China's PC giant's profits disappoint

State spending boosted back-to-school sales of PCs

China's biggest PC maker, Legend Group, has reported a 20.5% jump in profits for the six months to the end of September.

It's a consumer quarter, but the commercial sales came in stronger

Theodore Teo, Nomura analyst

However, shares in Legend slumped by 3.5% on the Hong Kong stock market - investors had expected even better from the firm, which has the lion's share of China's fast growing PC market.

Legend has 28% of China's expanding PC market, compared with the 5% China market share held by Dell, the global market leader.

China's PC market is becoming a lot more competitive as tariffs on imported PCs have been slashed to zero since China joined the World Trade Organisation last year, analysts say.

Foreign firms are rushing into China's PC and IT markets.

Internet service provider AOL has been testing its "flying dragon" subscription portal in 36 Chinese cities since August in a joint venture with Legend, AOL spokesman Rich d'Amato said on Tuesday.

Strategic shift

PC makers have tackled tougher competition by discounting.

Legend has tried too to shift to towards a more sophisticated business model, placing greater emphasis on corporate sales and value-added services.

Legend posted net profits of HK$524m ($67m; £42m) for the six months to the end of September, compared with an underlying figure of HK$435m year earlier.

Sales rose to HK$10.37bn.

Back to school

But sector watchers' eyes were trained on sales to consumers during the three months preceding the start of the new school year.

"It's a consumer quarter, but the commercial sales came in stronger," noted Theodore Teo at Nomura International in Hong Kong.

For the back-to-school quarter, consisting of the three months to 30 September, Legend's profits rose 26% but overall sales were flat.

And although corporate sales rose, consumer sales fell.

Takings were, nonetheless, boosted by state spending.

"There was strong demand from government, especially from education because they made use of the summer holidays to install computers in schools," said Kitty Fok of IT analysts International Data Corp.

In the last year and a half, Legend's share of education sales has risen to 30% from 4%, the firm's chief financial officer Mary Ma recently said.

First half net profit margins remained healthy, rising to 5.06% from 4.37% year-earlier, and the firm raised its dividend payout.