The West, particularly the US, has been able to hang onto its lead in technology innovation for the better part of thirty years while the manufacturing economy was driven by cost savings to Asia and Latin America. Intel (INTC), IBM (IBM), Google (GOOG), Microsoft (MSFT), Cisco (CSCO), and Oracle (ORCL) became the pillars of the new economy. Their size was not matched by anything outside the United States and their international revenues were as big as the sales that they had in North America.
Global tech leadership has not left the US, but there is a subtle shifting in the balance of engineering prowess and technology distribution due in part to low labor costs and large customer bases in Asia. The innovations to use those workforces and population advantages are no longer strictly American. US companies including IBM and Microsoft have been moving engineering and development to Asia over the last decade to bring down costs. Asia’s own intellectual tech talent is going through a renaissance. Several new products show that America will begin to be challenged as real competition arises for some of the most widely sold products created by the US software and hardware elite.
The most visible challenge to the large US PC industry has been the netbook, the ultralight and inexpensive product which was popularized by ASUSTeK Computer of Taiwan. The firm has managed to build a large and fast growing market for $300 machines that run Windows and have just enough processor power to compete with many low-end laptops. Dell (DELL) and Hewlett-Packard (HPQ) have had to develop their own machines, but the specifications of them are based largely on ASUS products. Netbook profit margins are modest. ASUS, as a low cost provider, may not be hurt by that. If netbook innovations undermine the profitability of the big American PC companies, the two companies lose a portion of their financial strengths.
The biggest PC product introduction of the second quarter is probably the new Lenovo IdeaPad notebook. It will carry the Intel (INTC) ultra low voltage chip which should give it a battery life of four hours. The product, for China’s largest PC company, will be a fully featured PC with a price starting at $649, which is extremely competitive for a PC that is not stripped down in any way. The Lenovo uses a lot of technology created in the US, but it has married these with creativity which has not been matched by American hardware companies since Dell’s fortunes began to flag.
The most impressive new product in the tech field may be the HTC mobile handset which runs the Google (GOOG) Android operating system. HTC is not well-known in the US, but it is a huge handset manufacturing operation in China. Its new product will launch with China Mobile (CHL), the largest cellular company in the world. The Android operating system competes with systems from Apple (AAPL), Microsoft, and Nokia (NOK), so if it is a big success in the largest cell phone market in the world, Western handset software producers have something else to fear. By taking the baton of innovation, HTC may also begin to supplant sales of handsets from Nokia and other old line handset companies that have dominated the global market for 20 years.
China does not have a company that is the equivalent of Microsoft, Intel, or Google, but it may not need one. If it can knit the pieces of technology from Western companies together more effectively than they have been to date and sell them at price points that US, Japanese, and European companies cannot match, the power in the tech world will have shifted East considerably.
Douglas A. McIntyre
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