here it is:
Sales growth of computers
lags in Japan
PC makers don't cut prices despite cheaper Pentium
chips
Published: Sept. 18, 1997
BY MICHAEL ZIELENZIGER
Mercury News Tokyo bureau
TOKYO -- Intel Corp. has received an unexpectedly rude
reminder this summer that sales tactics that work effectively in
America just don't cut it in Japan.
Two months after drastically reducing worldwide prices on its
Pentium chips, the microprocessor for most PCs, consumer
prices for Pentium-based computers in the Japanese market have
barely budged. Instead, top Japanese manufacturers have fattened
their profit margins rather than passing on the savings to
customers, industry analysts say.
As a result, while computer sales in America remain robust,
across Japan the rate of sales growth has slid at computer
retailers.
Japanese computer manufacturers' reluctance to cut prices is
notable, especially in light of the country's wobbly economic
picture. Overall, the Japanese economy has shown surprising
weakness in recent months. New tax increases and a
postponement of some government spending have added to the
gloom. In addition, computer analysts say, few new computer
products have entered the market to entice new buyers the way
Windows 95 boosted sales two years ago.
Nonetheless, Tokyo shoppers find that instead of going down,
some retail prices on desktop computers have even gone up
slightly. The result: Dataquest figures show PC shipments in
Japan grew only 8 percent in the second quarter of 1997; the
Japan Electronic Industry Development Association estimates that
shipments in that period grew by only 4 percent, the first quarter
of single-digit growth in four years.
PC manufacturers here have been forced to slash their sales
projections. And computer analysts have dramatically reduced
their forecasts of how many Japanese PCs will actually be sold to
the home market during the rest of this year.
``Of course we've had to slash the sales projections,'' said
Katsushi Shiga, a computer systems analysts for the Gartner
Group in Tokyo. ``The chip itself may have gone down in price,
but the cost of a total computer system that a customer sees in a
shop has not dropped.''
After years when unit sales grew 60 percent and 70 percent each
quarter, the current dramatic drop-off in computer sales growth
cast a pall over a seminar here last week, hosted by Dataquest, on
the subject of PC sales. While PC sales are booming in the United
States and China, researchers were forced to sharply reduce their
sales estimates for Japan and Southeast Asian nations recently
battered by currency devaluations.
Intel had expected that its price cuts of about $250 per chip
would be passed on to consumers, sparking renewed demand,
especially for home PC users. Instead, leading manufacturers like
NEC Corp. and Fujitsu Ltd., which control more than 50 percent
of the Japanese market, have chosen to keep prices at the old
level.
``Japanese companies are not making price cuts,'' said Chris
Shimizu, a spokesman for NEC. ``We will try to improve the
price-performance ratio for the new products that will come out
for Christmas, but we aren't cutting the price on existing models.''
``If we didn't make money selling computer systems to big
companies, we wouldn't make money at all,'' said Mike Beirne, a
spokesman for Fujitsu. ``You try selling PCs for a profit on the
street.''
Intel officials are reluctant to directly criticize the Japanese
computer companies, who are major customers. But they say the
trends have not been what they expected.
``Market share isn't growing, but the computer companies are
making more money,'' said Norman Denda, vice president for
sales and marketing at Intel's branch in Japan. ``This is why we
see prices higher or staying the same for consumers instead of
going down.''
Today a Pentium 200 computer with a 3 gigabyte hard drive and
32 megs of memory costs about $2,100 in a Tokyo discount
shop, without a monitor or keyboard, about the same as it would
have cost three months ago.
Asked if the lack of price cuts by Japanese manufacturers was
disturbing, Denda said, ``It is a bit frustrating.'' He noted that
unlike American customers, Japanese consumers are very ``brand
loyal'' and would stick to familiar names like NEC and Fujitsu
even if their prices have not gone down. ``I don't think American
customers are quite so loyal to brand,'' he said.
Dataquest's Shiga said the drop in chip prices offered the
Japanese companies a welcome opportunity to recoup profits lost
in earlier price wars. ``Japanese computer makers are not really
profitable,'' he explained, ``so they see this (price reduction) as a
chance to gain (profit) margin for themselves.''
Over the last few years, American manufacturers such as
IBM-Japan, Compaq Computer Corp. and Dell Computer Corp.
have tried to take advantage of price cuts by marketing cheaper
PCs. But NEC and Fujitsu have maintained their dominant
position in the market, Shiga said. New Dataquest data estimate
that these top two manufacturers together held 52.7 percent of the
market in the first half of 1997, compared with 52.2 percent in the
first half of 1996.
NEC's Shimizu noted that when Intel cuts prices in America, NEC
cuts the prices of its U.S. computer models. ``In the U.S., the
market is quite different and market structure is quite different,'' he
said. Many American retailers offer customers ``price protection''
if retail prices are cut, and stores compete actively on price. NEC
now uses the Packard Bell line to sell low-end PCs in the United
States.
In Japan, however, distributors and manufacturer wield greater
power than retailers, and customers may search four or five stores
only to find identical prices on the same item. As Intel's Denda
put it: ``I can't force manufacturers to lower their prices. The
manufacturers do it on their own and they have their own
agendas.''
The next stratagem in Japan's PC wars will be launched by
Compaq, which last week said it would sell a new line of Japanese
PCs priced 30 percent to 40 percent below current models. But
those models will rely on chips made by Cyrix Corp., Intel's rival.
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