Lenovo tipped to take over Fujitsu's PC business

Industry consolidation could take the Chinese technology giant’s share in Japan’s personal computer market to 40 per cent

PUBLISHED : Thursday, 06 October, 2016, 6:10pm
UPDATED : Thursday, 06 October, 2016, 10:59pm

Lenovo Group looks poised to expand its operations in Japan, the world’s third-largest information technology market, as Fujitsu contemplates divesting its personal computer business to the Chinese hi-tech giant.

In a statement released on Thursday, Fujitsu said it was “considering various possibilities, including what is being reported” amid widespread media speculation this week in Japan of such an acquisition by Hong Kong-listed Lenovo.

The Tokyo-based company and Lenovo, the world’s biggest personal computer supplier, plan to reach a deal this month, the Nikkei financial newspaper reported earlier on the same day, without citing a source.

It would not be without precedent for Fujitsu to give the business away to Lenovo, or even pay Lenovo to take it
Alberto Moel, senior analyst, Bernstein Research

Lenovo spokesman Raymond Gorman said the company does not comment on rumours.

In February, Fujitsu spun off its personal computer and smartphone businesses into two separate companies, Fujitsu Client Computing and Fujitsu Connected Technologies.

That split was apparently geared towards sharpening the 81-year-old company’s focus on its higher-margin businesses, such as information technology services and computer servers.

Bernstein Research senior analyst Alberto Moel said one acquisition scenario may involve Fujitsu transferring its personal computer design, development and manufacturing operations to a new Lenovo-led joint venture.

“Another option involves Lenovo taking a majority stake in Fujitsu’s personal computer subsidiary. About 2,000 Fujitsu employees would likely move under Lenovo’s umbrella,” Moel said.

He estimated that Lenovo would have a 40 per cent share of Japan’s personal computer market if that merger pushes through.

With operations in more than 160 countries, Lenovo has struggled in the past few quarters as a result of a tepid global personal computer market and increased competition in smartphones, as well as falling commodity prices and weak international currencies.

The company, however, remained the personal computer industry’s global leader in the quarter to June, with shipments of 13.2 million units and a 21.2 per cent market share, according to research firm IDC.

Moel said a deal with Fujitsu would enable Lenovo to “continue gaining share in the worldwide personal computer market”.

“Our view on whether this deal is positive or not will hinge on the terms,” he said. “It would not be without precedent for Fujitsu to give the business away to Lenovo, or even pay Lenovo to take it.”

He estimated that Fujitsu sold 1.7 million personal computers in the first half of this year, mostly in Japan, which yielded US$1.9 billion in revenue.

“That represents about 15 per cent of Lenovo’s nearly US$14 billion PC sales globally in the same period,” he added.

Lenovo recently expanded its operations in Japan when it paid US$195 million in July to acquire a further 44 per cent interest in Lenovo NEC Holdings, a joint venture with NEC Corp that has been the country’s biggest personal computer supplier.

Lenovo originally invested US$175 million for a 51 per cent stake in that venture when it was established in 2011. NEC retained a 5 per cent interest in the venture after the recent transaction.

Yang Yuanqing, Lenovo’s chairman and chief executive, said in July that the company was “working to keep the PC business as our cash cow”.

“I believe more players will leave the PC industry, so we will take advantage of this consolidation,” Yang said.

Shares of Lenovo were up 1.54 per cent to close at HK$5.26 in trading on Thursday.