July 11, 2008 / 10:21 AM / 11 years ago

UPDATE 2-Fujitsu, Siemens in talks over future of JV

(Adds confirmation from Fujitsu)

By Jens Hack and Mayumi Negishi

MUNICH/TOKYO, July 11 (Reuters) - Siemens AG (SIEGn.DE) and Fujitsu Ltd (6702.T) are in talks over the future of their Fujitsu Siemens Computers (FSC) [NIXG.UL] joint venture, a spokesman for Fujitsu said on Friday.

One source in Japan and another in Germany previously told Reuters that Siemens officials had been in Japan to visit Fujitsu but said that talks over terms of the agreement may drag on until the end of the year.

The spokesman said a decision on the matter had not yet been made.

The German-Japanese venture will be automatically extended for another five years from 2009 if neither partner gives notice this year that it wants to get out.

The German source and another close to the matter in Germany said Siemens will probably cancel the contract in autumn as a precautionary measure, but that it was not clear what would become of the joint venture in the end.

“If Siemens were to decide to pull out, Fujitsu would most likely be unwilling to buy Siemens’s stake, given the business climate. Fujitsu’s brand by itself is not enough to carry in Europe, where the popularity of low cost models has meant tough price competition,” the source in Japan said.

Siemens declined to comment.

Siemens Chief Executive Peter Loescher has said the venture, Europe’s biggest PC maker, was not profitable enough.

In February, Bernd Bischoff, the head of FSC, said in an interview with Reuters the two companies intended to extend their joint venture.

Bischoff dismissed complaints from Loescher at the time saying FSC ranked in the middle or even top of the sector with pretax return on sales of 1.7 to 2 percent.

Profit margins are thin in the PC business, which is largely commoditised and fiercely competitive on price.

FSC has said it planned to make its computer designs more distinctive to increase its margins in a mass market where it competes with the likes of Hewlett-Packard (HPQ.N), Dell DELL.O and Acer (2352.TW).

It will also profit from a new focus on services, having largely finished a restructuring during which it quit some less profitable hardware businesses such as TVs and personal digital assistants (PDAs).

In 2007/08, FSC made a pretax profit of 105 million euros ($166 million) on sales of over 6.6 billion euros. It expects to make pretax profit of between 105 million and 200 million euros this year. (Editing by Sue Thomas and Tony Austin)

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