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INFORMATION technology provider Legend Holdings predicts that its Beijing sister company will increase its personal computer brand sales by 30 per cent this year.

This is contrary to one newspaper report which says the company will de-emphasise its PC-making business.

Beijing Legend manufactures Legend PCs, the fourth best-selling brand in China last year, according to Dataquest.

The Asian Wall Street Journal reported last week that Beijing Legend would de-emphasise manufacturing personal computers due to increased competition from foreign brands, which already comprise about half of the market.

Legend Holdings officials in Hong Kong admitted that Legend's share of the personal computer market in China actually declined even as absolute sales rose 43 per cent.

But they denied that Beijing Legend - which sold 100,000 PCs in China in 1995 and plans to sell 150,000 computers this year - was withering under another expected onslaught of foreign computers after tariff cuts take effect next month.

   AST, Compaq, and IBM were the top sellers in a Chinese market of 1.1 million computers sold last year, according to Dataquest.

 The only Chinese PC brands in the top 10 were Legend and Great Wall, with three per cent of the market.

Tariff cuts of between 30 and 50 per cent on imported computer goods will take effect on April 1.

 The cuts are expected to accelerate the invasion of foreign brands into China and hurt domestic manufacturers like Legend, Great Wall, Stone and Langchao.

They would also seem to put an end to the dream of Michael Ng, executive director of Legend Holdings, to transform the Legend group into a major worldwide exporter of its own brand of personal computers.

In January, Mr Ng told the Technology Post that he hoped Legend, which started off in the mid-1980s as a computer importer and distributor in China, would make its own brand of personal computers like Taiwan's Acer.

Dataquest, for one, predicts that sales of Legend PCs will increase but the company will lose market share.

'I hate to disappoint the locals,' a Dataquest official told a local seminar last month on the Chinese computer industry.

 'But, basically, the big foreign vendors will make the money and increase their market share.' Foreign brands are considered more prestigious and reliable than domestic Chinese brands which, shielded by 30 per cent tariffs on imported goods, have successfully competed by offering lower prices.

That undercutting strategy will be more difficult as tariffs fall from 30 to 20 per cent in a few weeks. The Chinese Government has promised to cut tariffs to 15 per cent by 1997.

 A Legend Holdings spokesperson said that Legend PCs would probably remain competitive by pricing themselves at five to 10 per cent below foreign brands.

Meanwhile, the tariff reductions will actually help Legend Holdings' business in some cases.

Legend Holdings earned 48 per cent of its revenue through motherboards and add-on cards made in China and exported to foreign PC makers. According to Robert Lewis, analyst at James Capel Asia, tariff cuts will actually help motherboard and card sales by further opening up the Chinese market to foreign vendors.

Legend opened a printed circuit board manufacturing plant in Huiyang last year. Another subsidiary, Legend-Valence Holdings, is designing and making semiconductor products for foreign computer makers.

Investors recognised this possible bonanza. Shares of Legend Holdings rose 7.9 per cent in February when the Chinese Government cut import tariffs on computers and related components. Last November, Legend Holdings reported a 21 per cent increase in profit to $36.88 million for the first six months of fiscal year 1996.

The highly diversified conglomerate - with 27 local and overseas subsidiaries - also earned almost a third of its 1995 revenue of $3.72 billion from distributing and setting up foreign brand PCs in China.

IBM and AST - with whom Legend Holdings signed a $1 million memorandum of understanding last December - are both distributed through Legend's network of 200 distributors in China. Legend Holdings also distributes computers and products made by Apple, Intel, and Sun in China. That has meant Legend Holdings has sometimes cannibalised sales of Legend PCs built by its sister company, Beijing Legend.

Beijing Legend owns 42 per cent of Hong Kong-listed Legend Holdings. Beijing Legend is the commercial arm of the Chinese Academy of Sciences.

Legend Holdings supplies most of the components which are used by Beijing Legend to build Legend brand PCs. Only 10 per cent of Legend Holdings' revenues are derived from this business.

Mr Lewis said that tariff cuts would actually hurt Legend Holdings' distribution business by driving down profit margins.

 He recommended that Legend Holdings expanded into other value-added services.

Legend Holdings says it already has made such contingency plans.

 Systems integration - the business of setting up computer systems for mostly corporate clients - is to become increasingly important to income.

Meanwhile, International Data Corporation predicts that Legend personal computers will both increase their absolute sales and their market share in 1996.

This would follow an explosion in the home market in which Legend PCs are already the top seller. Home users only bought 10 per cent of those sold in China last year, according to Dataquest.

 But according to mainland Chinese research institutes, 60 per cent of urban families with school-age children had bought or planned to buy personal computers, creating a potential market for 30 million computers.

 There are only 2.5 computers per 1,000 people in China, according to figures from the Ministry of Electronics Industry.

  That compares to 20 computers per 1,000 people in Taiwan and 300 computers per 1,000 residents in America.

 Legend continues to strengthen its appeal to home users. Along with Great Wall, Legend signed an agreement two weeks ago to pre-install Microsoft's simplified Chinese character version of Windows 95 and 3.2 on its brand PCs. It also plans to market its PCs as multimedia-ready machines.

 So far, Legend has not exported any of its computers out of China. In the Asia-Pacific region, Legend is ranked only 16th in PC sales, with all of its sales in China.



Legend expects 30pc surge in mainland sales