Dell Computer Corp, Legend Group Ltd (
Legend, China's largest computer maker with a 27 percent market share, cut prices 14 percent for the weeklong National Day holiday that ended Tuesday. US-based Dell, No. 4 in the market with 5 percent, cut its prices 26 percent two weeks ago.
"After Dell's price cuts, there's market concern of a potential price war," said Michele Mak, an analyst at ABN Amro Asia Ltd. "Dell always said it wants to increase its presence."
The escalation of competition in China has weighed Legend shares, which tumbled to a three-year low Monday. Computer makers still chafing from their worst sales year are betting on a market where only about 1 percent of 1.3 billion people own a computer.
China may surpass Japan next year as the No. 2 market after the US, according to International Data Corp
"Among the five largest PC markets in the world, China is the only one that's growing significantly," International Data analyst Kitty Fok said.
At Computer Square, a three-floor retail complex in Shanghai's Pudong financial district, saleswoman Bao Qinhua paced her dimly lit second-floor showroom, waiting to pounce on the next browser. She was pitching Tsinghua Tongfang Co (
"It's just like clothes," she said. "People want to buy cheap. If we don't cut prices, we can't survive." She was peddling a computer with a Pentium 4 processor, Windows XP and a 15-inch liquid crystal display for 7,950 yuan (US$958), or about 62 percent of the average annual disposable income for Shanghai residents.
Downstairs, Legend was selling a similar package for 7,999 yuan, marked down from 9,299 yuan, offering free digital cameras and printers as incentives.
"Price reductions improved our sales," Legend distributor Jun Yang said at the center. "We sold 20 computers a day during the holiday, instead of the usual four or five."
How much the price cuts will affect profit margins isn't clear because they largely reflect cheaper component prices from Intel Corp and other parts makers.
"Intel dropped processor prices in September," Fok said. "I wouldn't be surprised if everyone's cut prices to reflect the cost of components."
Austin, Texas-based Dell, the world's second-biggest personal computer maker, is the No. 1 overseas computer-seller in China, tied with International Business Machines Corp Among top domestic makers are Legend, Tsinghua and Shanghai Founder Yanzhong Science & Technology Holdings Ltd.
Dell denied it was aiming to trigger a price war to try to grab market share from Legend. Its strategy of selling directly to consumers without retail outlets means the company can offer lower prices, a company spokeswoman.
"We cut prices in late September," said Judy Low, Dell spokeswoman for Asia. "Prices were cut in different markets in the Asia-Pacific region."
Competition may thin the ranks, leaving Dell and Legend the big victors, said Sam Lau, who counts Legend shares among the US$140 million of assets he manages for the Baring International Greater China Fund.
"Profits will suffer," said Lau. "I think only the bigger companies will survive. They have the econ-omies of scale."
Legend shares surged 8 percent yesterday to HK$2.43 in Hong Kong.
Dell rose 1.5 percent overnight on the NASDAQ to US$24.33.
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