A Lenovo sign on display at the 2011 International Consumer Electronics Show in the US. Lenovo is said to want to tap NEC's technology for development, as well as increase its market share. Andrew Harrer / Bloomberg

Move aims to boost company's market share in Japan

Lenovo Group Ltd, China's biggest maker of PCs, is in talks to take a majority stake in NEC Corp, the Japanese newspaper Nikkei Business Daily reported Friday, citing unnamed sources close to the matter.

The talks between the Chinese company and Japan's NEC are in their final stages, the report said, adding that the move is being made in an apparent bid to enhance their global presence.

Hong Kong-listed Lenovo currently ranks fourth in global PC market share - behind Hewlett-Packard, Dell Inc, and Acer Inc - with 8 percent of all units sold in 2009. However, it only has a market share of 5 percent in Japan.

NEC, meanwhile, is the world's 12th largest PC maker, with a market share of only 0.9 percent. This is down substantially from a high of 11 percent in 1995. In Japan itself, however, the firm remains the biggest player in the domestic market. In the first half of 2010, the company shipped 1.9 million PCs for a 20 percent share of the market, according to research firm International Data Corp (IDC).

Lenovo is looking to tap NEC's technology for development as well as expand its share in the Japanese market, according to the Nikkei.

If the deal goes ahead, it would become the first full-fledged alliance between major players in the information and technology industry from the two markets, the report added.

"It is not our practice to comment on rumors," Angela Lee, Lenovo's spokeswoman in Hong Kong, wrote in an e-mail to China Daily responding to reports about the deal.

Lenovo's closed at HK$4.69 ($0.60) in Hong Kong trading Friday, down HK$0.03 or 0.64 percent. Investors in Japan responded positively to the news, however, as NEC finished up 2.1 percent at 244 yen ($2.95) on the Tokyo Stock Exchange and outperformed a 1.6 percent decline on the Nikkei 225 Stock Average.

"It is no doubt a good move for Levono if the deal proves to be true, especially in helping the company enhance its influence in the global market," said Patrick Yiu, associate director with CASH Asset Management.

"But the stock has dropped notably in the past few months as investors worry its relatively thin gross margin will mark down its earning growth this year," Yiu added.

Lenovo posted a net profit of $76.6 million for its fiscal second quarter ended September 30, beating market estimates.

Its gross margin nevertheless fell 0.3 percentage point to 10.3 percent for the three months through September, compared with 10.6 percent in the previous quarter.

"Levono needs better gross margin to excite the market," said Yiu, adding that the tie-up between the two Asian PC makers may mean an eventual rebound in the stock.

Lenovo, formally known as Legend, bought the personal computer division of US technology firm International Business Machines Corp (IBM) in 2005.

The company shipped 9.2 million PCs in the third quarter of 2010, accounting for about a 10 percent share of the global PC market, according to IDC data.

China Daily

(HK Edition 01/22/2011 page3)