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Lenovo buys controlling stake in Fujitsu PC unit; second quarter profit drops

11/02/2017 | 07:12am EDT
A Lenovo logo is seen at the computer in Kiev

HONG KONG (Reuters) - Lenovo Group has agreed to buy a majority stake in Fujitsu Ltd's personal computer unit for up to $269 million (£204.8 million), in a bid to corner a larger share of a market that is battling weak sales as more people switch to mobile devices.

Having lost the world's largest PC maker crown to HP Inc this year, Lenovo has been looking for ways strengthen its core business. Weakness in this segment contributed to a profit decline over July-September, after pushing it into the red for the first time since 2015 in the previous quarter.

"PC is still core of Lenovo. It is still a very decent market ... commercial customers will still use PC," Lenovo Chairman and CEO Yang Yuanqing said.

"I think it is worth investing in this area."

Lenovo said it would pay 17.85 billion yen (£118.3 million) in cash, and 2.55 billion-12.75 billion yen based on performance to 2020, for a 51 percent stake Fujitsu Client Computing Ltd.

"Lenovo has been trailing HP at the global level by about 1-2 percentage points of share for the past two quarters, so adding Fujitsu to the mix in theory helps close that gap," said Bryan Ma, analyst at industry consultancy IDC.

"Lenovo gets to bolster its position in Japan, where it currently already leads," he said, adding that in terms of scale, Fujitsu stands to gain more. "Fujitsu is too small on a global level to get (Lenovo) much scale."

Lenovo and Fujitsu had first announced in October 2016 that they were exploring cooperations in their PC business.

News of the deal drove up Lenovo shares by as much as 5 percent on Thursday to their highest since August, but lower profits over July-September kept a lid on gains.

PC MARKET TROUBLES DENT PROFITS

Lenovo posted a profit of $139 million (£105.1 million) for the second quarter, versus $157 million a year ago. A taxation gain of $118 million helped earnings beat a consensus of $44 million.

Its revenue was $11.8 billion, compared with $11.2 billion last year and analysts' estimate of $11.3 billion.

While Lenovo's global PC unit shipments rebounded 17 percent from the previous quarter, its PC market share over six months dropped 0.2 percentage point to 21 percent, it said, without revealing shipment numbers.

PC makers around the world are struggling given changing demand trends, with data from Gartner showing that worldwide shipment of personal computers fell 3.6 percent from a year ago in the quarter ended September, the 12th such decline in a row.

Lenovo warned market conditions would remain challenging in the short term, but said component costs would likely stabilise.

CEO Yang said it was still Lenovo's target to turn around its struggling mobile business by the end of the financial year in March. The segment reported a narrower operating loss before taxation of $261 million for the second quarter.

Lenovo shares closed up 2.18 percent, versus the broader market that was down 0.26 percent.

(Reporting by Sijia Jiang; Editing by Himani Sarkar)

By Sijia Jiang


© Reuters 2017
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