Semiconductor Vendors Should Increase Efforts to Work with Chinese Local Manufacturers: Gartner

Semiconductor vendors should increase their efforts to work with Chinese manufacturers to benefit from the rise in domestic demand that is being driven by the Chinese government’s subsidy program for home appliances, according to Gartner Inc.

The Chinese central government has taken significant steps to counteract export declines arising from the worldwide economic slowdown. The trial subsidy program, literally translated as Electronics Go to Farmers (EGF), was extended from three provinces in late 2007 to all of China in February 2009, and product categories that have now been certified and approved include TVs, refrigerator/freezers, washing machines, mobile phones, PCs, heaters, induction cookers and microwave ovens. Gartner estimates that the 13 percent subsidy that farmers receive for electronic products purchases will likely increase sales of household electronics by 20 percent.

"The 20 percent increase in sales is likely to make up for the reduction in exports to overseas markets hit by the economic downturn,” said Oliver Xu, Principal Research Analyst at Gartner. "Sales figures show that farmers are using the subsidy to select higher specification and higher cost products, and with the average income of Chinese farmers on the rise, this trend looks set to continue.”

The program only provides the subsidies to approved product models from certified providers via a public bidding procedure. However, after several rounds of bidding, most of the providers can be found in the certified list. Although there are no explicit requirements about production locations, the selected providers are largely local ones.

Overseas providers have not addressed the rural areas as well as local providers in terms of price range and service coverage, so most lose out in the bidding procedure. However, recent announcements from the government promised to lift the highest price limits and include a wider range of product models according to the specific demands in different areas, and this trend will offer more opportunities to international brands as some are in a better position to offer midrange products than local providers.

Gartner advises electronics providers, wishing to take advantage of the increase in product sales that the stimulus has generated, to develop specific features in products for farmers, such as coping with the wide range of power supply voltages, better moisture protection, and rodent-proofing measures. In addition, international providers should try hard to lower costs and provide good after-sales service to farmers using their own or third party services.

www.gartner.com