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Pentium II PC descends to $1,200

China's Legend Computer Group unveils a Pentium II system for about $1,200.

China's Legend Group has introduced a $1,200 Pentium II system with monitor, a move that appears to be aimed at solidifying its position as the top PC vendor in mainland China.

Legend's new Benyue model is priced at 9999 renminbi (about $1,207), and comes with a 233-MHz Intel Pentium II processor, 32MB of memory, a 2GB hard drive, and a 14-inch monitor, according to Legend vice president Yang Yuanqing and industry observers.

Typically, systems based on Intel's premier chip line start much higher, at about $1,900 without a monitor.

Legend holds the lead in overall mainland Chinese PC desktops sales with a 7.6 percent market share, according to International Data Corporation (IDC). IBM maintains 6.7 percent of the market, Hewlett-Packard 6.2 percent and Compaq Computer 5.7 percent.

The company's success can be attributed to establishing a strong service base while also providing relatively high-quality products at low cost. Legend has consistently been dropping prices to appeal to an increasingly wealthy urban population that typically purchases computers which cost between $500 and $1,500.

"Clearly if you take the fact that 30 percent of the population is in urban centers--maybe 10-11 million per year are growing up in urban areas--surely there's going to be people there who can afford a $1,200 PC," said Lisa Cosmas, an IDC analyst.

In fourth quarter of 1996, the last period IDC has numbers on, Legend's overall shipments increased more than 64 percent from the same period the year before.

"They [Legend] are doing far better in '97 than in '96. They are fast becoming a powerhouse for price-point computers. Low price is their main deal," Cosmas added.

Legend has also been involved in a joint venture with Taiwan computer manufacturer Acer to assemble and market the Acer Basic PC. According to IDC, Basic PC shipments have grown drastically since the partnership began.

The announcement may also be a move to prevent increasingly aggressive foreign vendors from penetrating China's prized market, already larger than the combined markets of all Southeast Asian nations. Last year, China surpassed South Korea to become Asia's second largest PC market after Japan.

Notwithstanding Legend's position, U.S. PC makers such as Compaq Computer seem content with their progress so far. The Houston manufacturer announced in November that it will begin to aggressively pursue further business initiatives such as offering professional services, beefing up its sales force, and strengthening its customer support network in the region.

"We've been pretty happy with the China market. There's lots of growth possibility but lots of obstacles," said a Compaq spokesman. "I think as we make more inroads in China we'll see a larger consumer base and consumer products such as the Presario." The Presario is Compaq's principal line of low-cost PCs.

Obstacles, for sure. Currently, 60 percent of all PC desktop sales come from local PC assemblers like Legend, and many in the U.S. point to this success as the result of preferential government policies that encourage citizens to "buy Chinese."

U.S. PC makers faced roadblocks such as a 15 percent import tariff and 17 percent value-added tax that play a significant role in keeping them behind the local competition. Also, government PC purchases are almost completely local, which blocks off U.S. vendors from that niche.

Moreover, shady business practices are reportedly widespread. "They pirate the software, they don?t have to go with the channel [assembly] model, they go around the tax law, they appeal to people who want to spend less money, they?re a huge component in China," said IDC's Cosmas, referring to local PC vendors.

Reuters contributed to this report.