The consolidation of China's information technology (IT) hardware makers will continue as vendors lack innovation and rely heavily on price tags for competition, said a senior industrial analyst at the market research house International Data Corp (IDC), which is headquartered in the United States.

"Price wars have led to a sharp decrease in profits so many vendors have to withdraw from the market or find some core competitiveness," said Ken Xie, general manager and chief analyst at IDC China.

He made the remarks last week at the IDC Directions conference, an annual event organized by the research firm to forecast trends in the Chinese market.

IDC statistics show the growth in sales revenues from the overwhelming majority of IT products lagged far behind growth in the number of shipments, which indicates a fall in unit prices.

For notebook computers, one of the fastest growing products, orders grew by 41 percent year-on-year in 2004, but the growth in sales revenues was only 27.3 percent.

"This will lead to inevitable restructuring of the industry and enterprises having to redefine their core competitiveness and adjust their position in the industrial chain," said Xie.

He said one result of the restructuring will be more frequent mergers and acquisitions and larger businesses.

The biggest Chinese computer vendor Lenovo Group acquired the personal computer unit of the US giant IBM in December, which shows Lenovo's efforts to increase the scale of its operation.

Xie suggested the other choice for industry players is to penetrate areas with high added value, such as professional consulting, and profit more from specialization.

Despite the difficulties that manufacturers face, IDC predicted China's IT industry will maintain steady and strong growth.

IDC said sales were up 11.7 percent year-on-year in 2004 to US$27.4 billion, and the average annual growth rate of the domestic IT industry in the next five years will be 13.2 percent.

As the second largest IT market in Asia Pacific after Japan, China will become increasingly important to the region and the world, with its market proportion of the region's total rising from 29.5 percent in 2004 to a projected 34.6 percent by 2009.

Xie said he believes macro-economic adjustments carried out by the government to cool down growth in some sectors, such as steel and property, will not have a significant impact on the IT industry this year, as the tightening will accelerate the consolidation of related sectors, which will create fresh demand.

The increase in oil prices may become a serious problem for China, but that will also bring more opportunities for IT solutions to reduce energy consumption and increase efficiency.

(China Daily)