HPQ HP Inc

By Takashi Mochizuki 

TOKYO -- Fujitsu Ltd. said Thursday that it was in talks to sell its personal-computer arm to industry leader Lenovo Group Ltd., a move that would accelerate the withdrawal of once-mighty Japan electronics makers from the mass-market PC business.

Fujitsu has been trying to strip out noncore businesses to improve profitability, and its shares closed up 5.7% in Tokyo trading as investors welcomed the likely offloading of a loss-making unit.

Beijing-based Lenovo accounted for 21.1% of global PC shipments in the second quarter, followed by HP Inc.'s 20.7%, according to IDC, while Fujitsu trailed far behind in ninth place with a share of 1.1%.

Lenovo already acquired the PC business of another former Japanese giant, NEC Corp., in 2011, and it took over the ThinkPad PC business from International Business Machines Corp. in 2005.

A person familiar with the discussions said the Lenovo-Fujitsu deal could be structured similarly to the NEC deal. Lenovo would buy the majority of Fujitsu's PC subsidiary, which was spun off from the Fujitsu parent in February, and Lenovo would lead the business with Fujitsu retaining a minority stake, this person said.

In a statement following Japanese reports about the deal, Fujitsu said: "We are considering various options for the PC unit, including a possible deal with Lenovo."

The global PC market has been shrinking as more consumers use smartphones and tablets for internet access and communication. Global PC shipments are expected to decline further this year to 256 million units -- down 30% from five years earlier -- according to IDC.

Deal-making in the area has been active as the surviving PC makers seek to reduce costs and branch out. Lenovo bought Motorola Mobility in 2014 to improve its mobile presence, but its smartphone business has since struggled.

NEC, Fujitsu and other Japanese makers made a push for global domination in the 1990s, taking advantage of their control of what was then a fast-growing domestic market. "Another Japanese invasion is looming," wrote The Wall Street Journal in 1996, reporting on big investments by NEC, Fujitsu, Toshiba Corp. and Sony Corp. to sell PCs in the U.S.

But those hopes faded long ago amid competition from less-expensive Chinese brands, and Fujitsu's last remaining bastion was its shrinking home market of Japan.

Fujitsu Chief Executive Tatsuya Tanaka, facing pressure from investors to improve profitability and slim down its business, has tried to focus on higher-margin service businesses such as organizing banks' computer systems or providing data to help farmers grow crops more efficiently.

"The deal is a win-win," said Atsushi Osanai, a former Sony employee who is now a visiting fellow at Harvard University. "Fujitsu would be able to keep the brand name while Lenovo could expand its presence in the enterprise business where the Japanese company is strong."

Investors welcomed the Lenovo deal as a sign that Fujitsu was taking steps toward "selection and concentration," said Yoshinori Ogawa, a strategist at Okasan Securities.

Fujitsu already tried earlier this year to unload the PC business in a proposed three-way merger with Toshiba's Dynabook unit and Vaio Corp., the former Sony PC arm that is now owned by a private-equity fund. The plan fell apart because none of the three was ready to take leadership.

--Juro Osawa and Kosaku Narioka contributed to this article.

Write to Takashi Mochizuki at takashi.mochizuki@wsj.com

(END) Dow Jones Newswires

October 07, 2016 02:47 ET (06:47 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.