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Business

Fujitsu takes the long road with post-hardware pivot

Fujitsu's PC business has been foundering in recent years.

TOKYO -- The planned handover of Fujitsu's personal computer business to China's Lenovo Group will take a load off of the Japanese company's shoulders, yet much work remains in its move from hardware to services.

The company traveled a long and winding path to this point. Top officials at both Toshiba and Japan Industrial Partners, which formed Vaio from Sony's PC business in 2014, fumed early this year as Fujitsu abruptly balked at a three-way merger proposal. The company had been amenable to the idea until December, only to then refuse to shutter any plants and argue that the would-be partners were underestimating its assets. Toshiba and others could not win Fujitsu over, and the negotiations broke down.

The PC business has been a concern for the company for the past four or five years as the rise of smartphones has eroded demand. Fujitsu ranked second in Japan last year but accounted for less than 1% of the global market. The business lost more than 10 billion yen ($96.2 million) in fiscal 2015.

Yet Fujitsu failed to take any decisive steps. On numerous occasions, merger talks with peers went nowhere as the company refused to budge on demands. Recent negotiations with Hewlett-Packard ran aground over HP's plans to downsize the business.

President Tatsuya Tanaka, who took the helm in June of last year, said Fujitsu will concentrate on high-margin information technology services, looking for opportunities in such areas as the "internet of things" and large-scale data transfer. Restructuring the PC business had been a top priority in this shift away from hardware. Yet the company lost time with its insistence on finding a domestic partner.

Reform was likely also delayed by Fujitsu's equity ratio of more than 24%, which may have fostered complacency that the company was not in danger. But its fiscal 2015 operating margin clocked in at just 2.5%. "We can't compete globally if our profit margin isn't at least 10%," Tanaka said.

Fujitsu's September agreement to sell a car navigation system subsidiary to partner Denso underscored this anxiety. The company still has many businesses that seem to need work, including mobile phones, electronic components and chips.

IBM undertook radical restructuring in the 2000s, unloading operations in hard-disk drives, PCs and digital printers while earnings were still solid. Fujitsu waited until it was already feeling the pain of leaner profits. While the talks with Lenovo represent progress, more will be needed before Tanaka's reform drive can be deemed a success.

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