China’s Lenovo Group is in talks with Japan’s NEC Corp for a PC joint venture, two sources with direct knowledge of the matter said, in a deal that would help them take on larger global rivals.
The Nikkei Shimbun said Lenovo planned to take a controlling interest in NEC’s PC unit. However, a buyout might be a delicate move as Japan eyes China’s growing clout, and sources said it was not clear what form the partnership might eventually take.
Lenovo, ranked fourth in the global PC market behind Hewlett-Packard, Dell Inc and Taiwan’s Acer Inc (宏碁), is looking to tap NEC’s technology for development and expand its share of the Japanese market, the newspaper said.
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NEC, which is the top maker in Japan’s mature PC market but does not rank in the top 10 globally, would likely see the tie-up as a chance to tap into China’s fast-growing market.
The Japanese company, with a market value of US$7.6 billion, clocked sales of about ¥250 billion (US$3 billion) from the PC business last year, accounting for roughly 7 percent of its revenue, the daily said.
“Demand for PCs is weakening with the advent of smartphones and tablets,” said Tomomi Yamashita, a fund manager at Shinkin Asset Management. “As they seek a survival strategy, it is positive that they are looking to a growth area like Asia, rather than choosing a domestic partner.”
A spokesman for NEC declined comment. Lenovo declined to confirm the report, but said that the company was always looking at ways to expand its market share and talking to potential partners.
NEC, which controlled about 18 percent of the Japanese PC market in 2009, expects the PC business to post a profit in the year to March 31. Lenovo sells about one in four PCs in its home market.
NEC-branded PCs are expected to remain on the market once the deal is concluded, the report said.
If the deal goes ahead, it would add to a growing trend of Chinese companies investing in Japan Inc, despite a strong yen. Last year, acquisitions by Chinese firms in Japan totalled ¥11.8 billion, 6 percent more than in 2009 and 52 times more than in 2008, according to Thomson Reuters data.
Fukoku Capital management’s CEO Yuuki Sakurai said one reason the Chinese are interested in buying Japanese companies is “so they won’t be accused of stealing their technologies.
“Because they have a great amount of money in their pockets, they are trying to see which companies are good for buying and I think this is going to be a wide-ranging wave throughout Japanese industry,” Sakurai said.
A partnership in PCs between the two firms would be another step by NEC in its efforts to focus on building telephone networks, analysts said.
“It looks to me as if NEC is trying to lower its risks by detaching its personal computer business,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.
“We’ve already seen NEC pull out from the semiconductor operations in the past. After today’s [reported] move, we can see that the company will put more focus on the telecommunications infrastructure business,” Ogawa said.
Goldman Sachs analyst Ikuo Matsuhashi said that although the joint venture would have little impact on NEC’s PC business earnings, it would be a sign of change in NEC’s business strategy.
“If NEC were to cede leadership to another company even in the PC business, something that would have been difficult to imagine in the past, that would mark a shift aimed at changing the company’s earnings structure,” he said in a research note.
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