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TOKYO/DAVOS, Jan 27 (Reuters) – Chinese group Lenovo
(HK:0992), the world’s No. 4 PC brand, is to invest $175 million
in a joint venture with Japanese company NEC (T:6701) to sell
PCs in Japan, it said, to help it outpace global market growth.

The new company will also sell personal computers to the
overseas Japanese population, and has no plans to sell
NEC-branded computers on Lenovo’s home turf in China, NEC chief
executive Nobuhiro Endo said on Thursday.

Lenovo will own 51 percent of the joint venture with the
balance belonging to NEC which will have an option to sell that
stake to Lenovo after five years.

"It is probably NEC’s clients and the additional scale that
Lenovo is looking for," said Vincent Chen, an analyst with
Yuanta Securities in Taipei. "Most of NEC’s PC production is
outsourced, so this could help give Lenovo more bargaining power
with the contract manufacturers."

NEC is Japan’s biggest PC brand with an 18 percent market
share, according to research firm Gartner. Many foreign players,
such as HP (NYSE:HPQ), have tried to break into Japan but failed to
beat companies such as Toshiba (T:6502) on their home turf.

The deal marks a second attempt by Lenovo to expand in
mature markets, after its 2005 purchase of U.S. group IBM’s
(NYSE:IBM) PC unit helped bring its name to the global stage.

PC companies mostly work on razor-thin margins that are
improved only by cost savings and economies of scale. Lenovo had
an operating profit margin of about 1.8 percent in the last
reporting quarter, while bigger rival Acer (TW:2353) clocked in
at 2.9 percent.

The two companies may work together to develop smartphones
jointly, Lenovo chief executive Yang Yuanqing told reporters.
"The two companies have a lot of areas to cooperate in the
future," Yang said. "This is the first step."

Others, such as HP and Dell (NASDAQ:DELL), have also turned to
higher-grossing data services and mobile devices such as tablet
PCs and smartphones, which typically command double-digit gross
margins, to shore up earnings.

BEATING MARKET GROWTH

Lenovo is aiming to outpace industry growth worldwide in PC
shipments as it continues to grow opportunities globally, chief
operating officer Rory Read said in an interview on the
sidelines of the World Economic Forum in Davos.

"Our goal is to outpace the market," Read told Reuters.

PC sales have been hurt by the global popularity of tablet
PCs such as Apple’s (NASDAQ:AAPL) iPad, which was in full view at the
annual gathering of the world’s economic and political elite.

Tablet computers will likely represent 10-15 percent of the
PC market this year, Read said during an interview with Reuters
Insider. Lenovo itself has previously said it will launch a
tablet called LePad in China during the first half.

The iPad has spawned a new market for the once-defunct
tablet PC segment, with over a dozen touchscreen tablets
expected to be launched this year from brands such as Blackberry
maker Research in Motion (TO:RIM) and Dell.

Worst hit by the new phenomenon have been Taiwan-based Acer
and Asustek (TW:2357), having bet heavily on the low-cost
netbook PC and seeing sales slowly drying up as consumers move
towards tablets.

Global PC shipments excluding tablets rose 2.7 percent in
the fourth quarter, weaker than the 5.5 percent originally
expected by research firm IDC. PC shipments may also fall below
IDC’s forecast of 10 percent this year from 346 million units in
2010.
(Writing by Kelvin Soh in Hong Kong; Editing by Dan Lalor)