NEC, Lenovo tie up in mobile market

NEC, Lenovo tie up in mobile market
PHOTO: NEC, Lenovo tie up in mobile market

NEC Corp. is in final talks with Chinese personal computer maker Lenovo Group Ltd. to jointly set up a new mobile phone company, which may accelerate additional restructuring efforts in the Japanese mobile phone industry.

Many domestic firms have been suffering from poor business results in the face of strong competition from abroad.

NEC operates its cell phone business through NEC Casio Mobile Communications Ltd., which it established together with Casio Computer Co. and Hitachi Ltd. in 2010. NEC shouldered 70 per cent of all capital requirements for the deal in an attempt to turn around its business.

Observers believe the latest tie-up is aimed at restructuring NEC's sales division through joint efforts in component procurement and development and production of mobile phones with Lenovo, the largest PC maker in China. The new company is expected to launch sometime from the end of this month.

Lenovo, which has the second-largest share of the Chinese smartphone market, is perceived as wanting to expand its smartphone sales by taking advantage of NEC's technological capabilities, in light of the Chinese firm's slowing PC sales.

NEC and Lenovo first began cooperating in 2011 with the integration of their PC businesses in Japan.

NEC was the largest mobile phone company in Japan by fiscal 2004, but has been suffering from poor business results in recent years, and now has a market share of less than 10 per cent.

Domestic development lagged

NEC's latest venture is believed to be motivated by moves by NTT Docomo Inc. and other domestic mobile phone companies, which have reduced the number of mobile phone models their services support. The firm is also up against intensified competition with cell phone companies overseas.

It is expected that other domestic mobile phone companies will also be forced to make tough managerial decisions to survive in the market. Measures could include integration of their businesses with rival firms or withdrawal from the market altogether.

There were 11 mobile phone companies in Japan during the first half of the 2000s, but that number has nearly halved.

The decline can be attributed to firms' lethargic pace of development. Mobile phone companies continued to manufacture existing models catering to domestic services, such as i-mode launched by NTT Docomo, even as smartphones were taking hold in the market.

After the domestic cell phone market reached the point of saturation, Japanese "Galapagos models," a reference to their isolation from world markets, began suffering from sluggish sales in the face of strong international competition.

Docomo campaign hurting all

What is believed to be adding insult to injury is "Docomo shock," brought about by NTT Docomo's promotional campaign this summer.

The carrier has begun offering up to about 20,000 yen (S$252) in discounts for customers who trade in their cell phones for a Sony Xperia A or Samsung Galaxy S4.

NTT Docomo President Kaoru Kato said the company is using the promotion to better compete with KDDI Corp., the carrier of au mobile phone services, and SoftBank Mobile Corp., both of which sell Apple Inc.'s popular iPhone.

As a result of the campaign, all mobile phone companies except for Sony and Samsung are suffering from dwindling sales, since their products now seem relatively expensive.

According to market research firm BCN Inc., Xperia A was the most widely sold mobile phone model during the period from May 20 to 26, followed by Galaxy S4.

A Sharp model was ranked 10th on the list of most popular handsets and the second-best selling model among Japanese cell phones.

KDDI has also limited the new cell phone models it is featuring this summer to four made by Sony, Sharp, Kyocera and Taiwan's HTC.

As the cell phone companies seem to have selected only certain mobile phone manufacturers to do business with, a senior official of an excluded domestic maker said he feels suddenly betrayed by the companies, despite their long-term working relationship.

Market withdrawals looming?

With no growth expected in the domestic market, Fujitsu and Kyocera plan to break ground overseas.

Fujitsu will sell smartphones developed for middle-aged and older customers in France starting in mid-June. It will also seek expansion of its businesses in other European nations.

Kyocera has boosted shipments to US and Canadian telecommunications firms.

However, except for Sony, Japanese makers still do not have much of a presence in the global market, where Samsung and Apple enjoy the lion's market share. It will not be easy for domestic manufacturers to stage a turnaround under current conditions.

Thus it is possible some firms will withdraw from mobile phone operations in the future. NEC is said to be considering cutting back its involvement in the cell phone business by letting Lenovo take over operations of their joint venture after its creation.

Panasonic is also studying ways to restructure its mobile phone operations, including the possibility of spinning off the unit.

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