By Yuzo Yamaguchi
TOKYO -- NEC Corp., Casio Computer /zigman2/quotes/202492162/delayed JP:6952 +2.07% Co. and Hitachi Ltd. have agreed to merge their mobile-phone manufacturing operations with the aim of reducing costs and pushing into overseas markets.
The integration will take place in April when the three companies will form a new joint venture called NEC Casio Mobile Communications, which will be Japan's second-largest handset maker by shipments after Sharp Corp.
The venture will be controlled by NEC, allowing the smaller partners, Casio and Hitachi, to keep their unprofitable handset units off their consolidated results. The merger is expected to cut development and production costs by integrating current manufacturing and research operations.
The agreement comes amid growing pressure on Japanese cellphone makers to regain momentum in the near-saturated domestic market. The group will seek growth in developing international markets such as China, where Sharp already sells several models.
"We should take a chance to expand our business overseas," said Akihito Otake , NEC's executive vice president.
By the fiscal year ending March 2013, the NEC-Casio-Hitachi alliance aims to sell 12 million handsets globally -- seven million in Japan and five million overseas -- to grab a 23% market share in Japan and make it the biggest supplier at home.
The combined operation would have had a domestic market share of about 16% at the end of June 2009, according to data from research and consulting company Gartner, trailing Sharp's 22% share of Japan's huge, but stagnating, market for mobile phones.
For its overseas strategy, the new venture will focus on the U.S. market first, where Casio Hitachi Mobile Communications, a joint venture between Casio and Hitachi, already supplies products to Verizon Wireless.
"We'll come up with high-end products because we can't compete with Nokia and Samsung" in low-end models, said Mr. Otake, referring to Finland's Nokia /zigman2/quotes/207421390/composite NOK -0.38% Corp., the world's largest mobile-phone maker by sales, and South Korea's Samsung Electronics Co.
NEC Casio Mobile Communications will be led by NEC, which will own a 66% stake initially, with Casio and Hitachi holding 17.34% and 16.66%, respectively.
NEC and Casio will help the new entity to raise its capital by four billion yen ($44.2 million) to five billion yen by June 2010. That will allow NEC to increase its stake to 70.74% and Casio to raise its ownership to 20%. As a result, Hitachi's stake will decrease to 9.26%.
"NEC will obviously want to strengthen its mobile business because they're focusing on the telecommunications business," said Haruo Sato , analyst at Tokai Tokyo Research Center Co. "For Hitachi, mobile is a noncore operation."
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