China's required PC filter Green Dam a big risk for companies

SAN FRANCISCO — The ongoing battle between the United States and China over the Chinese government's demand that all new PCs sold there include Web-filtering software has the potential to create a public-relations nightmare for leading PC companies.

But it also has those companies facing the possibility of losing out on the lucrative Chinese market at a time when spending on new technology products remains in one of its most-fragile states in years.

China is pressuring PC makers to install a controversial piece of Web-filtering software called Green Dam with all new computers sold in the country beginning July 1. The government says the move is to protect children from pornography and other inappropriate content, but many suspect it also wants to use the software to restrict political information.

The exact size of the Chinese market for the industry is unclear. Few of the top PC companies are willing to reveal how much of their business comes from China, which despite its huge population, remains nascent compared to the more mature markets of the U.S., Europe and Japan.

According to technology-research company Gartner, 291 million PCs were sold worldwide in 2008. Of that total, 41 million units, or about 14 percent of all the world's PC sales, came from China.

Gartner estimates that by 2012, the worldwide total of PC sales will reach 391 million units, and China will account for close to 16 percent of those sales.

PC makers such as Hewlett-Packard, Dell and Apple do not disclose how much of their sales come from China. The companies have also not commented on what impact they might face by not complying with the Chinese government's request.

HP includes Chinese PC sales within its Asia Pacific figures, and when the company reported its second-quarter results on May 19, it said its Asia Pacific revenue was down 10 percent from the same period a year ago to $4.7 billion — about 17 percent of the company's total revenue for the period.

Both HP and Dell trail China's Lenovo Group, with 24.4 percent of the total unit shipments in that market, according to Gartner.

Gartner said HP came in second with a 12.3 percent market share, while Chinese PC maker Founder was third with 7.6 percent and Dell in fourth place, yet close behind, with 7.2 percent of the quarter's shipments.