Software & Services

China's 2Q 2008 Linux revenues reached 43.1 million Yuan, up 16.2% YOY, but this growth rate is a rather large decline. China's commercial enterprise orders of Linux are few, and its growth rates have slowed. Large, centralized purchasing activity has receded. As a result, vendor competition is heating up, and has shifted from an desktop and server operating systems focus to a value chain of vendors that complement Linux.

Key strategy: Linux vendors are edging towards applications.

Especially in China's financial services and telecom industries, Linux vendors have to seek a breakthrough strategy that incorporates an almost software and solution stack approach that includes Linux. CCID Consulting's research shows that China's major Linux vendors indeed have shifted from single-product, server and desktop approach to that of alliances with other vendors to extend beyond Linux.

Red Flag works with Intel and pursues mobile Linux products. Red Flag's Asianux in Wuxi, China has entered its operational stage, employing technical resources to further joint development and testing with other vendors.

• Turbolinux strengthened its cooperation with MySQL and Intel to promote extended applications around Linux.
• China Standard Software enlarges its efforts in Office software, consolidation, operating systems, and services with Linux.
• Novell develops its authentication and network management product advantages to drive Linux sales. Novell also cooperated with Microsoft to provide more interoperability in high performance computing and virtualization.
• In addition to its JBoss enterprise middleware products, Red Hat advances its Global Community for Collaborative Innovation (OSCI) in China, targeting financial services, governments, telecom, health care and manufacturing sectors.

Demand for Linux will disperse to China's SMEs and less developed markets.

The large, centralized Linux orders from government, financial services, and telecom are giving way to smaller, more fragmented orders from China's SMEs and less developed markets.

SMEs large but fragmented user base is rapidly developing its IT applications that will drive Linux growth. However, SMEs are more price-sensitive. Demand will increasingly come from manufacturing, logistics, education, health care and social services sectors.

Growth rates of IT adoption in China's more developed North, East and South regions will gradually slow, while low IT adoption regions of China's Northeast, Northwest and Southwest will accelerate. Growth will also come from China's Tier 2 and 3 cities.

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Ó 2008 CCID Consulting Co., Ltd.