Lenovo Shares Take a Hit as NEC Backs Out of Joint Venture

With each quarter that passes, it's clear Lenovo knows how to run a business. A little less than three weeks ago, Lenovo announced it had raked in more than $8 billion in revenue and $141 million in profits during its first financial quarter, representing year-over-year gains of 35 percent and 30 percent, respectively. The company is outpacing the competition and has gone from holding a 7 percent share of the global PC market in 2006 to 14.7 percent currently, trailing HP by a miniscule 0.2 percent. The point of all this is to not read too much into Lenovo's declining stock price.

Oh, did we mention? Lenovo's shares are down more than 8 percent today, the result of a knee-jerk reaction by investors spooked by the fact that NEC just sold its entire stake in the PC maker to raise cash. Lenovo issued NEC 281.1 million shares in July 2011 in exchange for a 51 percent stake in a joint venture between the two firms, with a clause that NEC couldn't sell them until two years after the deal closed. Lenovo waived the restriction on Tuesday, and NEC cashed out for 18 billion yen (US$229.62 million). Lenovo isn't sweating it.

Lenovo Sign
Image Source: Flickr (Cory M. Grenier)

"In reality, NEC could sell those shares after two years anyway as per contract. All we have done is to let them do it 10 months earlier. This has no bearing on our joint venture," Lenovo's Roderick Lappin explained.

Unlike Lenovo, NEC's balance sheet isn't in great shape. The company posted an annual loss for the third time in four years and plans to eliminate 10,000 jobs to stop the bleeding. Shares of NEC have fallen by nearly a third this year as the company looks to raise cash, so selling its stake in Lenovo isn't a big shock, even if investors are reacting like it is.
Tags:  Lenovo, NEC, Business