market players staged many road shows, new product launches and promotions in the third and fourth quarters, further stimulating consumer demand.
Third, the strong growth of notebook computers lifted the market. This was despite slow growth in desktop computers and Intel architecture servers due to sluggish demand from key industries. Profits also declined because of the need to cut prices to satisfy price-sensitive education organizations and small and medium businesses.
In last year's notebook computer market, there were significant effects from the replacement of Intel Pentium processors with Centrino processors. In the next few years, wireless connections will go mainstream and the performance of graphic cards will improve greatly, while storage devices will need to be faster and bigger.
Companies including Legend, Dell, Langchao, TCL and Asus earned good reputations and were well-received because of their customer-oriented approach.
Over the next five years, steady economic growth in China will drive the development of its PC industry. As the markets for desktop and PC servers become saturated, their growth will slow down. The average annual growth rate of notebook computer sales will remain over 20 percent, as the best performing product in the PC market.
Software
CCID Consulting data shows sales of China's software market reached 39.96 billion yuan (US$4.83 billion) in 2003, up 15.8 percent over 2002.
Several major industry trends also emerged in 2003.
A complete software industry began to take shape. Eleven thousand Chinese firms developed more than 10,000 products last year. The country also built 22 software parks and 35 software colleges.
The focus of the market shifted to applications from IT infrastructure.
The industry had a lot of software products on the market but a shortage in total solutions still restricted the construction of IT systems.
Small and medium enterprises in manufacturing, logistics and other traditional industries reported strong demand for software, but the price and supply of high-quality services limited the market's growth.
Linux operating systems attracted a lot of attention and network security products were received enthusiastically. However, the dominance of Microsoft in the operating system market and lack of applications based on Linux will remain big issues.
Domestic software firms like UFSoft and Langchao Universal Software, which once focused on financial and accounting software, broke into the high-end market with their user resources, application experience, and distribution channels. Oracle continued to dominate the database market with its technological advantages and gained ground in application software and application servers.
CCID Consulting predicts that between 2004 and 2008, China's software market will grow by an average of 19.5 percent every year and that sales will amount to 97.57 billion yuan (US$11.78 billion).
Middleware and network security products will be the fastest growing segment of the market, boosting sales by an annual average of 31.5 percent. And platform software will maintain a steady growth rate of 15.3 percent. The application software market is forecast to grow by 19.6 percent every year on average.
CCID Consulting predicts the following trends will emerge in the software market over the next five years:
The popularity of network applications will push grid computing technology forward.
The emerging digital industry, including network advertising, network games, search engines, mobile messages and network music will create strong demand for consumption software.
Distribution channels will be crucial for the implementation of key software firms' regional strategies.
Outsourcing of applications will become popular in small and medium enterprises and the non-commercial market.
The development of the laggard northeastern and western regions will provide long-term growth opportunities for the industry.
In its 2003-04 enterprise management software market research report, CCID Consulting says the sales in the market rose by 19.7 percent in 2003 over the previous year to 3.96 billion yuan (US$478 million). The sales of enterprise resource planning software accounted about half of the total with sales of 1.88 billion yuan (US$227 million).
CCID Consulting forecasts a 20 percent compound average growth rate for the enterprise management software market from 2004 to 2008, with sales exceeding 9 billion yuan (US$1.87 billion).
IT services
In spite of the impacts of the SARS in the first half of 2003, the IT service market still grew that year. CCID Consulting statistics indicate the market was worth 54.4 billion yuan (US$6.57 billion). Although the growth rate was lower than the 32.9 percent recorded in 2002, it was faster than in the hardware and software sectors.
According to CCID Consulting's definition, IT services are classified into support and maintenance, professional services, and network services.
Of the three areas, network services made the best returns last year. With the recovery of the Internet market in China, traditional services like online advertising and new services such as online games and search engines witnessed explosive growth.
At the same time, the promotion of broadband networks by China Netcom, China Telecom, China Unicom, Great Wall Broadband Network and other operators contributed to the enormous increase of broadband users. The long-awaited spring for the broadband economy finally arrived.
In 2003, the network service market, including Internet connections, network messages, online advertising, search engines, online games, domain name registration and online downloading, earned 18.97 billion yuan (US$2.29 billion). Sales were up more than 60 percent over the previous year.
IT professional services, including system integration, consulting, training and operation management, also grew rapidly and broke through the 20 billion yuan (US$2.4 billion) barrier.
The mature IT support and maintenance service market recorded less than 10 percent year-on-year growth partly because of the impact of SARS.
CCID Consulting believes that in the next few years, China's IT service market will develop robustly.
Strong national economic growth, the building of IT systems, and the need for business to meet the challenges of global competition after China's accession to the World Trade Organization (WTO) in 2001 will drive demand for IT services.
The emergence and improvement of new technologies like grid computing and highly-integrated products, as well as the popularity of broadband networks, will also have significant long-lasting impacts.
CCID Consulting predicts the IT service market will grow by about a quarter every year in the coming five years.
(China Daily February 13, 2004)
