Lenovo and NEC are doing a joint venture that they say will create the "largest PC group in Japan," the third-largest PC market in the world.

NEC is kicking in its PC business for $175 million worth of newly issued Lenovo stock and Lenovo will throw in its Japanese sales and research operation and take a 51% majority stake in the resulting NEC Lenovo Japan Group and its Dutch-registered commercial arm Lenovo NEC Holdings BV.

NEC Personal Products Ltd president Hideyo Takasu will be president and CEO of the venture and Roderick Lappin, currently president of Lenovo (Japan) Ltd, will be executive chairman.

Lenovo, which bought IBM's PC unit, has only a niche position in Japan although it's now supposed to own 8% of the global market, making it the world's fourth-largest PC maker, while NEC's recently unprofitable $3 billion PC business is down from 11% globally 15 years ago to a tiny 0.9% although it still controls about 18% of the Japanese market, maybe more.

Together Lenovo claims they have 26% of the $20 billion Japanese market. Naturally the new allies expect to grow their business through "more innovative products that are faster to market, more attuned to Japanese needs and competitively priced."

Lenovo's position in China, where it sells one in four PCs, could be attractive to NEC's other IT interests, which could make the deal bigger than PCs.

NEC hinted as much when it said in a statement that "Taking this strategic relationship as a first step, NEC will accelerate expansion of our IT business worldwide."

The pair is supposed to discuss "selling PCs and providing global support to Japanese companies operating outside of Japan (JOCs); developing, producing and selling devices such as tablets; and selling additional IT platform products such as servers."

Apparently they won't be selling NEC PCs in China.

The venture is still a bit tentative. Its NEC and Lenovo units will operate as separate subsidiaries and each will keep their product brand names. For consumer products NEC and Lenovo will continue to provide sales and support through existing routes. For commercial PCs, NEC will continue to market products and support customers through its current channels.

The venture is supposed to leverage each company's strength, such as NEC's product development capabilities and Lenovo's procurement resources.

The transaction is expected to close by June 30 with the pair cooperating immediately on manufacturing, development and sales. NEC outsources most of its production.

Reuters said from Japan that NEC has the option of selling out to Lenovo in five years, sort of the way they structured the IBM deal.

NEC just reported that it lost $323 million in the December on revenue down 13%. It said IT spending in Japan hadn't recovered.