* Lenovo says in talks on smartphone venture, aims to boost
* NEC, Lenovo in detailed discussions on venture -source
* Lenovo marketing new bond issue to fund working capital,
By Lee Chyen Yee and Umesh Desai
SINGAPORE/HONG KONG, June 4 China's Lenovo Group
Ltd, the world's No.2 PC maker, is in detailed
discussions on a smartphone venture with NEC Corp, a
Japanese partner in PCs whose mobile business is faltering, as
it eyes partnerships and acquisitions to expand in high-growth
Lenovo has been aggressively forging deals over the past
eight years to gain prominence in PCs, and that strategy is now
shifting to smartphones, tablets and enterprise computing as PC
Lenovo CFO Wong Wai Ming and other executives met on Tuesday
with investors in Singapore to drum up interest in a bond issue
that investors say could raise $500 million or more and help to
fund a renewed acquisition drive, possibly including IBM Corp's
low-end server business.
"It has significant equity and is a net cash company. They
can easily raise $3 to $4 billion for acquisitions, including $1
to $1.5 billion debt," said analyst Warren Lau of Maybank Kim
Lenovo said on Tuesday that it was in talks over a
smartphone venture, without naming its potential partner, while
a source familiar with the situation said NEC and Lenovo had
moved into detailed discussions on a joint venture although
nothing had been finalised.
NEC has been in talks with Lenovo since early this year on a
possible sale or tie-up involving its mobile unit, according to
media reports and a source familiar with the discussions.
An NEC spokesman declined to comment on Tuesday on the
possibility of a mobile joint venture with Lenovo but
acknowledged the troubles that unit is facing.
"Our mobile phone business is in a difficult state and we
acknowledge that we need to decide on a direction for the
business. For that, we are considering various opportunities."
Lenovo, which is nearly neck-and-neck with Hewlett-Packard
Co as the top global PC maker, has spent billions of
dollars over the past few years to strengthen its personal
computer business. It purchased Brazilian electronics maker CCE
last year, Germany's Medion in 2011 and IBM's PC business in
PARTNERSHIPS AND ACQUISITIONS
Lenovo will finish up its investor roadshow for its
first-ever global bond on Wednesday in London, after which it
will decide whether to go ahead with the issue, and then set the
size and terms.
Like other tech companies, it wants to take advantage of low
interest rates and has said it will use the proceeds for working
capital, strained by the move into consumer electronics, and for
acquisitions, although it has given no details.
The company is cash-rich, with free cash flow around $1.6
billion at the end of 2012, but it would still need to raise
funds for a big acquisition. IBM is seeking $5 billion or more
for its low-end server business, according to media reports, but
Maybank's Lau said Lenovo should pay no more than $4 billion.
"The IBM server acquisition makes a lot of business sense,"
"The enterprise business is growing at double-digit rates
while the PC business is stagnating and as a result of this
possible buyout Lenovo's exposure to PCs will fall to 70 percent
from 80 percent."
Under an aggressive expansion drive led by Lenovo Chairman
and CEO Yang Yuanqing, 48, Lenovo has grown into the
second-largest smartphone maker in its home market in China.
Apart from NEC's mobile phones and IBM's low-end servers,
Lenovo has been rumoured in the market over the past year to be
interested in acquiring Nokia Oyj and BlackBerry
Jefferies analyst Ken Hui said, however, that security
concerns that have dogged Chinese telecoms deals in North
America may compel it to seek a partnership arrangement with
BlackBerry, while he considered a Nokia deal unlikely given the
NEC, once a top Japanese electronics conglomerate that was
its biggest PC maker and a mobile phone leader, has over the
last five years racked up nearly 400 billion yen ($4 billion) in
cumulative net losses while revenues sank more than 30 percent.
It has sold off a mobile retail and services unit, which was
profitable, for $800 million, but analysts see the mobile phone
business, with shrinking sales and a market share now less than
5 percent in Japan, as a burden that the company is keen to
unload and would be unlikely to fetch more than $100 million.
NEC laid off 10,000 people in the last fiscal year to March
and received $1.3 billion in subordinated loans from lenders in
April to restructure its lossmaking units.
Lenovo's shares rose nearly 4 percent in early Tuesday trade
to their highest in more than two months before ending up 3.3
percent at HK$8.08, compared with a flat benchmark Hang Seng
Index. NEC's Tokyo shares fell as much as 4 percent
before ending down 0.4 percent at 230 yen, underperforming the
Tokyo benchmark Nikkei average's 2.1 percent rise.