- Large-scale informatization efforts in China had over the last few years driven a rapid rise of procurement, rendering China the largest data communications market in the Asia Pacific region. However, at present the Taiwanese data communications industry is not heavily reliant on the Chinese market: Taiwanese shipments are propped up by carrier and enterprise procurement rather than retail markets, and Taiwanese makers mainly run ODM/OEM rather than branded businesses. Thus, although SARS has knocked the wind out of data communications market growth in China, the impact on Taiwanese makers will be quite limited.
Local Area Network
The PC installation base in China is approximately 30 million units, 40% of which are used in homes. Given China's 400 million households, at present the PC penetration rate has still not reached 5%; demand for LAN equipment such as network interface cards, hubs, switches, and SOHO routers, is thus limited in the consumer market, with the greater part of demand arising from enterprise and carrier procurement. Retailers have stated that SARS has had a significant negative impact on consumer purchases, and system integrators have observed that enterprises and carriers are holding off on network deployment. Thus, as most Taiwanese makers mainly receive outsourcing branded vendors in China, the impact has been limited; however, a minority of Taiwanese makers that produce branded products for the retail market, receive outsourcing from channel players, or produce white box products have been more heavily affected. Approximately 4.2% of Taiwanese LAN shipments are bound for China, and although SARS is unlikely to be effectively brought under control in the short term, such low degree of dependence on the Chinese market will limit the impact of slowing demand in China.
As is the case with the broader LAN market, the wireless LAN market is experiencing a greater impact from SARS in retail rather than enterprise segments in Greater China. Major cities such as Taipei, Hong Kong, and Singapore account for approximately 9% of the global WLAN market. The enterprise market accounts for roughly 70% of shipments, while 30% is targeted at retail markets. With the spread of SARS, retail shipments are expected to fall 30% to 40%, and second quarter demand in the aforementioned three cities is anticipated to slide between 20% and 25%. China comprises 1.3% of the global WLAN market, with enterprise and retail markets accounting for 80% and 20% respectively. SARS is forecasted to cause a 10% to 15% drop in Chinese WLAN market demand, which will translate into a 2% to 3% drop in global WLAN demand during the second quarter of 2003.
Enterprise orders will not see any significant fluctuations, and shipments to retailers are for the most part on schedule; however, as some channel players are anticipated to cancel orders, the Taiwanese WLAN second quarter shipment volume forecast has been adjusted down 2%. During the third quarter the launch of new notebook PCs will raise the share of built-in WLAN, and if SARS is not brought under control in the second quarter, deferred demand is likely to resurface in the third quarter. Additionally, after weathering SARS enterprises might make efforts to spread risk by equipping workers with notebook PCs, which allows for greater flexibility in deploying contingency plans. WLAN shipment volume in the third quarter of 2003 is hence viewed with guarded optimism.
If the epidemic worsens, Chinese brand-name vendors and channel players will postpone orders, which will result in a 30% to 50% drop in shipment volume to China in the second quarter of 2003. Thus, shipment value has also been adjusted slightly downward from US$440 million to US$433 million.
Wide Area Network
At present the primary sales channels for analog modems in China are the retail market and enterprise/carrier procurement; with the retail market bearing the brunt of the impact from SARS. Additionally, in China xDSL and cable modems are all bundled with services and sold by carriers and multi system operators; however, as evident from the speed of broadband subscriber growth, market demand has not been adversely affected by SARS to any large degree. Given that shipments to China currently account for only 3.9% of total Taiwanese WAN volume, most of which is targeted at the carrier and enterprise segments, the impact on Taiwanese makers is limited. If SARS worsens and causes Chinese brand-name vendors and channel players to delay orders, shipments to China are expected to drop 10% to 20% from the amount originally forecasted for the second quarter. WAN shipment volume has accordingly been adjusted downward from US$375 million to US$369 million.