Dell Suffers China Identity Crisis
The recent turmoil at struggling PC maker Dell (Nasdaq: DELL) is spilling over into its operations in China, where the company’s president has just resigned even as a top Asia executive discusses a new strategic direction for the market. All of this comes against a broader backdrop that saw global PC sales post their worst drop in history during the first quarter, as more consumers switched off their computers in favor of smaller and more convenient tablet computers and smartphones.The China turmoil at Dell mirrors a similar plunge in fortunes for global rival Hewlett-Packard (NYSE: HPQ), which has also seen its prospects in the world’s biggest PC market plunge in the last 3 years as it struggles for direction. Both companies have had to confront not only the rapid rise of smartphones and tablet PCs in China, but also the growing dominance of homegrown giant Lenovo (HKEx: 992).
Let’s take a look at the latest news from Dell, which has Chinese media reporting the company’s Greater China President Yang Chao has abruptly resigned, and will temporarily be replaced by Asia chief Amit Midha. (Chinese article) The reports say Yang’s resignation was for personal reasons and came rather suddenly, following his 5 years at the company during which time he helped to develop its consumer business.
The explanation seems to be coming from the company itself, which hints that perhaps some other factors such as differing opinions on strategic direction played into the latest developments. On the same day of Yang’s resignation, foreign media cited another top regional Dell official saying the company is planning a major push into some of China’s smallest cities in a bid to jump-start its fading momentum in the market. (English article)
Peter Marrs, Dell’s executive director for Asia Pacific end-user computer sales, said the company will make an aggressive push into 4th- to 6th-tier cities as part of its latest initiative. Those cities are relatively less affluent and tend to trail top cities like Beijing and Shanghai in following the latest computing trends.
Therefore, those cities might still prove fertile ground for sales of traditional desktop and laptop PCs, even as bigger markets abandon those products in favor of tablets and smartphones. While this strategic shift certainly makes sense, it does seem rather contradictory to Dell’s previously stated goal of focusing on higher end PC sales rather than going after the lower end of the market. What’s more, such a lower-end shift won’t work for very long, as even these smaller markets are likely to embrace the tablet and smartphone trend over the next 2-3 years.
It’s not difficult to understand why first HP and now Dell are both scrambling to reverse their sliding fortunes in China, which recently passed the US to become the world’s largest PC market. HP’s China market share has tumbled in recent years from around 10 percent to just 6.6 percent at the end of last year, according to IDC. Dell was holding up better, but has also seen its share slip from double digits to around 8 percent at the end of last year.
These latest mixed signals coming from Dell appear to show some differing opinions over how to reverse its fortunes in China. Regional management appears to be controlling the situation, based on the resignation of the company’s China chief and announcement of the smaller-city shift by an Asia Pacific executive.
As I’ve said above, it’s possible that this new drive into China’s smaller cities may help to stabilize Dell’s market share for perhaps the next year or two. But when those smaller markets also start to abandon traditional PCs in favor of more mobile devices, look for Dell’s slide to resume.
Bottom line: The departure of Dell’s China chief reflects differing views on a new plan to halt its ongoing slide in China, which will likely continue.
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