Lenovo, NEC to form JV to sell PCs in Japan

CALIFORNIA, USA: Lenovo Group Ltd, the world's No.4 PC brand, will invest $175 million with NEC Corp to form a joint venture to sell personal computers in Japan, the Chinese PC maker said on Thursday.

Lenovo would own 51 percent of the joint venture, with NEC taking the remainder, Lenovo said in a statement to the Hong Kong stock exchange.

"The completion of this transaction will give the company a majority stake in a joint venture with a stronger market position, enhanced product portfolios and expanded distribution channels in Japan," Lenovo said in the statement.

NEC is Japan's biggest PC brand with an 18 per cent market share, according to research firm Gartner, where many foreign players such as HP have tried to break into but have failed to beat companies such as Toshiba on their home turf.

The acquisition also marks a second attempt by Lenovo to expand in mature markets, with its 2005 purchase of IBM's PC unit having helped it bring its name to the global stage.

"It's 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."

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 per cent in the last reporting quarter, while bigger rival Acer clocked in at 2.9 per cent.

Others such as HP and Dell have turned to higher-grossing data services and mobile devices such as tablet PCs and smartphones to shore up their earnings, which typically command gross margins in the double digits.