Legend Group, the top computer maker in China, should remain cool-headed about its business expansion strategy after unhooking its tie-up with Time Warner on a much-hyped Internet joint venture, suggest experts.

Legend last week acknowledged Time Warner, the US-based media titan, had withdrawn from the US$200-million joint venture.

Legend, which controlled 51 per cent of the joint venture, has bought out Time Warner's 49-per-cent stake.

China Business Weekly reported last February that Legend was considering severing the joint venture, and was awaiting directors' approval.

Both companies at that time denied such media reports.

The divorce comes at a time when Legend's expansion into the Internet business continues to hit roadblocks.

The company last month lost the domain name of its FM365.com to a domestic website, FM265.com.

Legend and Time Warner's joint venture was designed to provide consumer Internet services in China and technical support and services to FM365.com, Legend's portal and Internet service provider.

Web surfers trying to log onto www.FM365.com will be shifted to www.fm265.com, a portal that offers website classification services.

"The split-up of Legend and Time Warner marks a big failure for both firms," said Lu Benfu, director of the China Internet Development Centre under the Chinese Academy of Social Sciences.

South China Morning Post last week cited Legend's chief financial officer Mary Ma as acknowledging the pull-out "should be labelled a failure" for Legend.

"It seems Legend has no idea at all about what is the right thing it should do in the Internet business," Lu told China Business Weekly.

Legend and Time Warner, formerly AOL Time Warner, formed the joint venture in June 2001. Each side pledged US$100 million to the initiative.

Each firm reportedly invested US$25 million when they announced the venture's formation.

Time Warner's pull-out will not cause major financial losses for Legend, which has not been able to pool much money since the joint venture, Lu said.

However, the break-up underlined Legend's inability to compete in the Internet arena, which is unfamiliar to the firm that originally focused on the PC business.

The joint venture originally planned to offer services based on dial-up Internet access.

However, with dramatic price falls, broadband access in China has become very popular.

Unable to catch up with the broadband bandwagon, the joint venture never began commercial operations.

"Legend has made little progress in its expansion into the Internet business, as it has only been a follower," said Zeng Jianqiu, a professor with Beijing University of Posts and Telecommunications.

Legend, stung by declining profit-margins in its PC business, has been trying to expand into several new business areas.

Currently, 80 per cent of Legend's revenues come from its PC business.

The handset business, which Legend has just entered amid much fanfare, is losing money, and is unlikely to become profitable any time soon.

The company is reportedly seeking an entrance into the LCD (liquid crystal display) TV business.

Although analysts suggest Legend should expand business to boost revenues, they are worried about sprawling expansions that will pose risks for Legend.

Legend last week signed a deal with China Telecom to pre-install its computers with access to China Telecom's broadband service.

It's unclear whether such an alliance will result in China Telecom replacing Time Warner as Legend's business partner.

Early last year, Legend was negotiating with China Telecom.

Both Lu and Zeng said they are sceptical about Legend's ability to compete in the telecoms value-added-service market.

"Legend is inexperienced ... As a follower, it will be hard for Legend to grasp the broadband business opportunities in a market crowded with strong competitors," Lu said.

"If it wants to be successful in a new market, it must pool more resources to make it a market leader, instead of a slow follower."

(Business Weekly 01/13/2004 page1)