NEC Talks With Lenovo Over Smartphone Biz Stall: Reports

The tech giant may exit the smartphone business after negotiations with Lenovo break down over issues of majority ownership and patents.

NEC officials reportedly are considering shuttering the company's smartphone business after a deal with Lenovo that had been in the works for month apparently fell through.

According to reports from Reuters and the Japanese daily newspaper Nikkei, talks between the two companies, which began earlier this year, are hung up over debates regarding which company would be the majority owner of a joint venture and patents.

Citing an unnamed source, Reuters said NEC is looking at other options, including finding another partner other than Lenovo and getting out of the smartphone business completely, focusing its efforts instead on its feature phone portfolio.

According to the Nikkei and Reuters reports, NEC officials had proposed Lenovo taking a majority stake in NEC Casio Mobile Communications, the subsidiary that makes smartphones and includes Casio and Hitachi. The tech giant, which holds about a 70 percent stake in NEC Casio, is looking to remove itself from the highly competitive smartphone business in hopes of saving money.

NEC at one point was among the largest smartphone makers in the Japanese market, but now its share stands at about 5 percent. The business has been losing money for the past two years.

Lenovo, the world's largest PC maker, already partners with NEC in the PC space. Now it is trying to grow its share in the crowded smartphone market, where Apple and Samsung are the dominant players and a number of other vendors—such as HTC and Google's Motorola business—make devices that run Google's Android mobile operating system.

At the same time, BlackBerry—once the dominant mobile phone maker—is trying to turn around its struggling business with its BlackBerry 10 platform and devices like the Z10. In addition, Nokia is pinning its hopes on Microsoft's Windows Phone 8 operating system.

At the 2013 Consumer Electronics Show in January, Lenovo announced six new phones, including the flagship K900, which is powered by Intel's low-power Atom chips and runs Android. Lenovo has been among the relatively few smartphone makers to adopt Atom for any of its devices.

Lenovo also has been the subject of occasional rumors that have the device maker interested in buying BlackBerry.

The company in the second quarter overtook Hewlett-Packard as the world's top vendor in a PC market that continues to see sales slow. PC sales are falling victim to increased interest in such devices as tablets and smartphones, according to IDC and Gartner analysts. However, Lenovo CEO Yang Yuanqing said his company is not shying away from the space.

"The PC market is changing, but it still represents a $200 billion opportunity," Yuanqing said in a statement. "Lenovo can capture more of this opportunity ... because we have built a great balance over the last four years. … Balancing growth and profitability across our entire PC business is our focus going forward."

Lenovo is looking to extend its reach in a number of other areas, including smartphones and servers. In the server space, the company last year announced an alliance with storage giant EMC to create a joint venture—now called LenovoEMC—to build x86-based systems that work natively with EMC storage offerings.

In addition, networking vendor Extreme Networks on July 17 announced a converged infrastructure partnership with Lenovo where the systems maker and its partners will resell Extreme's Open Fabric Ethernet switches with its ThinkServer boxes and a storage solution from one of Lenovo's partners.