Toshiba Unit Knee-Deep in Laptop Woes : Computers: Competitors are rolling out lower-priced, feature-laden models. The Irvine division is reporting sizable losses, but officials remain optimistic.
Toshiba Corp. is losing ground in the laptop computer market that it pioneered in the United States.
In the mid-1980s, Toshiba, led by visionary Japanese executive Kiichi Hataya, captured the No. 1 spot in the laptop computer market by being the first to produce low-priced, portable computers for business people on the move.
Now some former executives and industry analysts say the company’s Irvine-based computer division has fallen behind its competitors, who are rolling out lower-priced, feature-laden models.
That has forced some dramatic changes, including layoffs in Irvine, the departure of top computer executives and a reorganization of the company’s distribution system. Moreover, the Irvine division reported sizable losses for the six months ended March 30, sources said, and may lose another $30 million or more for the six months that end Sept. 30.
Hataya, president of Toshiba America Information Systems, wouldn’t comment on the division’s financial performance. But he conceded in an interview this week that the unit is struggling from severe discounting in the portable computer market, as well as the effects of the recession.
He said Toshiba America Information Systems, which includes divisions that sell copiers, computer disk products and office phones, is profitable overall.
Hataya said the division is correcting its problems and promises that the company will continue to be a leader in portable computer innovations. Even so, problems remain: Toshiba has a large inventory of unsold computers and had to shut its Irvine factory for two weeks in July, in part, to reduce that inventory.
“Our expected sales for the end of March were not as high as we expected in the computer systems division,” he said. “As a result, our inventory was slightly up. Maybe in a short-term period, we could suffer a loss. But as a total corporation, we should be profitable this year.”
Hataya acknowledges that Toshiba was caught off guard last year by the exploding popularity for so-called notebook computers--lightweight machines that can fit in a briefcase and pack the power of desktop models.
“In Japan, we produced the first notebook computer,” Hataya said. “In the U.S., we were a bit late and misjudged one point: we didn’t think the competition would come so fast.”
The notebook market is a segment of the $3-billion-a-year laptop market, which includes larger portable machines, according to International Data Corp., a Framingham, Mass., market researcher. Notebook machines were barely a factor just a few years ago.
But the notebook market took off when the machines finally delivered the processing power of desktop computers in a lightweight format, said Richard Shaffer, of Technologic Partners, a New York consulting firm. Early generations of portable machines were bulky, heavy and had difficult-to-use keyboards and displays.
For several years, the laptop market had been dominated by a few companies such as Toshiba, Compaq Computer Corp., NEC Corp. and Zenith Data Systems. But the competitive picture changed in 1990.
Manufacturers of semiconductors and disk drives began producing low-cost components that enabled almost any computer maker to design and build a notebook model.
Notebook sales grew by 52% in 1990, and by late 1990 more than 130 computer makers had announced plans to enter the field.
“A lot of problems have developed (for Toshiba) in the past six months,” said Bruce Stephen, a computer analyst at International Data Corp. “They are losing market share because the lower tier of computer makers like AST (Research) has become much stronger.”
During the first six months of this year, Irvine-based AST had sold 27,000 notebook computers, snaring about 6% of the U.S. market. For the six months ended March 31, Toshiba sold about 70,000 machines, a 20% drop from the year-earlier period, sources estimate.
Stephen estimates that the Toshiba computer division’s sales will be flat or lower in 1991.
“You’ve seen how quickly Toshiba was thrown off its throne in the notebook market,” said Gene Lu, chief executive at Advanced Logic Research Inc., an Irvine computer maker that plans to introduce a notebook model this month. “If I were Toshiba, I wouldn’t sit still.”
“There have been a lot of signs of problems (at Toshiba) in the last few months, including the departure of top people,” said Peter Teige, an analyst at Infocorp in San Jose. The market researcher predicts that Toshiba’s market share will dip below 20% this year, from 21% in 1990.
Signs of trouble at Toshiba’s computer unit began to surface publicly early this year. In February and March, the company laid off more than 225 of its 2,000 employees, most of them in Irvine.
In June, Toshiba America severed its relationship with its sole national distributor, Torrance-based Merisel Inc., and gave its business back to a distributor it had fired a year earlier, Tech Data Corp. of Clearwater, Fla.
Tom Scott, the division’s vice president of sales, said a change in distributors--together with recent deals to sell its products at computer super-stores and Sears, Roebuck & Co. stores--are aimed at boosting sales to corporations and the mass consumer market.
The company has made other moves to stay competitive. It slashed prices up to 33% and introduced three lines of computers in July that have longer battery lives.
But there are some signs that the problems persist, former executives and analysts say. For one thing, most of Toshiba’s products still cost more than its competitors’ products.
And there have been several changes in top management, including the abrupt resignation in April of division chief Bill Johnson, who was the top-ranking American at the company. Two weeks ago, Tom Martin, vice president of marketing, resigned to work for Dell Computer Corp., a Texas-based competitor of Toshiba.
John Rehfeld, who headed the Toshiba division until he left in 1989 to join Seiko Instruments USA in Torrance, said Toshiba has suffered from poor communication between the Japanese parent company and American executives in Irvine.
Other former executives say Toshiba is sometimes slow to react to market changes because key decisions for laptop products are made in Japan, where the computers are developed.
The former executives say that the U.S. subsidiary anticipated the explosion of the U.S. notebook market but that the product developers in Japan either ignored them or told them it couldn’t be done.
Atsutoshi Nishida, who heads computer marketing outside of Japan, is now splitting his time between Tokyo and Irvine to try to solve the division’s problems, the former executives said.
“They didn’t listen to the recommendations,” one former executive said. “I think now with Mr. Nishida stepping in, the Japanese and the Americans are pointing fingers at each other.”
Hataya dismisses such criticism as unfounded. He says the company is a leader in what will prove to be big laptop markets in the future: color displays and cellular modems that will allow wireless communications, which means a user could transfer data without a telephone line.
Hataya promises that there are new models coming out this year that will enhance Toshiba’s image as a technological leader. He also says the U.S. subsidiary could bounce back from any short-term divisional losses and be profitable for the fiscal year ending March 31, 1992.
“It’s a competitive market, but we are in good shape,” he said. “I think as of April, we are back on track. Revenues are as projected, but the only problem is we can’t control the price erosion in the market.”
Toshiba’s Fight for Market Share Though still the market leader in the portable computer field, Toshiba Corp’s lead has begun to narrow as a host of new competitors enter the fray. Vendor’s Share of the Laptop Market 1990 Others: 34.4% NEC: 4.0% ZDS: 9.7% Compaq: 14.5% Tandy: 13.3% Toshiba: 20.1% 1988 Toshiba: 17.6% 1989 21.8% A History of Tough Competition 1981: Tandy Corp. introduces its TRS-100 laptop
1983: IBM introduces its first laptop computer, the Portable PC. The machine, weighing more than 15 pounds, fails to catch on in the market..
1986: Toshiba introduces its first IBM-compatible laptop computer, the T1000. The 6.9-pound machine competes favorably with IBM’s second laptop, the PC Convertible, which IBM eventually takes off the market.
1987: Toshiba introduces its T3100 line, the first laptop with a hard-disk drive. Along with the T1000, the machine catapults Toshiba to the top of the laptop market.
1989: Toshiba introduces its first notebook computer, the 5.9-pound T1000SE; NEC Corp. unveils its UltraLite laptop. And Compaq Computer introduces its LTE 286 laptop, which is highly successful.
September, 1990: Compaq introduces a notebook computer based on the newest technology--an Intel Corp. 386SX microprocessor that runs at a speed of 20 megahertz, or about the same speed as the average desktop computer. The 7-pound machine costs $7,000.
November, 1990: More than 130 computer companies announce notebook computers at the Comdex computer show in Las Vegas. Toshiba announces its first laptops with color displays.
January, 1991: While other computer makers face a parts shortage, AST Research begins shipping a notebook computer based on Intel’s powerful 386SX microchip, a 20-megahertz machine priced under $3,395. undercutting Toshiba and Compaq’s prices by thousands of dollars.
March, 1991: IBM introduces its first notebook computer, a $6,000 machine weighing 7.5 pounds.
May, 1991: Compaq slashes its laptop prices to try to recapture market share; Toshiba cuts prices on its notebook models up to 33%.
July, 1991: Toshiba adds two notebook computer models, priced at $4,500 and offering longer battery lives. IBM cuts prices on its notebook models by $750.
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