Dell Tries to Keep Its Grip on China

SINGAPORE (TheStreet) -- In June, Dell (DELL) said it would open a directory's worth of new stores in China, targeting out-of-the-way but not too badly off cities in the hinterland as well as the obvious coastal markets.

PC isn't a swearword in China yet, but another asset to business. Dell says it's the No. 1 seller of X86 servers in China, where data centers are growing too fast for in-house management.

Last week a sales official with the Texas-based PC giant -- which has 11.54% world market share, according to Gartner -- said that by year's end it would start selling a new tablet only in China, probably at the cheap end minus some of the perks (speed?) that would add cost.

The firm also saw net income fall 72% in the second quarter and faces a split between a group including founder Michael Dell and Silver Lake Partners and one involving some company shareholders over whether to take the firm private. The shareholder meeting is scheduled for Thursday.

But those woes might as well be in a different orbit as Dell tries to make itself as relevant in China as diced chicken over rice. That's what they all say, given China's market size, but this particular multinational shows signs of doing it.

Dell calls China its second most important market overall after the United States, despite a cut in IT spending due to China's economic slowdown. Market research firm Gartner ranks Dell No. 2 for desktops and mobile PCs in China. Its latest China market share of 7.86% isn't the highest ever but appears under control.

Like most tech hardware vendors, Dell withholds figures on sales or even the number of stores in China. It won't say whether China business is growing. But at least Dell acknowledges a battle with Apple ( AAPL), Hewlett-Packard ( HPQ) and the homegrown Lenovo.

On the tablet front, the iPad -- still a status symbol in China -- has lost market share in the country, slipping to 28% in the second quarter according to American tech research firm IDC. The dropoff leaves a void for other tablet vendors, especially those that rely on Google's ( GOOG) Android, an open mobile operating system that's obviously cheaper than iOS.

Dell won't give details on the upcoming only-for-China tablet, and the Streak 10 Pro tablet that it offered the same market two years ago sort of fizzled.

The 29-year-old developer prefers to talk about PCs, still an anchor of its global business despite a widely forecast downturn for the whole industry. Market research firm IHS iSuppli says PC shipments to China will rise 3% this year. Shipments are forecast to drop elsewhere as tablets and smartphones replace them. China received 69 million PC shipments in 2012 to become the world's largest consumer, IDC notes.

Chinese businesses still need new PCs as they grow, need more security features and toy with upgrades to Windows 8.1, which Microsoft ( MSFT) is preparing to smooth over widespread disappointment over mobile OS Windows 8.

First-time PC buyers are still emerging in China, as well. On the consumer side, China's middle tier in terms of wealth will spend 13.6% more this year than last year on consumer electronics, more than the country's richest regions, IDC says.

In that spirit, Dell said in June it would open a 30,000 square-meter factory in the Chinese city of Chengdu with capacity for seven million desktops a year.

"A lot of people are saying the PC is dead, but that business is growing in Asia," Peter Marrs, Dell's Asia-Pacific Japan sales executive director, said at a Sept. 5 media event in Singapore to show off company business in Asia.

But perhaps Dell's strongest China growth area will be data center equipment, which includes just about anything but particularly servers that can store and cool piles of information with minimal human management. Corporate data centers and public cloud builders are some of the top prospective customers.

Says Philip Davis, Dell's Asia-Pacific enterprise vice president: "If you have 100 servers to manage, you can get plenty of power, plenty of cooling. But with 10,000 servers you lack the staff to manage it."

About 80% of Chinese Internet companies use Dell servers, the company says. Its status as the country's top X86 server vendor will give the company a "footprint" to sell other things in the same market, Davis said.

That market should grow because Chinese Internet firms, including Tencent ( TCTZF) and Baidu ( BIDU), need more space to park data as the nation's Internet-enabled population tops 590 million. Smaller players are still getting bigger in China and may want to build a cloud, another lure for server sellers.

About 40% of corporate officers in China plan to "grow their e-commerce business" and another 39% call e-commerce a "trend" in retail, manufacturing and finance over the next five years, Dell found in a survey.

To put the whole story more bluntly, its China investment better pay off. To quote a Dell publicist, "We have invested a significant amount of money and resources here."

At the time of publication the author had no position in any of the stocks mentioned.

Ralph Jennings is on LinkedIn.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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