By Kana Inagaki And Juro Osawa
Lenovo Group /zigman2/quotes/205173342/delayed JP:6701 +2.19% Ltd. said it will invest $175 million in a personal computer joint venture with NEC /zigman2/quotes/205173342/delayed JP:6701 +2.19% Corp. that gives the Chinese company control of Japan's biggest PC maker.
The venture, in which Lenovo will hold a 51% stake, will help Lenovo crack the mature Japanese computer market as it looks to expand its global presence. For NEC, the deal allows the Japanese company to share the burden of investing in a competitive and marginally profitable PC business.
The deal comes as NEC also reported Thursday a loss for its fiscal third quarter as cautious Japanese firms trim their technology spending. However, Lenovo Chief Financial Officer Wong Wai Ming denied NEC's PC business is unprofitable.
"With the NEC partnership, we will achieve number one market share position in Japan," Mr. Wong said. "NEC is also a great consumer brand... This partnership will greatly enhance our brand image and enlarge our customer base."
Lenovo, which became a global player after buying the PC business of International Business Machines /zigman2/quotes/203856914/composite IBM -0.97% Corp. in 2005, held about 8% of the global PC market by unit shipments in 2009 according to research firm IDC. It was fourth behind Hewlett-Packard /zigman2/quotes/203461582/composite HPQ +1.07% Co., Dell /zigman2/quotes/203822527/composite DELL -1.19% Inc. and Acer Inc. of Taiwan.
NEC was the 12th largest player in 2009, with a global share of 0.9%, although it remains a leader at home with 18% of the market. Lenovo has about 5% of the Japanese market. The companies said they will keep their own brands.
NEC President Nobuhiro Endo said the tie-up with Lenovo will allow the company to focus on the global expansion of its information-technology business. A venture with Lenovo is also part of NEC's wider efforts to realign its operations.
The companies said they will establish a new company called Lenovo NEC Holdings B.V., which will be registered in the Netherlands. NEC will receive $175 million from Lenovo through the issuance of the Chinese company's shares.
Despite Lenovo's majority stake in the venture, NEC President Nobuhiro Endo rejected the view that NEC was letting Lenovo take over its PC business. "We will run this joint venture as equal partnership," he said.
Mr. Endo said the newly formed alliance has the potential to expand into other areas; the two firms could, for example, work on tablet computers together or cooperate in selling servers, he said.
Lenovo CEO Yang Yuanqing said, "I believe the two companies still have a lot of other areas where we can cooperate with each other."
As part of its efforts to focus its investment in its information and communication businesses, NEC last year merged its mobile-phone business with those of Hitachi Ltd. and Casio Computer /zigman2/quotes/202492162/delayed JP:6952 +0.77% Co. to create a single cellphone company. It has also spun off its semiconductor unit.
NEC said separately it logged a 26.53 billion yen ($322 million) loss for the fiscal third quarter ended Dec. 31, compared with a net loss of 9.61 billion yen a year earlier.
"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 .
Mr. Ono said 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 15 billion yen and an operating profit of 100 billion yen on revenue of 3.3 trillion yen.
Lenovo's Mr. Wong said NEC has been implementing efficiency measures in its PC business and is "on track to be profitable," he said on a conference call with reporters, without giving a specific timeline for when the unit would turn a profit.
Lenovo's filing on the deal with the Hong Kong stock exchange states that NEC unit NECP, which includes its PC business, had a net loss of 5.55 billion yen ($67.7 million) after taxes and special items for the financial year through March 2010.
Aaron Back contributed to this article.