October 27, 2017 6:02 am JST

Fujitsu-Lenovo PC deal in home stretch after long delay

Slow going on reforms holding Fujitsu back in fast-moving tech world

FUMIE YAKU, Nikkei staff writer

Fujitsu has insisted that jobs at its personal computer factory in western Japan be protected if its PC business merges with Lenovo's.

TOKYO -- Fujitsu and Lenovo Group are finally close to an agreement to integrate their personal computer operations after a year of talks, a sluggish pace that has done the Japanese company no favors given its urgent need to rebuild around new growth drivers.

The proposed merger was addressed during a news conference Fujitsu held here Thursday to announce earnings for the six months through September. "We're into stoppage time," said Hidehiro Tsukano, a vice president, referring to the extra minutes tacked on to the end of a soccer game.

Asked when a final agreement might be signed, Tsukano said he hoped to take it easy on the Labor Thanksgiving Day holiday late next month, hinting that a deal is expected before then.

It has been a long time coming. Fujitsu and Lenovo first announced talks on merging their PC operations back in October 2016. With the Japanese market shrinking, Fujitsu likely decided it was necessary to partner with Lenovo to ensure the survival of the business. But the two sides have failed to seal a deal, fueling speculation in industry circles that negotiations fell apart.

The unusually long delay owes to uncertainty over how Fujitsu's PC business would fit with an existing joint venture between Lenovo and NEC. The 2011 tie-up shifted some production, including of Lenovo's popular ThinkPad laptop line, and repairs to NEC facilities. The moves streamlined the duo's operations and created a clear division of labor.

Adding Fujitsu to the mix would boost the alliance's share of the Japanese market to around 40% and provide more opportunities to cut costs. But Fujitsu insists that any deal protect the jobs of the roughly 900 people employed at its PC unit.

Japan's only two remaining PC factories of any significant size are NEC's Yonezawa production base in northern Japan, which makes high-performance computers, and a Fujitsu plant in the western prefecture of Shimane. The two facilities can turn out an estimated 3 million and 2 million PCs annually, respectively. But the Japanese market has plateaued at around 10 million PCs a year, with high-end models making up just a tenth or so of that figure.

"In terms of scale alone, having two plants is clearly excessive," said Masaki Nakamura, an analyst at the MM Research Institute.

The talks likely also involved a tug of war between Fujitsu, which wants to maintain its FMV brand of PCs, and Lenovo, which seeks to streamline global operations.

But the biggest obstacles to a deal seem to have been resolved. The two sides have firmed up a broad agreement covering such issues as job protections and brands, a top Fujitsu executive said. Lenovo likely agreed to keep the Shimane factory, though guaranteeing its future will be difficult given the outlook for the market.

Fujitsu is working to shed its low-margin hardware operations and focus on mainstay information technology services. But finding a buyer for its mobile phone subsidiary will likely take time, and many noncore businesses such as chips and electronic components remain on its books. President Tatsuya Tanaka said reform is six months to a year behind schedule -- a long time in the fast-changing IT industry.

Fujitsu Ltd.

Japan

Market(Ticker): TKS(6702)
Sector:
Industry:
Technology Services
Information Technology Services
Market cap(USD): 15,262.03M
Shares: 2,070.01M

NEC Corp.

Japan

Market(Ticker): TKS(6701)
Sector:
Industry:
Electronic Technology
Electronic Equipment/Instruments
Market cap(USD): 6,726.28M
Shares: 260.47M
Asia300

Lenovo Group Ltd.

Hong Kong

Market(Ticker): HKG(992)
Sector:
Industry:
Electronic Technology
Computer Processing Hardware
Market cap(USD): 6,315.33M
Shares: 11,108.65M

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