IBM PC Retreat Would Shift Market Balance to Asia - Page 2

-Lenovo PCs"> Churn was a term first applied to the wireless industry. There, consumers bounce from carrier to carrier, focusing more on the conditions of the contract—how much theyll have to pay—rather than on the carriers themselves. Consumers are generally "locked in" to a carrier only if they find an acceptable price and the carrier offers them discounts to prevent them from moving to another service.

Interestingly, China has placed restrictions on the number of wireless phones that can be imported into the country, artificially limiting the amount of churn in its own market.

ABI Research, based in Oyster Bay, N.Y., expects wireless handset shipments from Taiwans ODMs to reach 60 million in 2005, even though only Dbtel Taiwan Ltd. won a license to produce and sell Dbtel branded wireless handsets in China, ABI analyst Junmei He wrote in a recent report.

A second vendor, BenQ, obtained a license through a joint venture. Still, Chinas imports have quadrupled from $104 billion in 1993 to $413 billion last year, according to testimony provided by Nicholas R. Lardy for the Institute for International Economics to a U.S. Senate hearing in March.

While Lenovo Group isnt a contract manufacturer or an ODM, it has benefited from the same market conditions that have boosted the ODM market—namely cheap labor, close global proximity to component manufacturers and a booming Asian market primed for the latest in technology.

Its unclear how a combined IBM-Lenovo PC unit would fare in the worldwide market, especially with regards to the ThinkPad, IBMs notebook line.

IBM ranks third in the world in PC sales, while Lenovo is the top vendor in the Asia-Pacific region. But the merged company would be able to take advantage of Chinas low-cost labor force, one that has lagged behind Taiwan in terms of real wages.

As Taiwan gets richer, meanwhile, the pressure to move to a lower-cost market becomes greater. The process is not unique to Asia, either.

"Its difficult to discuss this subject without swearing," Brian Mann, managing director of McKechnie Plastics Components and president of the British Plastics Federation, said in a report published by in March.

"So much good work accomplished over the years by U.K. plastic component suppliers has been thrown away by customers in pursuit of lower costs," Mann said. "And the production gets moved on from one country to the next.

"For example, a multinational will set up in Romania for a while. Then when the employees at the Romanian plant start to expect a lifestyle more like their counterparts in the West, the company moves its production to Hungary and the whole thing starts again."

In a preview of the first findings ever compiled on China by the Bureau of Labor Statistics, Chinese workers are paid an estimated $1.06 an hour for city-based manufacturing, or 64 cents when rural manufacturing is factored in, BusinessWeek reported Thursday. Previously, Mexican workers were paid the least, according to BLS statistics, at $2.48 an hour.

Even though the economics of PC manufacturing now favor Asia-Pacific vendors, merging with or taking over the company that popularized the personal computer would be significant, analysts say. Meanwhile, IBM has refused to comment on whether it is in fact shopping or will shop its PC business.

"Still, if a Chinese company snapped up a big chunk of an American PC company, that would obviously be a big deal," IDCs Kay said.


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