(Nikkei BP Group)
(No.1 High-Tech News Site in Japanese)
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| Personal Computer Pricing Battle Intensifies in Japan
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January 25, 1999 (TOKYO) -- Japanese customers are benefiting from the
widespread price cutting of personal computers, but PCs are still substantially
more expensive in Japan as compared to the United States.
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The price cutting was originally triggered by Compaq Computer K.K. of
Japan and IBM Japan Ltd.
An increasing number of low-priced PCs have become available in the Japanese
market. As is the case in the United States, where PCs priced at US$1,000
or less have gained a firm foothold, the Japanese market is seeing more
releases of less-expensive models.
"In the United States, PCs priced at US$1,000 or less are becoming a
new trend, and the Japanese market is also expected to follow the move,"
said Katsuichi Tomita, vice president and executive general manager
of NEC Corp.'s First Personal C & C Operations Unit.
According GfK Japan Ltd., sales of PCs with a retail price of 200,000
yen (US$1,760) or less have been growing since the second half of 1997.
The percentage of sales of such PCs surpassed 54.4 percent in September
1998. Since then the figure has remained around 50 percent.
In the coming spring sales campaign, sales of PCs priced in the range
between 100,000 yen (US$880) and 200,000 yen will likely exceed 60 percent
of the market, industry observers said.
Following the Trend in the U.S. Market
The PC price war in Japan was triggered by Compaq. The Japanese subsidiary
of the U.S. personal computer maker released the PRESARIO 2210 for a
retail price of 138,000 yen (US$1,215) in the fall of 1997.
NEC and Fujitsu Ltd., the top two Japanese PC makers, released all-in-one
PCs preinstalled with business application software for around 190,000
yen (US$1,670) in February 1998.
During the 1998 year-end sales campaign, IBM Japan captivated the market
with the Aptiva D1J, which it released in November. The all-in-one model,
including a monitor as well as word processing and spreadsheet software,
was priced at around 148,000 yen (US$1,300), or the first such price
below 150,000 yen in Japan. With the release of the Aptiva D1J, Japan's
recent PC price competition entered a second phase.
Other major PC makers could act to bring down PC prices by joining the
price war with products priced less than 150,000 yen, the industry analysts
said.
However, unlike the case in the United States, where US$599 PCs are sold,
many of them think that models priced at US$1,000 or less are unlikely
to be introduced in Japan by the end of the year.
In Japan, PCs are usually sold in a package (or all-in-one models, which
come with a monitor, business application software and other features).
Japanese consumers tend to prefer reliability and high-performance consumer
goods. Japanese consumers are less interested in the do-it-yourself
approach or even buying a monitor separately.
The price range between 120,000 yen and 130,000 yen (US$1,060-US$1,145)
is a break-even point for PCs, if they are sold together with a monitor
and application software, said Yasuyuki Higuchi, director of Compaq
Japan's Consumer Presario Product Marketing Division.
However, PC prices can decline owing to a fall in prices of parts as
well as cost-cutting efforts made by PC makers and retailers. The following
is an analysis of trends in PC pricing.
OEM to be a Key for Cutting Production Costs
Of the costs for PCs sold in Japan, parts, manufacturing costs and sales
management costs each account for 30 percent-40 percent. The profit
margins for manufacturers and retailers as well as costs for bundled
software represent only some 5 percent-10 percent.
Desktop PC models priced at less than 200,000 yen were made available
thanks to falling prices of central processing units, memories and hard
disk drives. The collapse of the market domination of Intel Corp. and
growing market share of compatible CPUs made by Advanced Micro Devices
Inc. and other companies since last year have contributed to the recent
price-cutting move.
Takahiko Umeyama, research vice president at IDC Japan Ltd., said that
prices of PC parts won't decline much. For this reason, it will not
be easy for PC makers to cut prices of all-in-one desktop models.
However, prices of notebook PCs can still be slashed. A Celeron series
lower-priced CPU designed for notebook PCs will be introduced by Intel.
And prices of 12.1-in. or larger thin-film transistor-liquid crystal
display (TFT-LCD) panels also are expected to drop over the long term.
Thus, many A4-sized all-in-one PC models priced below 200,000 yen could
be introduced.
Some makers are trying to cut their manufacturing costs by procuring
finished and semi-finished products made on an OEM basis from Taiwan
and other Asian countries. However, Japanese PC makers had been reluctant
to use products made in Asia due to fears that customers might think
that such products are inferior in quality.
Yet today most multinational PC makers buy products from Taiwan-based
PC producers. An increasing number of domestic makers have their Taiwan
partners manufacture notebook PCs on an OEM basis. For example, NEC
procured its A4-size notebook models from First International Computer
Inc. of Taiwan for the year-end sales campaign.
Some Japanese manufacturers are showing an interest in Korean makers
due to the weaker won in the wake of the economic crisis and lower manufacturing costs.
Distribution Costs Reduced
In an attempt to cut sales management costs in distribution, sales and
support of products, PC makers also are trying to reduce inventories.
Sales management costs comprise about 30 percent of prices of PCs. Excessive
inventories are thus a significant burden on such makers. In Japan,
makers provide retailers with some funds to reduce prices of their products
as sales promotion expenses.
Sony Corp., which started its PC business in 1997, simply estimates demand
for the entire market and then distributes products to retailers accordingly.
In this way, Sony was able to evade a sudden fall in prices of its products
because it holds little inventory. However, the company got a poor reception
from retailers and consumers after its popular models became unavailable.
Yet Sony could set competitive retail prices for its products.
Other companies that had suffered from accumulated inventories also adopted
Sony's method and reduced their shipments. By the summer sales campaign
of 1998, such firms disposed of nearly all of their excess inventories.
And the successes in inventory reduction efforts enabled them to slash
PC prices.
IBM Japan and Apple Japan Inc. trimmed their distribution costs. IBM
Japan skipped sales agents and started direct transactions with major
retailers with volume sales.
Apple Japan implemented a drastic reduction in distribution costs by
constructing a new distribution system to sell iMac PCs for 178,000
yen (US$1,570). Under the system, the company transports its products
by air from a plant in Singapore to Tokyo's Narita Airport and then
directly to retailers.
A key to further price reductions will be the direct sales system. Major
direct sales vendors such as Dell Computer Corp. of Japan and Gateway
2000 Japan Inc. have not sold models priced at less than 100,000 yen
because they prefer to sell PCs with the "latest specifications."
Some direct sales vendors have introduced lower-priced PCs. Epson Direct
Corp., for example, sells a model priced at 99,800 yen (US$880).
The first PC priced around US$399 (as in the United States) is likely
to be released by one of these direct sales vendors, the industry analysts
said.
Related stories:
� Intel KK Looks to Serve Growing LCD PC Market, Pres. Says
� Japan's PC Sales in Second Week of Dec. Expand Sharply
� IBM Japan to Boost Sales of Low-Priced Desktop PCs for Homes
� Only Retailers with Skillful Sales Staff to Sell iMac: Apple Japan's
Director
(Yasushi Uchida, Masahiro Komukai and Kentaro Kozuchi, Staff Editors,
Nikkei
Personal
Computing)
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