Word: legendizes
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...advantages Dell enjoys over giants such as IBM could prove decisive against Legend as well. Founded in 1984 by 11 computer researchers from the Chinese Academy of Sciences, Legend has rapidly grown into Asia's largest PC maker by riding a boom in mainland computer sales. Although it manufactures in China, where labor costs are cheap, it lacks Dell's economies of scale. Legend's revenue last year was $3.5 billion, puny compared with Dell's $31.9 billion. Dell's 17.6% profit margin similarly dwarfs Legend...
...appears that Dell can undercut Legend's prices despite China's protectionist tariffs. The American company offers a starter PC for $97 less than Legend's comparable entry-level model. Any pricing edge enjoyed by Dell could increase over the next several years; China's entry into the World Trade Organization means tariffs on imported PCs will decline from 13% to zero...
...Legend CEO Yang Yuanqing seems resigned to the impossibility of his company being the low-price leader. "We're not interested in waging a price war at the cost of profits," Yang said during a recent press conference. (Legend executives declined to be interviewed for this story.) Moreover, the company has entered a period when operating inefficiencies can no longer be papered over by soaring revenue growth. Computer sales growth in China will shrink to as little as 5% this year from 27% last year. While faster growth will return with an upturn in China's economy, the market...
...Legend's response to slowing PC demand on the mainland has followed the industry script: the company has decided to diversify. Among numerous initiatives: manufacture of palmtop PDAs; an expanding chain of more than 500 retail computer stores; a move into Internet services that includes a partnership with AOL Time Warner (TIME's parent company); and contract manufacturing. In the future, Legend expects to generate substantial profits by providing I.T. services to Chinese corporations-up to 30% of the company's total profit by three years' time. Legend, through a joint venture with Xiamen Overseas Chinese Electronic, has even agreed...
...Unfortunately, diversification campaigns by PC manufacturers often go awry. Taiwan's Acer, for example, was once a well-known computer brand, but the company has faded from prominence and struggled to make a profit despite forays into fields such as semiconductor manufacturing. By entering unfamiliar territory, Legend risks losing focus where it truly matters-PC and server sales contribute 93% of Legend's revenues. At least one industry analyst says the company's strategy has become so diffuse he no longer understands...