Copyright CMP Media LLC Dec 17, 2001
When it had the home-field advantage, Legend Holdings
Ltd. became the star of China's PC market. But now, with China's entry into the
World Trade Organization, Legend finds itself on a more level field, with
players from all over the world aggressively pushing forward.
Since 1999, Legend has risen to become the leading PC
maker in China, a market that had previously been dominated by foreign OEMs. In
just three years, Legend's share in the world's fastest-growing PC market
tripled, from 12% to 30%.
Unfettered by the restrictions that have limited
foreign companies in China, Legend has been free to extend its network into
every corner of the country. While foreign competitors are generally confined to
major cities, Legend has placed thousands of distributors throughout China. The
company's native familiarity with China also gives it the logistical
understanding and negotiations savvy to keep procurement costs and inventory
levels down. According to internal data, Legend's inventory level is usually
less than 20 days, compared with 30 days for Compaq Computer Corp.
But now that Legend has blazed a trail into China's
market, the company's next challenge will be to prevent its rivals from paving
over those roads. Already wary of local players moving in on its territory,
Legend expects China's WTO membership to result in an increased threat from
overseas.
"The biggest challenge we face is competition," said
Mary Ma, Legend's senior vice president, executive director, and chief financial
officer. "That includes brands both from overseas and here in China."
Ma was the main negotiator of Legend's $200 million
deal with AOL Time Warner in June to develop the Chinese Internet market, a
partnership that she believes will be essential to Legend's success in the open
market after China's WTO entry.
The company is trying to cultivate relationships with
powerful allies to strengthen its position against the likes of Dell Computer
Corp., which already has launched an aggressively priced PC sales campaign on
the mainland. Dell cut the price of its SmartPC by 4% at the end of November,
undercutting Legend's lowest price. The SmartPC increased Dell's market share to
4.9% in the third quarter, making it the most successful foreign brand, while
Legend's share declined in that quarter, according to analysts.
"The most significant impact on Legend after China
joins the WTO is rising competition from Dell, Toshiba, and IBM," said Paul Bai,
an assistant vice president at Taipei, Taiwan-based contract manufacturer First
International Computer Inc., which supplies Legend with 15,000 laptops per
month. "Legend has told us that it intends to be cautious about its outlook for
next year."
While the WTO is having a leveling effect on the
competitive terrain, Legend must also contend with a leveling of unit sales
volume in the PC market after years of explosive expansion. Sequential unit
sales growth in China slowed to 13% in the third quarter, compared with 28% and
48% sequential gains in the first two quarters, respectively, according to IDC,
Framingham, Mass. At the same time, Legend's third-quarter revenue fell 12%
year-over-year, to $1.48 billion.
In response to slowing growth, Legend has cut its
unit shipment target from 3.7 million to about 3.2 million for the year ending
March 2002, said Ma, who attributed the slowdown to a flattening consumer
segment.
"This year we spotted the market had a drastic
slowdown in July, but the corporate market did better than usual. So we shifted
our strategy very swiftly," she said. "For September, our overall market share
was 31.5%. While the consumer share dropped to 37.8%, down about 1% from recent
peaks, our corporate segment jumped from 26% to 29.7%."
While Legend intends to defend its position in China,
there are no immediate plans to take the battle to foreign competitors' home
markets. "For the next three years, Legend will focus on the Chinese market," Ma
said.
This does not preclude such foreign partnerships as
the AOL deal, or another agreement this year to outsource motherboard
manufacturing to Gigabyte Technology of Taipei. According to Ma, Legend has a
special relationship with Taiwan's companies that exemplifies a growing trend of
cross-strait interdependence.
http://www.ebnonline.com/
Copyright 2001 CMP Media LLC