Rethink on Legend-AOL China venture
Legend CFO sees over 20% growth in China IT spending

 

BOSTON (CBS.MW) -- AOL Time Warner's much-ballyhooed joint venture with China's top computer maker Legend Holdings is being "reassessed," but this isn't because of the U.S. media conglomerate's financial woes, said a senior Legend executive.

Back in May 2001, AOL (AOL: news, chart, profile) and Legend announced -- with much fanfare -- plans to launch a $200 million joint venture aimed at cornering the mainland's exploding Internet market.

Under the plan, AOL would gain instant access to and visibility in China through the country's number one PC vendor, while Legend would acquire AOL's technology and marketing know-how, content, and funding. Read archived story.

But the dream never really got off the ground as AOL got distracted by its own internal problems and the rosy view of China's Internet landscape was dimmed by the bursting of the dot-com bubble.

"The venture is being reassessed," Mary Ma, chief financial officer of Legend Holdings, told CBS Marketwatch.com in an interview. "It's basically not because of AOL, but because the Internet industry has changed and the environment in China has changed.

"The government has encouraged telecom firms to be more market-driven and to offer value-added services. This has led to us to consider moving from offering Internet access and online services to SMS," said Ma, who was in Boston on Saturday to attend the Asia Business Conference at the Harvard Business School.

Representatives from AOL Time Warner could not immediately be reached for comment.

SMS, or short messaging services, has become a savior for China's top Internet portals Sohu (SOHU: news, chart, profile), Sina (SINA: news, chart, profile) and Netease (NTES: news, chart, profile) -- all of whom saw their stock prices bbattered beyond recognition before launching their own mobile messaging plans last year.

All three portals have since seen their stock prices skyrocket on investor enthusiasm for their diversification plans as well as recent attempts to turn profitable.

Analysts cite several reasons for SMS' popularity. With fixed-line phones hard to come by in China, cell phones have become standard gear for many people. It's also a huge market. According to industry estimates, the number of cell-phone users in China is three times larger than that of Internet users.

No slowdown in China IT spending

The outlook for spending in information technology may be cloudy in the United States, but it's all bright skies in China, according to Ma, who was recently ranked by Fortune Magazine as among the powerful women in global business.

Ma expects China IT spending to grow 20 percent in 2002 and another 25-30 percent in 2003 as the economy cruises along at an 8 percent clip.

Besides Chinese economic growth, Ma said that other drivers will be stable growth in the country's PC market, demand from small and medium enterprises as well as the education market, an expected 30 percent growth in the mobile handset market this year and growing demand for IT services. "IT services only account for 6 percent of total spending compared to 40 percent in the U.S.," she said.

The company isn't standing still.

Legend's (LGHLY: news, chart, profile) (HK:992: news, chart, profile) growth strategy includes diversifying away from PCs into terminal access devices such as pocket PCs and personal digital assistants, said Ma. The company also plans to boost its presence in the services markets, she said.

With Dell (DELL: news, chart, profile) and other top PC firms making strong inroads in China, Legend is considering taking the battle overseas, including the United States, where the company is doing some "low-scale testing."

Dell already has a 5 percent share of China's PC market -- not as impressive as Legend's 28-29 percent market share -- but still remarkable given its humble beginnings.

Allen Wan is a news editor for CBS.MarketWatch.com in New York.