Toshiba Slips Further Down in Notebook Sales

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HP is now the top global supplier of laptops, with a 16.9% market share, followed closely by Dell, with 16%. Toshiba, which held the No. 1 ranking in laptops from 1994 until early 2002, has slipped to No. 3 and continues to lose ground even in its home country of Japan.

We look to Japan first to see why this trend of Toshiba losing ground is occuring.  In Japan, nearly every weekend, hundreds of bargain-hunting people pack Tokyo’s famed Akihabara electronics district, trawling for the latest in desktop and notebook computers. And increasingly, they’re buying the sleeker, more powerful models offered by Dell and HP — often priced 15% to 20% below those offered by Japanese manufacturers, such as Toshiba, NEC and Fujitsu.

“While features and extras are important, the big draw is price,” says saleswoman Tae Takita at Laox’s Computer Store, Tokyo’s biggest discount computer retailer. One new HP Compaq business notebook, priced at less than US$1,000, is the cheapest on the market.

During the six months through September, reports the Tokyo-based MultiMedia Research Institute, sales of notebooks and desktop computers in Japan by HP rose by 38.5% and by Dell 12.5%, giving the Americans a combined 13.7% market share, two percentage points more than they had a year ago. Dell replaced Toshiba as Japan’s fourth best-selling brand, while HP took the No. 8 spot.

“Momentum definitely seems to be on the side of the U.S. manufacturers,” says Tadayoshi Ikezawa, a MultiMedia spokesman, adding: “Their biggest weapon is low prices.”

In the recent past HP and Dell were constantly looking over their shoulders as their Japanese counterparts were undercutting them in the U.S. and abroad with high-performance, multi-featured, lower-priced desktops and laptops. But in the past three years that has all changed, especially as individuals and small- and medium-size businesses worldwide increasingly replace their desktops with notebooks.

HP is now the top global supplier of laptops, with a 16.9% market share, followed closely by Dell, with 16%. Toshiba, which held the No. 1 ranking in laptops from 1994 until early 2002, has slipped to No. 3, with 12.9%. IBM is fourth, with 8.7%, while Fujitsu and Sweden’s Acer are tied with 6.2% each. Next are NEC, with 4.8%, and Sony, with 4.3%.

And the pricing and market-share will not soon improve, as more companies enter the laptop and notebook fray. Wal-Mart might be putting out a house brand. And Acer says it will sharply boost its sales of machines, which are sold by Best Buy in the United States, Dixon in the United Kingdom and its manufacturing partner Hon Hai in China. This probably will push it past Toshiba and NEC in total global output of desktops and laptops in two years, as it gains large economies of scale.

Alan Promisel, an analyst with Framingham, Mass.-based IDC, observes: “There has been a slowness on the part of Toshiba to react to customers’ buying trends and come out with products that reflect those trends.”  Tadashi Okamura, who became Toshiba’s president three years ago — just as its computer business was peaking, said in a Sept. 16 press conference in Tokyo: “We have an edge in technology and brand power, but have failed to keep up with rapid changes in the global market.”

Toshiba’s computer business has been on the rocks ever since it lost its top spot in the global laptop market to Dell in 2002. Operating earnings from its computer operations have lurched from more than US$400-million in fiscal 2000 to US$175-million in 2001, to a loss of US$50-million in 2002 and back to a US$100-million profit in fiscal 2003. So a US$75 million deficit, while unpleasant, was not unexpected.

Still, Okamura was too optimistic. On Oct. 24, Toshiba announced that its computer unit’s probable fiscal 2004 loss would be US$195-million, and it would ship only 4.6 million units this fiscal year, 100,000 fewer than its previous forecast stated.

Analyst Fumiaki Sato of Deutsche Bank Group says Toshiba “needs to initiate radical restructuring, including selling off, consolidating or withdrawing from uncompetitive and non-core businesses.”

Could this include spinning off or selling the computer operations? Possibly, such moves have helped Toshiba in the past. In the late 1980s, the company was the world’s top maker of general-purpose dynamic random access memory chips. But it abandoned the DRAM sector two years ago by selling its operations to Micron Technology. Toshiba simply couldn’t compete with lower-cost rivals in South Korea and Taiwan.

A similar exit strategy is now needed in the laptop and desktop PC businesses, some critics argue, instead of continuing its attempts at innovating product lines in which it seems hopelessly outpaced.

“Toshiba needs to change its business model, shifting resources away from PCs to peripherals,” says Tokyo-based Hiroshi Yoshihara, who follows the company for Merrill Lynch. “The time has come for Toshiba to split its PC operations into a separate company.”

Don’t expect to see the famed Toshiba Satellite disappear from retail shelves anytime soon, there’s still time for Toshiba to realign itself.  But if this massive Japanese electronics producer can’t catch itself from falling, we might one day talk about the original Satellite Pro laptop in the same nostalgic tone as we do that of old Tandy and Commodore computers — both companies that could not keep up with innovations in the computer industry.

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