Expanding PC Market Led by Businesses

In fiscal 1997 software sales declined 2 percent to 5.41 trillion yen (US$40 billion) compared with a year earlier due mainly to sluggish personal computer sales.

However, in fiscal 1998 the software market is likely to grow about 3 percent. A 5 percent to 7 percent growth is expected in fiscal 1999, and the computer hardware market is projected to grow to a 6 trillion yen business by fiscal 2000. This is because personal computers and PC servers are projected to be driving forces in the market after fiscal 1998.

Many industry sources have said that the depressed economy has a positive effect on the computer market. Indeed, demand for personal computers among businesses still remains strong.

A survey conducted via email in December 1997 by "Nikkei Market Access," a membership-based information service, provided such evidence.

There were two main types of responses to the question about personal computers planned to be acquired in fiscal 1998. Those responses were "the same level as in fiscal 1997" and "a higher level than in fiscal 1997."

If small and midsize businesses and small office home office (SOHO) markets are also included, the market is projected to expand even more. However, the consumer market is expected to remain sluggish. Surveys indicating consumers' dwindling desires to purchase personal computers have been seen since the latter half of 1997.

Personal computer makers have been placing great expectations on Intel Corp.'s low-priced Celeron microprocessor and Microsoft Corp.'s Windows 98. Yet, a rapid revival of the consumer market in fiscal 1998 cannot be expected because individual users in Japan are not motivated by low prices of PCs alone. In addition, Windows 98 does not have as strong an impact as did the debut of Windows 95.

Sales of PC Servers to Expand at 20 Percent Level in FY98

The market for servers is growing at a 26 percent pace a year. The PC server market is expected to secure the second position in the server market following mainframes, by maintaining a high growth rate of 20 percent after fiscal 1999. Strong demand for servers used for such information-related systems as email and the Internet is forecast.

The improved performance level of PC servers is expected to contribute to expanded use of servers for business applications. Such leading office computer makers as NEC Corp. and Fujitsu Ltd. have been stepping up sales promotions of office-type PC servers. Small and midsize businesses will likely soon move to replace their office computers with PC servers. However, numerous obstacles need to be overcome.

Vendors must provide better support for users. Secondly, is the issue of the stability of Windows NT. JRI Systems Solution Ltd. pointed out in Nikkei Computer that continuous operation of Windows NT for a long period can result in unstable operations.

Meanwhile, the UNIX server sector, which will see its low-end model area assaulted by PC servers, will shift its focus to mainframes and high-end office computer markets. Nikkei Computer forecast that the market in fiscal 1998 will increase 15 percent to 450 billion yen (US$3.4 billion).

Continued Declines in Office Computer and Mainframe Sales

Nikkei Computer projects that in fiscal 1998 the market of office computers will decline 3 percent to 300 billion yen (US$2.2 billion) reflecting the adverse effects of the increase in PC servers and UNIX servers.

The office computer market is likely to maintain a level of 270 billion yen (US$2.0 billion) in fiscal 2000 due mainly to the high reliability of the systems and efforts by computer makers to build in such new functions as Java execution environments and Web server tasks.

In fiscal 1998, the mainframe market, which holds the next largest share after the PC market, is forecast to decline by 4 percent to 1.75 trillion yen (US$13 billion). A decline of 4 percent is expected after fiscal 1999 because the speed of the improved performance-to-cost ratio far exceeds that of increased demand for mainframes.

The PC workstation market is likely to see significant growth. In fiscal 1997, the market registered only 30 billion yen (US$220 million), yet it has been forecast to grow to as much as 160 billion yen (US$1.2 billion) in fiscal 2000, taking full advantage of low prices and strong applications for personal computers. The PC workstation market is expected to grow in such areas as Web content creation, financial businesses and construction-related computer-aided design (CAD).

On the contrary, UNIX workstations will encounter a tough environment. A gradual decline of 3 percent to 5 percent after fiscal 1998 is forecast and the market will likely decline to the level of 340 billion yen (US$2.5 billion) by 2000.

ERPs to See a Rapid Increase Among Software Products

Nikkei Computer has projected a 16 percent increase to 1.54 trillion yen (US$11 billion) for the software products market in fiscal 1998. It also has projected a 17 percent-18 percent rate of increase after fiscal 1999 and it said the market will reach a level of 2 trillion yen by fiscal 2000.

Despite the effects of the sluggish economy, numerous issues need to be dealt with in the development of information systems. For example, measures against intensified competition among businesses, Year 2000 issues and the establishment of global standards are just a few of the major issues.

In fiscal 1998, among software products, significant increases are expected to be seen in business application products including Enterprise Resource Planning (ERP) packages and in such communications products as email and groupware, which are introduced by small and midsize businesses.

The ERP package market, in particular, has attracted attention.

Gartner Group Japan K.K.'s Dataquest estimated that the ERP package market reached 36 billion yen (US$270 million) in fiscal 1997 (based on vendor shipments). It projects that the market will see an average increase of 36 percent after fiscal 1998 and that it will grow to a market size of 170 billion yen (US$1.3 billion) by fiscal 2002.

Expectations For Outsourcing in the Service Market

The service market can be classified into information service and hardware maintenance service. The driving force of the information service market is software development service centered around the development of applications on a commissioned basis.

A 9 percent increase to 7.61 trillion yen (US$57 billion) in fiscal 1998 and a growth rate of 9-10 percent from fiscal 1999 are projected. Full-fledged outsourcing will have a favorable effect on the information service market. Outsourcing has significant potential as seen in the statistics prepared by MITI. Specifically, labor costs account for almost 17 percent of information systems budgets of Japanese businesses.

In addition to the existing commission-based mainframe operation services, outsourcing services will spread to the inter-business cooperation sector.

Table 1: Size of the Hardware Market, 1997-2000 (unit: billion yen) Nikkei Computer estimates. Items in parentheses indicate comparisons with a year earlier (percent).

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Table 2: Sizes of the Software Product and Service Market, 1997-2000 (unit: billion yen) Nikkei Computer estimates. Items in parentheses indicate comparisons with a year earlier (percent).

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(Nikkei Computer)