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|January 27th, 2011, 01:20 PM||#11|
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Go..Lenovo! NEC Forms PC Joint Venture With Lenovo
(Combines NEC's earnings with news of joint venture, executive comments.)
By Kana Inagaki
Of DOW JONES NEWSWIRES
TOKYO (Dow Jones)--China's Lenovo Group Ltd. (LNVGY) and NEC Corp. (6701.TO) confirmed Thursday that they will form a joint venture in the personal-computer business as the industry becomes increasingly crowded with other devices including smartphones and tablets.
The partnership with Lenovo will allow NEC to concentrate its resources in key growth areas such as cloud computing while distancing itself from a marginally profitable PC business. For Lenovo, the deal would help to lower manufacturing costs. The deal comes as NEC also reported Thursday a wider-than-expected net loss for its fiscal third quarter as cautious Japanese firms trim their technology spending.
As part of the deal, the companies said in a statement they will establish a new company called Lenovo NEC Holdings B.V., which will be registered in the Netherlands. NEC will receive US$175 million from Lenovo through the issuance of the Chinese company's shares. Lenovo, through a unit, will own a 51% stake in the joint venture, while NEC will hold a 49% stake.
"The agreement with NEC is a perfect fit for our strategy. It reinforces our commitment to our core PC business while at the same time, providing important new opportunities for growth in Japan," Lenovo Chief Executive Yang Yuanqing said in the statement.
Lenovo held about 8% of the global PC market by unit shipments in 2009 according to research firm IDC, putting it in fourth place behind Hewlett-Packard Co., Dell Inc. and Acer Inc. (2353.TW) of Taiwan. NEC was the 12th largest player in 2009, with a market share of only 0.9%, although it remains a leader at home with 18% of the market. The two companies said they will keep their own brands and seek synergy by utilizing NEC's product development capabilities and Lenovo's procurement resources.
NEC President Nobuhiro Endo said the tie-up with Lenovo will allow the company to accelerate the global expansion of its information-technology business. A joint venture with Lenovo is also part of NEC's wider efforts to realign its operations.
As part of its efforts to focus its investment in its information and communication businesses, NEC last year merged its mobile-phone handset business with those of Hitachi Ltd. (6501.TO) and Casio Computer Co. (6952.TO) to create a single cellphone company. It has also spun off its struggling semiconductor unit.
NEC said separately it logged a Y26.53 billion net loss (US$320 million) for the fiscal third quarter ended Dec. 31, compared with a net loss of Y9.61 billion a year earlier. Operating loss widened to Y13.48 billion from Y7.53 billion. Revenue fell 13% to Y720.72 billion from Y825.36 billion.
"The appetite for IT capital spending among our domestic clients has not recovered as much as we had anticipated," said NEC Executive Vice President Takao Ono.
Ono acknowledged that it would be "extremely tough" for the company to meet its earnings targets for the full fiscal year ending in March, even as it maintained its forecast for a net profit of Y15 billion and an operating profit of Y100 billion on revenue of Y3.3 trillion.
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