Toshiba’s Man in Irvine Polishes a Tarnished Image

John Rehfeld has worn many hats during his 25 years in the computer industry: IBM engineer , director of ITT Corp.’s data processing operations , founder of his own software firm and head of Japanese and Pacific operations for an East Coast-based computer industry consulting firm.

Today, the 47-year-old Rehfeld is vice president and general manager of Toshiba America’s Information Systems Division. The Irvine-based division employs 200 of Toshiba America’s 500 Orange County workers and is a unit of Toshiba Corp., the Japanese electronics giant. The Information Systems Division, with 1986 sales of about $450 million, manufactures personal computers, printers and other electronic components at its Irvine plant.

Under Rehfeld’s leadership, Toshiba has staked out a dominant position in the fast-growing market for so-called laptop computers--small, lightweight machines that are popular with business executives, sales people and journalists.

Rehfeld, who lives in Tustin with his wife and four children, reads, skis and plays tennis and golf for relaxation. He is a frequent traveler to the Far East. He is particularly knowledgeable about Japanese business practices and the U.S.-Japanese race for technological leadership and has published several articles on the Japanese electronics industry.

Toshiba, whose U.S. sales totaled $2.6 billion of its worldwide revenues of $22 billion in 1986, has been in the public eye a lot lately.

After it was revealed that a Toshiba subsidiary made illegal sales of high-tech milling machinery to the Soviet Union, an angry U.S. Congress proposed a ban on Toshiba’s imports to the United States. The ban is part of a pending foreign trade bill.

An earlier blow came in April, when the Reagan Administration slapped trade sanctions on certain Japanese electronics products--including small computers such as Toshiba’s laptop computers--in retaliation for unfair trade practices by Japan.

Although administration officials have said that Reagan plans to lift some of the sanctions, it is not yet clear whether Toshiba’s laptop computers will be unfettered.

In a recent interview at his Irvine offices, Rehfeld talked with Times staff writer David Olmos about the electronics industry, his company’s plans in Orange County and the recent controversy involving Toshiba.

Q: A lot has been written about the U.S. electronics industry losing the race with the Japanese. Do you agree that America is behind?

A: The Japanese got into the worldwide electronics industry . . . with low-cost manufacturing. They essentially took products and made them at a lower cost. Then they started to add a quality component. They gained their market share with a low-cost, quality component. The NIC (newly industrialized) countries--such as Korea, Taiwan, Hong Kong and Singapore--are doing that very well now, so Japan has had to add another element of value. And the value they’re adding now is heavy research and development. They’ve done this in consumer electronics, and they’re now doing it in industrial electronics. They’ve gained major R&D; leadership in many basic component areas, such as semiconductors, flat-screen displays, optical disk storage and in floppy disk and some hard-disk areas. I could go on and on, longer than you’d want to hear. Looking back, it’s almost like the Japanese had a master strategic plan for gaining leadership in very critical technology areas. That leadership is going to be very hard for the American or NIC countries to overcome.

Q: What are the ramifications for U.S. business of this Japanese prowess?

A: American business will have a very hard time gaining leadership in some of these areas, like facsimile or optical storage technology. But American business should understand the importance of these areas, and perhaps form strategic partnerships with the Japanese companies. That way, American business can have access to these technologies and U.S. companies can then add their own innovations to those areas.

Q: In which areas of the electronics industry are U.S. companies stronger than the Japanese?

A: They’re strong in the personal computer and software industries; some areas of data storage; systems integration, and computer work stations.

Q: You’ve worked for both U.S. and Japanese companies. What do you find different about working for the Japanese?

A: They take a longer-term look at the marketplace and understand the importance of market share. They will sacrifice short-term profits or higher profits to gain market share. American companies are really driven by the quarterly earnings syndrome and the stockholders’ demand for continuance of quarterly earnings. The Japanese, because most of their capital structure is debt rather than equity, are able to strive for increased rate of investment to gain increased market share. Many people in American business are now realizing that gaining a significant market share, and gaining it with quality products, is a real sustaining asset. You not only have the learning curve that you get from increased production, but you also have a real advertising and promotional benefit by having a significant market share. Many people buy a product because of word of mouth or because of reputation of the product, so having a significant market share really pays off.

Q: What is Toshiba’s share of the U.S. market for laptop computers?

A: Of course, we’ve had a few hiccups. Many people are unaware of the trade sanctions that have been placed against the small personal computer products from Japan, including our laptops. That’s been in effect since April 17. Prior to that time, we had about a 75% market share of the laptop market. That’s because we basically created the laptop market. Our market share now is probably in the 30% to 40% range. We’re coming back into the market with our locally manufactured product.

Q: How has the controversy over the illegal sale of equipment to the Soviet Union affected Toshiba’s sales in the United States?

A: It has significantly affected our business because of the public relations aspect. Our business is down. But we’re working very hard to communicate the facts about the sale and the fact that it was a separate subsidiary--a very independent subsidiary--and the Toshiba Corp. didn’t have any knowledge of the sale. As time goes by, people will begin to understand the issues better.

Q: Do you think some people walking into an electronics store to buy a TV or some other product see the Toshiba name, remember the recent controversy, and don’t buy Toshiba products?

A: There are some people who are definitely making that kind of decision. There is also a group of people--and we’ve received a lot of letters on this--who feel that Toshiba’s been overly penalized for this. Hopefully, the group you mentioned will get smaller and the group I mentioned will get larger. Business has its ups and its downs, and our challenge is to manage our way through this difficult time.

Q: What is the status of Toshiba’s hope of selling laptops to the Air Force?

A: There was a very large Air Force bid (worth about $100 million) and it was rumored in the trade press that we were No. 1 in line for that bid. But the bid was awarded to Zenith about a month ago.

Q: Do you think the illegal sale to the Soviet Union by the Toshiba Machine subsidiary cost you the contract?

A: It would just be conjecture to speculate about any relationship between the Toshiba Machine case and that bid.

Q: Where do you see the personal computer industry headed? Are we going to continue to see much smaller and much faster machines?

A: There are certain users who have to have portability in a computer; they have to use it in the field or on an airplane. But the tremendous popularity of laptops is not limited to that class of users. We all want personal computing power, but we don’t want to give up our desktop. If you look at the total personal computer market--about 4 million IBM-compatible computers a year--experts initially estimated that laptops would be 5% of the market. But Toshiba estimates that laptops hit the 5% market share last year, should hit 10% this year and by 1989 could account for 20% of the market. We believe strongly that that figure could go as high as 25%. That would mean 1 million laptops a year. I believe more and more people will buy laptop computers, not because they have to have portability, but because they want computer power in a smaller and smaller package.

Q: What do you think the computer of 1992 is going to look like?

A: Probably not too much different from what’s over there (pointing to a Toshiba laptop model on his desk). You have a constraint on the keyboard. We all have big fat hands and we have to punch these keys. And we all have to read the screen. So you can’t make it too much smaller than what the keyboard demands or what a readable screen is. As far as the blue sky or Buck Rogers kind of stuff, if we got good voice recognition capabilities then you wouldn’t need a keyboard; you could simply talk to your computer. That’s probably further away than five years. Another possibility is that you could display the computer image on a big screen on the wall. If we make a breakthrough in those areas, you may see computers get smaller. Until then, they will look pretty much like our laptop computers.

Q: What factors are behind Toshiba’s push to increase production at its five U.S. plants?

A: We’ve always been talking about it because that decision was driven by the dollar-yen relationship and normal good business practices that say you should be adding value in the marketplace you serve. Those plans got accelerated by the trade sanctions. Right now in the Irvine facility we’re manufacturing 10,000 laptops per month. We’re running at the rate of about $300 million in sales per year. Last month alone we shipped about $15 million of products that were manufactured in this facility.

Q: What kind of expansion plans do you have in Orange County?

A: We’re going to expand outside of this facility next April. We’ll be employing up to 100 more people and are looking for 100,000 square feet of additional space in the area. Right now, our plans are to be a manufacturer of all of the Toshiba laptop models except the T1000. We’re probably going to be doing some laptop manufacturing for export outside the United States as well. That’s in our strategic plan. It’s part of becoming an industry citizen in the markets you serve. What Toshiba will probably be doing is manufacturing a few products here very well for worldwide consumption.

Q: So part of the reason for manufacturing in the United States is that it is good public relations?

A: Yes. But it’s more than just public relations. Rather than manufacturing, say, 10 products in every country you sell to, you may manufacture two or three products for the world market in each of those countries. That way you become very good at manufacturing those two or three products, and you can still deal effectively with the balance of trade issues.

Q: What have you found about the quality of production in the countries you do business in?

A: We don’t have enough historical experience. We’ve only been doing it three months now. We expect what the other Japanese companies that manufacture over here have found. I think they’re very satisfied with the quality of manufacturing and we expect the same.