Legend Holdings Ltd will probably say its second-quarter profit rose about 25 percent from a year ago as China's biggest personal computer maker benefited from increased sales in the third-largest PC market.
Net income in the three months to September probably rose to HK$216 million (US$27 million) from HK$172 million in the same period a year ago, according to the average estimate of five analysts surveyed by Bloomberg News. The year-ago number does not include the contribution of distribution unit Digital China Holdings Ltd, which Legend spun off in June this year.
Legend, which is scheduled to report earnings at 3:30pm today, must seek ways to shore up profit as China's PC market matures, slowing the pace of growth, some investors said.
"We're seeing signs of a slowdown," said Gerald Smith, who counts Legend shares among the US$29 billion he helps to manage for Baillie Gifford & Co. "But we don't think it'll be disastrous."
Legend, which accounts for more than a third of PCs sold in China, shipped 7 percent more machines during the July to September period than it did a year ago, according to market researcher International Data Corp. The company increased its market share to more than twice that of its nearest rival, home-grown Founder Holdings Ltd, IDC said.
China's US$10 billion PC market is growing even as global sales are expected to shrink for the first time since 1985, amid a slowing world economy, worsened by the Sept. 11 terrorist attacks and the US-led retaliation in Afghanistan.
Total PC shipments in China, at about 20 million units in a population of 1.4 billion, should provide sufficient room for a 20 percent annual growth rate for five more years, IDC said.
Still, Legend will probably not be able to grow its share of the market as competitors such as Dell Computer Corp, the largest PC maker, aim to increase sales. However, local manufacturers, rather than Dell, which has about 5 percent of the market, will be Legend's biggest threats, some investors said.
"Domestic makers will have an edge because they have more extensive distribution networks," said Richard Wong, who counts Legend shares among the US$120 million he helps to manage at HSBC Asset Management (Hong Kong) Ltd.
Still, Dell climbed to the No. 4 slot during the last three months, IDC said, replacing local rival Great Wall Technology Co, which fell to seventh.
Dell is departing from its global strategy of selling customized PCs by pushing basic, no-frills machines in China as part of a "head-on attack on the consumer market," Chief Executive Officer Michael Dell said last week.
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, the biggest Internet and media company, to provide Web access in China.
In the computer business, Legend formed a partnership with Taiwan's Gigabyte Technology Ltd (技嘉科技) 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.
Even so, computers will probably continue to account for more than 90 percent of Legend's revenue for several years, according to analysts.
Shares in Legend have fallen by more than half from a year ago as investors soured on technology-related shares worldwide.
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