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Ben Kwok

Foreign brands gain market share as mainland's No1 computer maker holds steady at 27pc growth

Foreign computer manufacturers  on the mainland grew faster than their domestic counterparts last year, posing an increasing threat to dominant player Legend Group as it fights to  keep its leading position.

At first glance, Legend's  16.4 per cent growth in regional shipments as reported by International Data Corp on Tuesday seemed impressive. The news triggered a 9.2 per cent jump in the computer maker's shares to a two-year high.

But underlying the numbers is the fact Legend was able to maintain its mainland market share at only 27 per cent, as competition from Dell Computer, Hewlett-Packard and IBM intensified.

The top three United States computer makers commanded more than 15 per cent of the China market and the figure is likely to grow.

The entry of the world's top computer brands in China has always served as a note of caution for Legend investors, especially now with its shares up 31 per cent over the past 12 months.

Morgan Stanley reiterated yesterday the changing competitive landscape would have a negative impact on China's largest computer maker.

'Even though the market share gains by the US brands might have come from smaller brands in China instead of Legend directly, it is worrying,' analyst Viktor Ma said.

He said  foreign brands were grabbing market share at a faster rate than Legend.

Since entering the mainland market in 1998, Dell has grown its market share every year, reaching about 7 per cent at present.

Its annual growth  over the past five years had been about four to five times faster than the market average, Citigroup analyst Kirk Yang said.

Thanks to Dell's highly efficient direct-to-consumer business model, it can price its computers at the same level as Legend PCs, if not lower. The strategy imported from the US has worked  well, with Legend executives publicly praising their rival's logistics management several times last year.

IBM and HP  have muscled into the mainland corporate market, achieving better than average growth in the first nine months of last year.

Taken together, the competition from the foreign brands has hurt Legend's pricing power. It prices its Lenovo brand computers  at 10 to 15 per cent less than HP and IBM.

Fortunately, fourth-quarter figures show Legend is weathering the competition well, albeit its growth is not as robust as its foreign rivals.

In the fourth quarter,  shipments to the Asia-Pacific region excluding Japan were up 5.3 per cent to 1.06 million, or 29.5 per cent of its annual shipments last year.

Morgan Stanley credited the late surge to government and corporate demand as institutions and companies drew down their budgets. But it cautioned first-quarter sales could drop 21 per cent sequentially due to seasonal factors and the sluggish retail market.

Mr Yang was more positive.  'In the near term - meaning this year or next year - Dell would not be a major threat to Legend yet because they do not have a lot of [product] overlap this year, but will start to have more in the years to come,' he said. 'Legend can lead comfortably with a 28 to 29 per cent market share, but it is difficult to grow beyond 30 per cent given its huge size in China.'



Legend leadership under threat