Japan's Toshiba, Fujitsu in talks to merge loss-making PC units - sources

By Makiko Yamazaki and Reiji Murai

TOKYO (Reuters) - Toshiba Corp and Fujitsu Ltd are in talks to split off and merge their personal computer units, people familiar with the matter said, as Japan's electronic conglomerates seek to retreat further from loss-making businesses.

The talks are at an early stage and it is unclear whether a deal will be reached, said the people, declining to be identified as they were not authorised to speak about the matter.

The emergence of tablets and other devices as well as fierce competition has pushed Japanese PC divisions into the red. At the same time, Toshiba is under pressure to restructure in the wake of a $1.3 billion accounting scandal while Fujitsu has seen PC profitability slip away as a weaker yen has inflated the cost of imported parts.

Combining PC operations would create a company with around 1.2 trillion yen ($9.8 billion) in sales and give greater economies of scale that would help with procurement costs. But analysts see prospects of a return to past days of thriving sales as slim given that the two account for just 6 percent of global PC sales.

"It is uncertain whether or not the new integrated company could recover international competitiveness," said Takeshi Tanaka, senior analyst at Mizuho Securities.

A combination would come on the heels of Sony Corp hiving off its PC business into unlisted Vaio Corp last year. Some domestic media reported that Vaio would also be part of the new venture but a spokeswoman for the company denied it was in talks with any firm about its PC operations.

Fujitsu said in a statement it is looking at options for its PC business after flagging plans this year to split it off. Toshiba said it is looking at various possibilities to improve its operations.

The Yomiuri newspaper said a deal with Fujitsu was uncertain as Toshiba was also looking at other options, including partnerships with overseas rivals.

PCs account for roughly 10 percent of revenue at both Toshiba and Fujitsu. In a market dominated by Lenovo Group Ltd Ltd, HP Inc and Dell Inc, Toshiba had just 4.2 percent of the global market last year while Fujitsu had 1.7 percent, according to research firm Gartner Inc.

Splitting off weak operations into joint ventures has become common practice for Japanese electronics conglomerates.

Smartphone screen maker Japan Display Inc, for example, was formed in a government-backed deal in 2012 from the ailing display units of Sony, Toshiba and Hitachi Ltd.

($1 = 122.6500 yen)

(Additional reporting by Anya George Tharakan in Bengaluru and Chris Gallagher in Tokyo; Editing by Edwina Gibbs)