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Chinese IT spending with western firms goes OVER A CLIFF

IBM, EMC, VMware, Microsoft and even Apple struggle in the middle kingdom

US tech companies report big trouble in China, despite official data claiming strong growth in the middle kingdom.

The official data has growth ticking along at 7 per cent per annum. While that's at the low end of what Beijing wants, it was still welcomed by articles like this one, in state-owned organ Xinhua, explaining “The economy, which is in a 'new normal' stage of slower but steadier growth, is showing signs of bottoming out.”

Pundits in other industries are having none of it, noting that falls in prices for commodities like iron ore and coal have a lot to do with Chinese demand falling hard.

Technology companies look to be suffering, too, because this week's earnings reports contain horror stories a-plenty from China.

IBM says its sales dipped by 25 per cent in China last quarter. Apple recorded sales of US$13,230 million in Q3, down 21 per cent from Q2's $16,823 million (but more than double its Q3 2014 result). By way of contrast, revenues in North America and Europe dipped by five and 15 per cent for the quarter, respectively, so even with seasonal adjustment the dip was deep.

VMware said in its earnings call that the company “saw a significant slowdown in our China business”. Microsoft's call labelled China a market in which “macro conditions remain a challenge”. And EMC said it "experienced continued pressure on our businesses in China and Russia, largely due to geopolitical issues" that "impacted our top line results".

Box-counter IDC, meanwhile, says its found a dip in switch sales in China for the first time ever during Q1 2015. The firm's China Network Equipment Market Tracker, Q1 2015 found that “China’s enterprise network equipment was USD1.02 billion in the first quarter of 2015, down 34.0 per cent from the previous quarter and 0.8 per cent from a year ago. Among which, L2/3 switch market contracted by 11.6 per cent year on year, router market expanded by 17.3 per cent, while WLAN market shrank by 2.7 per cent.”

China's long been seen as a colossal market for western technology firms. Of late, however, China's made it more complex for western IT concerns to do business there in recent times by making it plain that it prefers joint ventures with Chinese firms to the opening of local offices. That policy, plus what looks like slowing demand, means China might not offer the growth technology companies have hoped would come their way. ®

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