Linux in China to grow five-fold

Stan Beer
Thursday, 20 April 2006 12:21

IT Industry - Market

The Linux market, including the desktop segment, in the exploding Chinese market is expected to grow by nearly five-fold over the next five years according to a recently released report.
According to technology research group IDC's latest research, China Linux 2006-2010 Forecast and Analysis, China's Linux market revenue reached just $11.8 million in 2005, up 27.1% over 2004. However, 2005 saw a steady growth in the China Linux market, brought about mainly by the huge volume of government procurements and large-scale SCO Unix replacement by major banks and industrial projects such as Telecommunication and Internet cafes.

Along with the growing acceptance of Linux in the China market, IDC also noted that Linux servers were adopted for high-end, mission critical support applications in some industries and Linux desktops were able to withstand the competition of pirated Windows to hold its market share. However, it will take some time before the Linux market in China can grow dramatically due to various factors that hinder market development, such as the shortage of talents, and users' comparatively low acceptance towards Linux.

IDC forecasts China's Linux market will grow at a compound annual growth rate of 34% from 2006 to 2010, and reach $51.1 million by 2010.

"In the past, Linux desktops thrived on its low-cost OEM value proposition," said Nielse Jiang, software and services analyst, IDC China. "In 2005, the strategy shifted as Linux vendors identified more ways of operating Linux desktops to improve demand and profitability."

For example, China Standard Software offered bundled multimedia, online education and other applications with Linux desktops for OEM sale and Redflag Linux worked with partners to develop e-commerce solutions based on its desktop OS.

"Given the sizeable Linux Desktop government contracts, the market bodes well with the proliferation of new solutions that will pave the way for expansion into online transactions, office automation and home PC environments," said Mr Jiang.

According to IDC, 2005 also saw major international Linux vendors like Novell and RedHat making a foray into the local market by actively conducting market promotions and participating in project tenders, with notable success in the Linux server market. In key industries such as telecom and finance, international vendors were able to demonstrate their competitive advantages. While domestic vendors continued to dominate government procurements and some sectors that are not accessible to international vendors, the impact brought about by foreign competitors does not remain unnoticed.

"The China Linux market featured unprecedented competition in 2005, which will continue well into 2006," noted Nielse Jiang. "As a direct result of such intense competition, price wars will be inevitable in 2006. Most of the public tenders closed with relatively low prices in 2005. Keen price competition continues to serve as a major barrier to the China Linux market."

In the "China Linux Market Analysis and Forecast, 2005-2009" report published in February 2005, IDC noted that the market would not be able to sustain the fierce external competition in the long term. To increase competitiveness, IDC had predicted that partnerships, alliances and even mergers and acquisitions were highly probable in 2005. This prediction has proven accurate with the strategic partnership between China Standard Software and Novell, and the alliance established between Turbolinux and Co-Create in 2005.

For 2006, IDC foresees even deeper levels of alliances and partnerships between Linux vendors. Given the limited government procurements this year, local Linux vendors' revenue-generating capability will be put to the test.