Chinese group Lenovo, the world's No. 4 PC brand, is to invest $175 million in a joint venture with Japanese company NEC to sell PCs in Japan, it said, to help it outpace global market growth.
The new company will also sell personal computers to the overseas Japanese population, and has no plans to sell NEC-branded computers on Lenovo's home turf in China, NEC chief executive Nobuhiro Endo said on Thursday.
Lenovo will own 51 percent of the joint venture with the balance belonging to NEC which will have an option to sell that stake to Lenovo after five years.
It is probably NEC's clients and the additional scale that Lenovo is looking for, said Vincent Chen, an analyst with Yuanta Securities in Taipei. Most of NEC's PC production is outsourced, so this could help give Lenovo more bargaining power with the contract manufacturers.
NEC is Japan's biggest PC brand with an 18 percent market share, according to research firm Gartner. Many foreign players, such as HP, have tried to break into Japan but failed to beat companies such as Toshiba on their home turf.
The deal marks a second attempt by Lenovo to expand in mature markets, after its 2005 purchase of U.S. group IBM's PC unit helped bring its name to the global stage.
PC companies mostly work on razor-thin margins that are improved only by cost savings and economies of scale. Lenovo had an operating profit margin of about 1.8 percent in the last reporting quarter, while bigger rival Acer clocked in at 2.9 percent.
The two companies may work together to develop smartphones jointly, Lenovo chief executive Yang Yuanqing told reporters. The two companies have a lot of areas to cooperate in the future, Yang said. This is the first step.
Others, such as HP and Dell, have also turned to higher-grossing data services and mobile devices such as tablet PCs and smartphones, which typically command double-digit gross margins, to shore up earnings.
BEATING MARKET GROWTH
Lenovo is aiming to outpace industry growth worldwide in PC shipments as it continues to grow opportunities globally, chief operating officer Rory Read said in an interview on the sidelines of the World Economic Forum in Davos.
Our goal is to outpace the market, Read told Reuters.
PC sales have been hurt by the global popularity of tablet PCs such as Apple's iPad, which was in full view at the annual gathering of the world's economic and political elite.
Tablet computers will likely represent 10-15 percent of the PC market this year, Read said during an interview with Reuters Insider. Lenovo itself has previously said it will launch a tablet called LePad in China during the first half.
The iPad has spawned a new market for the once-defunct tablet PC segment, with over a dozen touchscreen tablets expected to be launched this year from brands such as Blackberry maker Research in Motion and Dell.
Worst hit by the new phenomenon have been Taiwan-based Acer and Asustek, having bet heavily on the low-cost netbook PC and seeing sales slowly drying up as consumers move toward tablets.
Global PC shipments excluding tablets rose 2.7 percent in the fourth quarter, weaker than the 5.5 percent originally expected by research firm IDC. PC shipments may also fall below IDC's forecast of 10 percent this year from 346 million units in 2010.
(Writing by Kelvin Soh in Hong Kong; Editing by Dan Lalor)