NEC, Lenovo May Sell Servers in China, Extend PC Joint Venture

NEC Corp. is in talks with Lenovo Group Ltd. to partner on server sales in China, a move that would extend the joint venture announced last month between the two personal-computer makers.

“There’s a complementary relationship,” Masato Yamamoto, head of NEC’s platform business, said today at a briefing in Tokyo. An agreement between the two companies on servers would give NEC better access to the Chinese market while helping expand Lenovo’s product lineup, Yamamoto said, declining to specify when an agreement might be reached.

NEC, Japan’s largest maker of PCs and servers, is seeking to reduce its reliance on the domestic market, which accounts for 84 percent of the company’s sales. A deal would help Lenovo, which is also introducing tablet computers and smartphones, beef up its server business and diversify products.

“The PC market is coming to the end of its growth, and Lenovo is probably looking around to see what else it can build on,” said Takao Hattori, an analyst at Tokyo-based Toward the Infinite World Inc. “NEC has probably wanted to partner with somebody because they’d have a tough time expanding in China by themselves.”

NEC rose 0.9 percent to close at 238 yen on the Tokyo Stock Exchange, while the benchmark Nikkei 225 Stock Average slipped 0.2 percent. Lenovo, China’s largest maker of PCs, fell 1.1 percent to HK$4.55 as of 2:50 p.m. in Hong Kong.

Joint Venture

The two companies agreed Jan. 27 to form a joint venture to sell PCs in Japan. Lenovo will own 51 percent of the company, which will be formed by merging NEC’s PC business with Lenovo’s assets in the market. The two companies said at the time they may also collaborate on tablet computers and servers.

Lenovo, based in Raleigh, North Carolina, had 10 percent of the world PC market in unit terms during the first nine months of last year, ranking it behind Hewlett Packard Co., Acer Inc. and Dell Inc., according to data from industry researcher IDC. The company moved its headquarters to the U.S. after buying the PC division of International Business Machines Corp. in 2005.

“Lenovo’s server business, on a unit basis, is much smaller than NEC’s, but they’re strong in the Chinese market, particularly in government-related areas,” Yamamoto said. “We’ve got a much wider product lineup than Lenovo, so there’s a complementary relationship.”

NEC aims to increase sales of servers and software services by 6.5 percent in the next two fiscal years to 410 billion yen ($5 billion) in the period ending March 2013, the Tokyo-based company said in a statement. Operating profit at the business may rise to 20 billion yen from 11 billion in the 12 months through March, it said. The forecasts don’t take into account the possible deal on servers with Lenovo, Yamamoto said.

“The whole tie-up between the two probably won’t have that big an impact on either,” TIW’s Hattori said. “It’s not a huge positive, but doing it is better than not doing it.”

To contact the reporters on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net; Maki Shiraki in Tokyo at Mshiraki1@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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