Lenovo to Buy Bulk of PC Joint Venture With NEC

Lenovo is spending $195 million to gain 95 percent of the 5-year-old Lenovo NEC Holdings as it looks to grow its standing in the PC market.

Lenovo laptop

Lenovo, the world's top PC maker, is moving to expand its influence in the market by buying the bulk of NEC's stake in a joint venture in Japan.

Lenovo will spend $195 million to buy 44 percent of NEC's share of Lenovo NEC Holdings, a joint venture launched five years ago to give the two companies more sway in the PC market in Japan and the region. After the deal, Lenovo will own 95 percent of the joint venture, with NEC retaining 5 percent. NEC announced the sale on its Website.

At the time the joint venture was created, Lenovo was the world's fourth-largest PC maker, while NEC was the top client vendor in a Japan market that included such vendors as Toshiba, Fujitsu and Sony, which has since spun out its Vaio PC business. Vaio now is a stand-alone PC company.

Despite the contraction in the worldwide PC market since late 2011, with shipments steadily declining over the past several years, Lenovo continues to see its PC business as foundational to its future. Over the past couple of years, Lenovo officials have looked to further diversify the company's portfolio—in 2014, the vendor spent almost $5 billion buying IBM's low-end x86 server business and the Motorola Mobility handset unit from Google—but have said PCs are still a core business.

According to the China Daily news organization, Lenovo Chairman Yang Yuanqing last month said that "the global PC market won't go down forever. I believe it will maintain at about 250 million units a year."

However, the market is expected to continue to struggle into next year. Analysts with Gartner and IDC said that in the first quarter of this year, PCs shipments declined 9.6 percent to 11.3 percent, with challenges ranging from the strong U.S. dollar and an inventory of aging systems in the channel to other upgrade programs taking priority over PC refreshes in the enterprise and the popularity of mobile devices like tablets and smartphones. IDC analysts last month revised their 2016 outlook for the market, saying the decline in shipments could hit 7.3 percent over last year, about 2 percent lower than original expectations.

Different vendors have reacted in different ways to the downward trend in PC shipments. Both Dell and Lenovo have continued to invest in their PC businesses, seeing them as foundational to their ambitions in other areas, such as the data center. However, Hewlett-Packard officials last year split the company in two to separate PCs from its enterprise efforts. The result was two new independent companies: Hewlett Packard Enterprise, which includes its enterprise IT solutions and services units, and HP Inc., which sells PCs and printers.

The Lenovo-NEC joint venture has become the top PC vendor in Japan, a market that has been in a state of flux. For several months earlier this year, there were reports that Toshiba, Fujitsu and Vaio—now majority owned by Japan Industrial Partners—were in talks to combine their respective PC businesses in a joint venture that would enable them to better compete with larger global players like Lenovo, HP and Dell. The idea was that a new vendor comprising the three companies' PC businesses would not only be a more significant player in the global and Japanese markets, but also would enable Toshiba, Vaio and Fujitsu to save money in everything from R&D to supply chains to production.

However, reports in April surfaced that the negotiations over the joint venture were on the verge of collapsing, with Vaio walking away from the talks and Fujitsu and Toshiba officials unable to agree on which company would own a majority stake in the company.