Lenovo in talks for joint venture, possibly to shore up smartphone business

Lenovo has issued a statement following reports suggesting the company is in talks with NEC

Lenovo is in preliminary negotiations to start a joint venture with an unspecified party, the company said, setting off speculation that the company could be looking to bolster its expanding smartphone business.

The Chinese PC maker issued the statement on the Hong Kong stock exchange, after reports emerged that Lenovo was in talks with Japan's NEC to form a joint venture in the smartphone business.

While Lenovo's statement confirmed the company was interested in a joint venture, it stopped short of naming what the business deal would concern. Lenovo declined to offer further comment.

As for NEC's smartphone business, "We are considering different options for the business but have no official announcement to make," said NEC spokesman Joseph Jasper in Tokyo.

Lenovo is the second-largest PC vendor, behind Hewlett-Packard, and in recent years it has struck partnerships to bulk up its business in certain regions and product areas. In 2011, the company formed an earlier joint venture with NEC in 2011 to develop and sell PCs and tablets to Japan. Then a year later, it formed another joint venture with EMC to sell storage systems to small and medium-size businesses.

Lenovo's new attempt at another joint venture could be aimed at supporting its smartphone business, according to analysts. The PC maker is vying to surpass Samsung Electronics to become the biggest handset vendor in China, and last month Lenovo's CEO said the company would enter the U.S. smartphone market within a year.

"It looks like Lenovo is growing really big in China, so they do need a lot of resources," said Teck Zhung Wong, an analyst with IDC. "They have expanded into other markets like the Philippines, Vietnam. They also want to take a stab at the U.S. market. So it looks like they have a lot on their plate."

But how an NEC joint venture over smartphones will help Lenovo is still unclear. NEC is better known as a PC vendor, but its smartphone business has failed to take off in Asia, Wong said. At the same time, foreign tech firms have tended to struggle in the Japanese market, he added.

"In manufacturing, they [NEC] might have something there that could improve the quality of Lenovo's products," Wong said. "But again, we're not sure in which direction this is going."

NEC has made it clear that it is open to partners to boost its mobile handset business, which sold only 2.9 million units in the year period through March. In a business plan announced in April, the company said it will actively consider and implement partnerships to increase its global competitiveness.

It sells only a tiny fraction of its handsets abroad, and its Japanese market share lags behind local rivals such as Sharp and Sony, as well as foreign competitors like Apple. The company had less than an 8 percent share of the local market last year, according to data from data vendor IDC.

"When volume reduces it becomes difficult for the business," said NEC's Jasper.

NEC does have attractive technology. Its "Medias W" smartphone, released in Japan in April, has drawn attention in the country for its two 4.3-inch screens, which can flip open to form a large tablet-like display.

Any deal would probably involve other Japanese firms as well. NEC owns 70 percent of its mobile division, in which Casio and Hitachi hold smaller shares.

As for Lenovo, it's not the first time rumors have swirled around possible acquisition targets to help its smartphone business. Earlier this year, reports emerged that Lenovo might also be interested in buying smartphone maker BlackBerry.

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