NEC merges PC arm with Packard Bell

The global expansion of NEC Corporation, Japan's biggest computer manufacturer, took a big step forward yesterday with the announcement that it is to merge its personal computer business with Packard Bell of the US. The merger will create the world's biggest maker of personal computers and intensify the already cut-throat competition in the key US market.

Hisashi Kaneko, president of NEC, said the new company, Packard Bell- NEC, would command a market share of 11.4 per cent in the world personal computer market, and 15.1 per cent in the US. It will produce 7.6 million units annually, under the brand names Zenith, NEC and Packard Bell.

NEC has nearly half of the Japanese PC market, and it will continue to handle its own sales at home as well as in the potentially enormous Chinese market, where it has recently established a joint venture.

Already known as the most aggressive price-cutter in the US personal computer market, Packard Bell is poised to use NEC's financial clout to further expand its share at the retail end, as well as to take its aggressive marketing tactics into the higher end of the computer market via the Packard Bell-NEC company.

"Packard Bell's alliance with NEC should help them with cash flow and should strengthen Packard Bell's ability to continue to create havoc in the (low-end) home market," said Martin Ressinger, equity analyst at Duff and Phelps in Chicago. "The PC business, and especially the retail and home PC end of the market, has been cut throat and Packard Bell has tended to lead that price war."

Packard Bell has consistently wiped out its competitors in its 10 years in the low end of the market by cutting prices. It is perceived in the market to have compromised quality for quantity. It was sued at one point by Compaq for allegedly using used chips in some of its products, and has been financially stretched in recent years. Its new alliance with NEC will go a long way, say analysts, to improving its product quality and image, as well as its financial profile.

NEC and Packard claim that the deal will catapult the combined Packard Bell-NEC into the position of the biggest PC maker in the world. Projected annual revenue of $8bn for Packard Bell-NEC, however, falls short of the predicted market share figure, placing it in fourth place after Compaq, IBM and Apple Computer.