* Lenovo shares' biggest 1-day drop in over 5 years
* Sony struggling with PC, TV business
* Lenovo declines comment on media report
(Adds Lenovo declining comment, analyst, share close)
By Denny Thomas and Clement Tan
HONG KONG, Feb 4 Shares in Lenovo Group Ltd
slumped more than 16 percent on Tuesday after a
weekend media report said the Chinese personal computer maker
was in talks with Sony Corp about a possible joint
venture to buy Sony's loss-making Vaio PC business outside
Speculation about the Sony joint venture comes after a
hectic two weeks of deal making by Lenovo, with the Chinese
company launching $5.2 billion worth of overseas acquisitions,
partly funded by its own stock. Lenovo's announcement last week
that it will buy Google Inc's Motorola Mobility handset
unit for $2.9 billion surprised some investors
and triggered a raft of analyst downgrades.
Lenovo declined to comment on Tuesday. Sony has said the
media report is inaccurate, but acknowledged it was looking at
various possibilities for Vaio.
Lenovo, the world's biggest PC maker, is expanding into the
fast growing smartphone business to offset sluggish PC demand.
Its purchase of the Motorola handset business is aimed at
challenging Samsung Electronics and Apple Inc
in smartphones, though there are doubts about how
quickly these acquisitions might pay off.
Late last month, Lenovo said it was buying International
Business Machines Corp's low-end server business for
Motorola Mobility's $915 million pre-tax loss last year is
not far short of Lenovo's annual pre-tax income, noted Jefferies
& Co, underscoring the financial stress the deal could have on
"The market's going to focus on the short-term impact on its
earnings, but both deals seem to fit very well with their longer
term strategy," said Erwin Sanft, Standard Chartered's Hong
Kong-based China equity strategist.
In the five trading days since Lenovo announced the IBM
deal, the Chinese firm has seen close to $3.8 billion wiped off
its market value.
Lenovo earns about 80 percent of its revenue from PCs and
has struggled to make inroads into the global smartphone market
due to a lack of patents and distribution network. The Motorola
deal would increase Lenovo's global smartphone market share to
above 6 percent, still well behind Samsung's 28.8 percent and
Apple's 17.9 percent, according to Lenovo and IDC.
"It took them a while, but Lenovo is one of the few
corporates to successfully elevate a China-only franchise to a
global one, and these deals would be very encouraging for Lenovo
bulls," Standard Chartered's Sanft said.
Lenovo shares closed down 16.4 percent - their lowest close
in nearly 10 months and the biggest one-day drop in over 5
years. The benchmark Hang Seng index fell 2.9 percent.
Sony, due to report its latest quarterly earnings on
Thursday, has been battling a challenging operating environment
in the PC and consumer electronics business. Losses in PCs and
televisions were a key reason behind Moody's Investor Services
decision to cut Sony's debt rating to junk status last week.
($1 = 7.7643 Hong Kong dollars)
(Additional reporting by Donny Kwok; Editing by Ian Geoghegan)