JAPAN'S PC MAKERS COUNTERATTACK AT HOME
--- by Jon Choy
The Japanese market for personal computers fairly boiled with activity last year, as domestic PC makers mounted a response to the inroads made by foreign competitors. As 1995 sales figures were compiled, the Japanese industry was abuzz over what became known as the "Fujitsu Shock" occasioned by Fujitsu, Ltd.'s vault into the number-two position in domestic PC sales under an aggressive pricing strategy that drove it past the Japanese subsidiaries of International Business Machines Corp. and Apple Computer Inc. Fujitsu's decision to adopt a loss-leader pricing strategy was matched cut-for-cut by market leader NEC Corp. As other makers got caught in the all-out price war, everyone's profits took a beating. Revitalized Japanese PC makers now plan to return the favor to foreign competitors by launching aggressive sales campaigns in overseas markets.
Japan's PC market in 1995 was even more lively than the year before (see JEI Report No. 12B, March 31, 1995). Several factors heated up the market: the introduction of the Japanese version of Microsoft Corp.'s Windows 95 in November, the growing popular interest in the Internet and World Wide Web, the rising number of computer-intensive multimedia applications and the declining costs of hardware and software (see JEI Report No. 3A, January 26, 1996). Total sales rose from 3.4 million units in 1994 to over 5.7 million, according to market research firm Dataquest Japan K.K. (see Figure 1). The superheated 71 percent growth in volume shipments meant that even firms scoring solid sales gains may have seen their market share slip. For example, NEC kept its grip on the top spot, posting a 43.8 percent sales gain from 1.6 million units to 2.3 million, but its market share dropped from 46.7 percent to 40 percent, according to Dataquest's numbers. Similarly, Apple's Japan sales rose an even stronger 58 percent to 810,000 units, but this did not stop its slice of the business from shrinking to 14.2 percent from 15.5 percent. The eye-opener was Fujitsu's 2.4-times increase in sales, achieved thanks to its self-admitted policy of preinstalling popular software on its machines and selling them at a loss. Also of note was the resurfacing of Toshiba Corp. in the desktop PC market and into the ranks of the top five overall sales leaders. The last time that Toshiba had been in the top five class was in 1993 (see JEI Report No. 6A, February 11, 1994). While Toshiba continues to hold a large share of the notebook computer segment, it contracted with Intel Corp. for its supply of desktop models.
The American firm that first shook up the Japanese PC market Compaq Computer Corp. now finds itself on the receiving end of an aggressive price and product introduction strategy. The spring debut of its Presario line of all-in-one machines with preinstalled software for the home market was spoiled by the start of Fujitsu's price-slashing campaign. With some competitors selling stripped-down home-use models for as little as ¥75,000 ($750 at ¥100=$1.00), Presario machines are piling up in warehouses. Apple's Macintosh line of machines actually has benefited by comparison from the introduction of Windows 95. Many discount store owners are reporting that customers come in to try a Windows 95-equipped machine but end up buying an Apple product after a "test-drive." Japan's corporate world, however, is becoming a Microsoft/Intel Corp. preserve, as is the case in the United States. Without the massive corporate sales deals being cinched by its competitors, market watchers expect Apple's share of the overall market to drift lower.
Although official figures have not yet been released, observers expect profits from PC sales to be way down, thanks to the "Fujitsu Shock." Moreover, it is not clear if the price war has ended. Although the Japan Electronic Industry Development Association reported in early February that the average PC price tag (for both desktops and portables) rose ¥5,000 ($50) in the last quarter of 1995 to ¥243,000 ($2,430), it is hard to see how prices will stay firm given that the combined sales targets of PC makers easily exceed market watchers' expected shipments for the year. While customers currently face shortages of some high-end models and critical systems enhancements (random access memory modules and compact disc read-only memory drives), analysts warn that the projected oversupply of PCs could lead to more cutthroat price wars.
To absorb some of this potential excess Japanese PC makers are turning their sights across the oceans to the United States and Europe. According to Dataquest, NEC boosted its share of the global PC market in 1995 to 4.8 percent from 4.1 percent; that was good enough to keep it in fifth place behind Compaq (10 percent), IBM (8 percent), Apple (7.8 percent) and Packard Bell Electronics Inc. (5.3 percent). Global sales rose almost 25 percent in 1995 to 59.7 million units, Dataquest reported (see Figure 2). Among Japanese firms selling in the U.S. market, however, only Toshiba is ranked among the top 10. And in Europe (where total PC sales jumped almost 30 percent in 1995) Japanese firms have an even less visible direct presence. Many Japanese firms participate in the European market through acquired subsidiaries, such as Fujitsu's ICL PLC of Great Britain. NEC, Fujitsu and Toshiba now plan to raise their overseas presence in PC markets, including in the United States, by employing the lessons that they have learned at home about aggressive pricing and product introduction. Toshiba, which leads the U.S. laptop PC market, plans to plunge into the desktop segment, even though it does not expect profits to be substantial, given the increasing competition. Fujitsu, meanwhile, announced in mid-February the formation of Fujitsu PC Corp. in Milpitas, California to move into the U.S. notebook market in the spring with a domestically made line. It will have a lot of company. Hitachi, Ltd. disclosed last November that it planned to break into the American PC market, starting this spring with a communications-heavy notebook series assembled in San Jose, California. That is the same time frame for the debut of Sharp Corp.'s Camas, Washington-built notebook system. Moreover, Sony Corp. has plans to jump into the home PC market later this year through a technology partnership with Intel.
While several years ago Japan's PC market could be likened to a tortoise compared with the American hare, it is clear that the race now is one of different animals, both fast-paced. Japanese consumers have benefited and, in turn, have responded by demanding ever more processing power, sophistication and value from PC makers. These competitors might have been down at one time, but they are far from out of the competition.