Lenovo shares dive on Sony PC buy report, downgrades

NDTV Profit Desk

04 Feb 2014, 09:56 AM IST

Shares in Lenovo Group Ltd fell by as much as 15 per cent on Tuesday after a weekend media report said the Chinese personal computer maker was in talks with Japan's Sony Corp about a possible joint venture to buy Sony's loss-making Vaio PC business overseas.

Speculation about a Sony joint venture comes after a hectic two weeks of deal making by Lenovo, with the Chinese firm announcing $5.2 billion worth of overseas acquisitions, partly funded by its own stock. Last week's announcement by Lenovo 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, the world's biggest PC maker, is keen to expand in to the fast growing smartphone business as a way to offset sluggish demand for personal computers. The firm's recent deals are aimed at challenging Samsung Electronics and Apple Inc in smartphones, though there are doubts how quickly these acquisitions might pay off.

"The Motorola Mobility acquisition is a correct move, but will lead to a multi-year negative impact on earnings. The market is overly optimistic on IBM's x86 server acquisition," broker Jefferies & Co said in a report.

In the five trading days since Lenovo said it was buying International Business Machines Corp's low-end server business for $2.3 billion, Lenovo has seen close to $3.7 billion wiped off its market value.

At 0349 GMT, Lenovo shares were down 14.5 per cent, heading for their biggest one-day loss since plunging 26 per cent on January 8, 2009. The benchmark Hang Seng index was down 2.4 per cent.

Sony has said the media report is inaccurate, but acknowledged it was looking at various possibilities for Vaio.

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.

Lenovo could not be reached for an immediate comment on the Sony venture report.