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Japan's PC Makers Respond to PC Clone Invasion
From: Dave Farber <farber () central cis upenn edu>
Date: Thu, 25 May 1995 19:19:56 +0900
ASIAN TECHNOLOGY INFORMATION PROGRAM (ATIP) REPORT: ATIP95.24 :Title Japan's PC Makers Respond to PC Clone Invasion To: Distribution From: D.K.Kahaner, Simon Mansfield ATIP-Tokyo [kahaner () atip or jp] Date: 06/23/95 [MM/DD/YY] This is file name "ATIP95.24" Tokyo Office: Asian Technology Information Program (ATIP) Harks Roppongi Building 1F 6-15-21 Roppongi Minato-ku, Tokyo 106 Tel: +81 3 5411-6670; Fax: +81 3 5411-6671 U.S. Office: Asian Technology Information Program (ATIP) c/o Univeristy of New Mexico US-Japan Center Mechanical Engineering Building, Rm #432 Albuquerque, New Mexico 87113 Tel: (505) 277-1490; Fax: (505) 277-1425 For further information Send email to : info () atip or jp Access WorldWideWeb Site : http://www.atip.or.jp/ (on-line June 1 1995) ATIP: A collaboration between US National Institute of Standards and Technology (NIST) University of New Mexico (UNM) ======================================================================== [Complete ATIP reports on Asian Science and Technology are available to sponsors and collaborating organizations by direct distribution, or via electronic access. Full reports contain text and (when available) charts, graphs and pictures. Reports for general public distribution may contain summarized, abstracted, or partial contents of full reports. Organizations wishing specific sole-use follow-up information including copies of proceedings, selected papers, exhibition particulars, updates, translations, query searches, etc., are also encouraged to contact ATIP directly at INFO () ATIP OR JP] Date: May 23, 1995 REPORT: ATIP95.24 Title: JAPAN'S PC MAKERS RESPOND TO CLONE INVASION This report was prepared by ATIP technology analyst Simon Mansfield in Tokyo. Email <simon () atip or jp> ABSTRACT In the wake of the high yen and an invasion of low cost clone computers, Japan's PC makers are beginning to respond to the needs of home users by developing low cost, feature packed multimedia PCs that bundle all the latest goodies in "all-in-one" systems ready to go from day one. INTRODUCTION Just how fast Japanese computer makers are adapting to the new PC business environment can be seen from the latest multimedia PC developed by Matsushita Electric Industry Co. Priced at 318,000 yen ($3,740), the "Woody PD" uses Matsushita's new combination phase change rewriteable (PCR) optical disk drive and CD-ROM drive - in the one unit - setting a new standard for PCs aimed at home users. The Woody PD, includes 8 Mbytes of main memory, 100Mhz 486 microprocessor, supplied by Intel's rival AMD Inc, 540 Mbyte hard disk, surround sound Dome speakers, 14.4K fax/modem, MPEG1 full motion video card, inbuilt TV tuner, a super flat 15 inch CRT monitor, and some 20 software applications and other peripherals needed to get the home user up and running in the first hour. "All up a dynamite package", said one securities analyst in Tokyo when asked how Matsushita would go with the new Woody PD. ALL-IN-ONE TREND TAKES OFF The new all-in-one trend began gathering pace late last year when NEC Corp and Fujitsu Ltd announced their own multimedia PCs, partly in response to Matsushita's original Woody TV/PC introduced in late June 1994. NEC's new range of multimedia PCs are being marketed under the CanBe brand name with a multi-million dollar advertising program heavily promoting the CanBe series throughout Japan. CanBe is a typical NEC 9800 series PC using the company's proprietary PC architecture and customized Windows and DOS system software supplied by Microsoft. Consumers are enticed to stay loyal to the NEC brandname with a ready to go multimedia PC that packs dozens of features into each model, including a TV tuner, plenty of main memory and a decent sized hard disk drive. However, the price of the CanBe system with a 540Mbyte HDD remains quite high at 455,000 yen. Although, NEC is not yet fully ready to respond to Matsushita's cut price system, as a decision on adopting the PD drive has only just be taken by NEC, a source at the company said NEC would most likely announce a new price point that would make its CanBe series price competitive with Matsushita's Woody series within a matter of days. At Fujitsu Ltd, the world's second largest computer maker, PCs are continuing to receive a high priority with the company selling similar feature-packed multimedia PCs in the 350,000 to 400,000 yen price range. A Fujitsu source said the company welcomed Matsushita latest multimedia PC as a solid contribution to building wide spread support for the DOS/V operating system. The pace of announcements highlights the increasing competition between Japanese computer makers in the domestic market. Margins are down to very low levels, requiring substantial increases in sales volumes in order to maintain profits levels within the various PC business groups. According to company announcements, during 1995, Fujitsu is aiming to sell 1 million PCs in the Japanese market, while Hitachi Ltd is aiming to sell over 1 million units throughout the world. During 1994 NEC shipped 1.81 million units - up 32% over 1993, and is aiming for 2.3 million units in 1995 - up 27% over 1994. One of the few companies to successfully make an NEC clone is Seiko-Epson Co. But with the increasing trend towards an open standard based on IBM's Japanese language compatible DOS/V operating system, Seiko-Epson is hedging its bets by offering its own multimedia PCs using the DOS/V operating system through its direct sales channel Epson Direct, while continuing to develop NEC 9800 compatible systems. In the notebook segment of the market, Sanyo Electric Industry Co has announced a feature rich notebook, that on the basis of its specs looks very attractive. However, Sanyo has decided to use a locally based Sanyo group company to assemble the system, forcing the company to charge nearly 600,000 yen for a notebook PC that doesn't even include a high-quality TFT-LCD screen. But the biggest move in the notebook market is at Toshiba, which has just introduced several new notebooks for the Japanese market. With prices and features very competitive to that of its rivals, Toshiba is aiming for a 10% share of the Japanese market, and sales of around 400,000 systems this fiscal year. As part of its new marketing push, Toshiba will also beef up its office server systems by introducing a new range of systems based on Intel's Pentium processor. Finally, among foreign PC makers, Compaq (Japan) Inc has announced 37 new PC models ranging from notebooks to high end office servers. Prices, remain high by world standards, however, making it difficult to differentiate Compaq's products from those of Japanese computer makers. Furthermore, the ability of Compaq and other DOS/V system makers, including Japanese vendors, to seriously undercut NEC's prices has virtually disappeared. NEC RESTRUCTURES AND REDESIGNS TO MATCH PC CLONE PRICES Over the past two years, NEC has undertaken a major program to shift its PC design and assembly operations out of Japan to Hong Kong, Taiwan, mainland China and the USA, where it can design and make PCs at prices comparable to Compaq and other clone makers - for both the Japanese and US markets. For example, NEC will build a joint venture facility in Shanghai, China with Chang Jiang Computer to make PCs. Initially the joint venture will produce 20,000 units during 1995, rising steadily to 150,000 units/year by 2000. But more importantly, is that NEC has substantially redesigned its 9800 series architecture enabling the company to use industry standard sub-systems rather than the more expensive hard disk drives and other peripherals previously required for the company's proprietary PC architecture. This use of industry standard products, along with offshore production, now puts NEC in a position to match the prices of anyone attempting to seriously undermine NEC's stranglehold on the Japanese market. A predication by this analyst, which goes very much against the prevailing wisdom of many commentators now following the Japanese PC market. CONCLUSION The essence of this "black sheep" analysis is that NEC's competitors had only a brief window of opportunity over the past two years to attack NEC's commanding position in the Japanese PC market. And while, the impact of Compaq, Dell and DOS/V in general has been a substantial reduction in prices, the main winner among foreign PC vendors has been Apple, which has seen its market share grow to around 10% of the Japanese market, and making its number two after NEC in the PC market. A few years ago, NEC enjoyed a market share of just over 50% of the Japanese PC industry, by 1994 this had fallen only a few points to just under 50%. Exact figures vary between analysts and research institutes. During this time, most DOS/V vendors, including Compaq and Dell, maintained a price point that was much higher that prevailing prices in the US. As a result, NEC was able to essentially match these prices, while create fear and doubt among potential customers with Compaq's ability to support them adequately. Hence, NEC continued to dominate major corporate accounts, and when did loose out it, Fujitsu and IBM were the main winners. But now that NEC has redesigned its 9800 series to use mainly industry standard sub-systems, while increasing offshore production, its cost penalty, for using small production runs of parts made specifically for its 9800 series architecture, is largely gone. As such it is very doubtful that the company will see any dramatic 10% plus type falls in its market share, which could have happened if Compaq and other DOS/V makers sold systems closer to their real production costs. For PC makers and industry in general the message is quite simple. Enjoy the high profits of Japan's inflated prices for a few months to recoup start up costs, but don't give your competitors one moment of respite to change their operations. Grab market share, and reduce the dominance of the established market leaders. Otherwise, before you know it, companies like NEC will have restructured and brought their cost overheads down, enabling them to bring their full marketing weight into play, and depriving you of any cost advantage not yet brought into play.
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- Japan's PC Makers Respond to PC Clone Invasion Dave Farber (May 25)