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Japan readies a new assault on America's PC markets

It has never been easy to crack the U.S. personal-computer market. Cutthroat pricing, long-established brands, and costly sales outlets have sent newcomers packing. Remember Philips, Groupe Bull, Olivetti, and Epson? Those giants came to conquer only to cut and run. So it's no surprise that last year's splashy arrival of Japan's biggest mainframe and consumer electronics companies in the U.S. PC business wasn't one for the record books.

But not for lack of spending. After forking out $30 million on print and TV advertising, Hitachi Ltd. captured just 2% of U.S. notebook sales last year--and it was the best of the bunch. The Sony Corp. name and clout in retail didn't have its usual pull with customers, whose purchases of Sony's slate-gray VAIO computers accounted for less than 1% of home-PC sales during the crucial holiday season. And Fujitsu Ltd., which plunked down $25 million on ads, collected a tiny 1.4% market share in notebooks.

FAST PACE. What happened? Blame it on overpriced machines, little name recognition, and the fast pace of the U.S. market. ''The speed of change in the models is so quick,'' says Tsuneo Tanaka, the new president of Hitachi America. ''We do not have anything like this in Japan.''

Even Toshiba, a U.S. success story in laptops, has stumbled badly in recent months. Not only did it lose market share in portable computers to Compaq and IBM, but Toshiba's attempt to break into the home-PC market turned into a ho-hum with consumers. At first, Toshiba looked hot, gathering a 2% share of home-PC sales. But the company was caught with excess inventories when the PC industry shifted to machines using Intel's MMX chips. In January, the electronics giant had to unload PCs at fire-sale prices, sabotaging earlier gains. Today, Dell Computer Corp. CEO Michael S. Dell dismisses the newcomers as ''the invisible invasion. They're here, but nobody can find them.''

But don't stop looking now. With 40% of worldwide PC sales, the U.S. is the one place no computer maker with global ambitions can afford to skip. So, instead of folding their keyboards and heading home, Fujitsu, Hitachi, and Sony have gone on the attack. On June 16, at the annual PC Expo show in New York, each company trumpeted its plans for a bigger raid on the U.S. market. ''We didn't expect to have a cakewalk into the market, and we didn't,'' says Fujitsu PC Corp. President George W. Everhart. His boss, Tadayasu Sugita, Fujitsu Ltd. personal systems group president, has a message for U.S. PC makers: ''We'll never think about withdrawal from the U.S. market.''

BIG AMBITIONS. And so Act Two begins. In coming months, Japanese computer makers are going to step up their efforts, either by pushing beyond the crowded desktop PC market and into notebooks, or by jazzing up their desktop models with all manner of bells and whistles. Sony, for example, made its laptop debut on June 16 with two new models that draw on its consumer electronics roots--they double as music CD players and include software to download pictures from Sony digital cameras. The price: a hefty $3,500 to $5,000. Hitachi also has grand ambitions with plans to spend $30 million this year to market its new feature-packed notebooks, called VisionBooks.

Will the outcome be different this time? Given the latest market trends, odds makers aren't favoring the Japanese contingent--at least in the short term. Unlike past years when home-PC buyers were snapping up costly, high-end units, this year's consumers are flocking to bargain-basement $1,000 PCs. The leaders in this category? Packard Bell NEC and Compaq, the top two U.S. home-PC companies. What's more, market researcher International Data Corp. says a March survey of 30,000 potential home-PC shoppers found only 1% to 2% expressing interest in buying home PCs from Sony and Toshiba. ''I don't see a spike up,'' says Bill Ablondi, IDC's home-PC market analyst.

The chances are even slimmer in the laptop market. The Big Three in notebooks--Toshiba, Compaq, and IBM--are proving hard to dislodge. The shortages of big-screen displays that helped Fujitsu and Hitachi grab a spot on retail shelves last year are a thing of the past. Dealers say supplies by the biggies are plentiful, cutting into the backlogs that made customers consider alternatives. ''Last year, you could sell any laptop that turned on,'' says Edward Anderson, CEO of Dallas-based dealer CompuCom Systems Inc. ''That isn't the case anymore.''

At the same time, corporate laptop buyers have shifted to midpriced models. ''The sweet spot in the notebook market is $2,000 to $4,000 machines,'' says Steve Ward, IBM's general manager for mobile computing. This year, 65% of IBM portable sales will fall within that range, up from just 25% two years ago, says Ward.

That doesn't bode well for the feature-rich machines planned by Sony. Despite a goal of reaching home-PC and small-business buyers, its new VAIO notebooks use expensive ''active-matrix'' displays and top-of-the-line Intel microchips more suited to traveling execs, who spend much of their time making presentations.

VIDEO OPTION. But if Sony execs are worried, they aren't showing it. They say the new notebook PCs aren't designed to give Sony a rapid share of the U.S. market, anyway. Instead, Sony is paying big to showcase the integration of consumer devices such as digital cameras with PCs. To give U.S. consumers a taste of Sony convergence, its newest computers include software for accepting and editing video from a camcorder.

What's more, Sony may yet eke revenue out of a high-price, low-volume PC strategy. Analysts say that by pushing high-quality audio and imaging, Sony could force rivals to beef up sound and graphics--and that could swell sales of Sony's CD drives and Trinitron displays. ''Everything we're going to be doing centers around imaging,'' says Takashi Sugiyama, director of PC products marketing for Sony Information Technologies of America. ''The one place we don't want to compromise is video [quality].''

But if Sony is content to lie low until PCs become true consumer ''appliances,'' computer makers Hitachi and Fujitsu must scramble to build a U.S. presence to better sell desktop PCs and computer servers. That's why last year was a harsh lesson in competing against the laptop leaders. Despite space on retailers' shelves, both underestimated the depth of customer loyalty to the three majors. The result: Toshiba, Compaq, and IBM ended the year by increasing their U.S. shares to a combined 46% vs. 43% in 1995.

This time, Hitachi and Fujitsu have a new game plan: appeal to buyers outside the loyal corporate MIS department. Fujitsu, for example, will offer twice as many notebook models this year and add about 30 sales reps to call on resellers. A key calling card will be the new LifeBook 600 Series of ultraslim notebooks that come in 4-pound packages at $3,500 to $4,500. Hitachi hopes to boost its market share by aiming for dealers who specialize in selling into corporations at the department level, rather than the MIS group. ''That will give us a nice share of the market,'' says Hitachi PC CEO David Hancock.

TOUGHING IT OUT. So far, the only Japanese computer maker to hit the big time in the U.S. PC business is Toshiba. The company has held the biggest share of the U.S. laptop market since 1994. And after a shaky consumer-PC debut last year, it's rolling out a new line of business desktops. This time, there are signs that Toshiba's commercial drive will not suffer the same fate as its home PCs. Thanks to Toshiba's laptop success in corporate markets, dealers are already lining up to carry the desktop machines. ''They carry a brand name that's class one,'' says Eric T. Walton, vice-president of product management at Entex Information Services, which has just begun carrying the new Toshiba Equium line.

Will the new tack reverse what analysts say are now unprofitable businesses? Not anytime soon. Hitachi hopes to break even within four years. With computer servers and desktop PCs on the drawing boards, Hitachi PC CEO Hancock says: ''We're building a foundation to expand this business.'' So are Fujitsu and Sony, which intend to tough out short-term woes. Sony, for example, sees its audio/visual PCs setting the stage for when many U.S. consumers want to edit home videos and store digital photos on their PCs. ''We weren't after market share but mind share... and will continue to be,'' says Tim Errington, senior vice-president at Sony Electronics of America Inc.

If that's the case, stay tuned for Act Three. That's when the real competition could kick in.

By Gary McWilliams in Houston, with Emily Thornton in Kawasaki and Paul M. Eng in New York


TABLE: Cloudy Days for Japanese PC Makers

PHOTO: Fujitsu's PC Lifebook 600 Series

PHOTO: Hitachi VisionBook Pro


Updated June 23, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.
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