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Legend's profit in second quarter grew 17% to US$26m

Legend Holdings Ltd, China's biggest personal computer maker, indicated second-quarter profit rose a smaller-than-expected 17 percent as the pace of growth in the third-largest PC market slowed.

Net income in the three months to September rose to HK$202 million (US$26 million) from HK$172 million in the same period a year ago. The year-earlier number does not include the contribution of distribution unit Digital China Holdings Ltd, which Legend spun off in June this year.

Profit growth at Legend is slowing as PC ownership in China nears saturation and foreign rivals such as Dell Computer Co step up marketing efforts in the country's US$10 billion PC market.

Legend must look for new sources of revenue to shore up profit and counter the decline in growth, some investors said.

"There will be a drastic slowdown," said Vincent Koo, who earlier this year sold Legend shares from the US$70 million of equities he helps manage at Kingsway Fund Management Ltd. "We're closely monitoring the company for a pickup in demand."

The second-quarter results, which Legend doesn't report to its shareholders, were calculated by subtracting first-quarter figures from the first-half total of HK$453 million. Second-quarter earnings lagged the HK$216 million profit expected by five analysts surveyed by Bloomberg News. Sales in the first half fell to HK$11.5 billion from HK$13 billion last year.

Legend, which employs 10,400 staff, including 6,000 office workers, will cut 5 percent of its workforce, by March next year, said Mary Ma, an executive director.

The company said its expects to sell 325 million PCs in fiscal 2001, instead of the 370 million projected earlier.

"The growth of China's PC market slowed down compared to last year," said Legend chairman Liu Chuanzhi in a statement. "To cope with the market changes, the management responded quickly and adopted a series of new measures."

To extend its source of revenue, Legend is preparing to enter other businesses where it can take advantage of its brand.

The PC maker has been in talks to buy a stake in China Kejian Co, the nation's largest cellular-phone maker, and also teamed with Siemens AG, the fourth-largest mobile phone maker, to develop handheld computers that connect to the Internet using wireless technology.

Legend has also allied with America Online Inc to provide Web access in China.

In the computer business, Legend formed a partnership with Taiwan's Gigabyte Technology Ltd to make motherboards, which connect all the chips and other components in a PC. Legend said it plans eventually to supply motherboards to foreign PC makers.

Shares in Legend have fallen by more than half from a year ago as investors soured on technology-related shares worldwide.

The shares fell HK$0.05, or 1.6 percent, to HK$3.02.
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