Will NEC sell DOS/V machines?
Purchase of Packard-Bell stock puts NEC foot on new path
For the past three quarters, Packard Bell has consistently outsold competitor Compaq. This undoubtedly is what attracted NEC to the table to negotiate the purchase of 19.99% of Packard Bell's stock. With this blessing from Japan's largest computer maker, Packard Bell suddenly finds itself on a clear path into Japan. Yet, for NEC, astute market observers predict the decision to buy an equity position in the company can only mean one thing -- that the Japanese electronics maker intends to finally sell DOS/V machines.Over the past two years, NEC has seen its share of the personal computer market dwindle. Even though the company refuses to comment on its situation, other than to proclaim the PC-98's superiority over DOS/V, industry analysts agree that NEC has fallen from its long-held throne of an over-50% marketplace share. (Dataquest Japan holds that NEC's share of Japan's PC market fell from 52.8% in 1993 to 47.0% in 1994, while the Nihon Keizai Shimbun places the NEC share 48.1%). In the face of NEC's stubbornness in refusing to confirm its 98 series' fall from grace, its purchase of a portion of the IBM-compatible maker speaks loudly of NEC's realization that proprietary computer standards are dying.
Falling share
Currently, NEC is working hard to port a Japanese version of Windows 95 to its proprietary machine before the OS's scheduled October DOS/V release. Yet the move can only be considered a stop-gap maneuver. If NEC continues to maintain its solidarity against the open market, the company risks losing its lead in an IBM-esque fashion. The sad fact is that NEC's PC-98 series is no longer competitive with today's IBM-compatible machines.This loss of competitiveness is due in large part to the closed nature of NEC's marketing of the system; closed systems mean problems. The electronics giant has long had a version of DOS running on its computers, yet compatibility with AT-standard DOS has always been minimal. In addition, NEC computers were for a long time priced higher than the IBM-compatibles invading the Japanese market. As NEC has learned to its dismay, for the consumer, a reasonable difference in price can overcome brand loyalty.
Another major factor is the availability of software. For years, NEC had the best selection of the software market. Yet, as software houses in the US have become adept at localizing their products, the state of the market has flip-flopped. Now, NEC's network of software developers is falling apart; some have migrated to the DOS/V platform, while others have simply disappeared as sales dried up.
The lure of DOS/V
Hardware vendors have similarly switched their efforts to the new platform. A good example is Seiko-Epson, whose sales of PC98-compatible computers plummeted, because it could not keep up with NEC in the price wars. While Seiko-Epson's DOS/V computers are selling like rice cakes, though, these sales have not offset those lost to the fast-diminishing PC98-compatible series' market share. An announcement by Seiko-Epson discontinuing its support of the PC-98 standard is expected soon.Fujitsu has been plagued by a similar problem. The company's entrant into the DOS/V pageant has been in short supply due to overwhelming demand, even as Fujitsu's share of the domestic PC market has fallen due to a stubborn allegiance to its own dying standards: the FMR and the FM Towns. Fujitsu is also expected to soon bow out of the proprietary marketplace.
Which leaves NEC alone in trying to stem the DOS/V tsunami. While the company has shown an admirable -- though misplaced -- sense of loyalty to its installed base and an ability to ignore reality and its falling market share, the purchase of a stake in Packard Bell reveals that NEC has not been caught daydreaming. More than likely, next year will herald the doom of the PC-98 series, and NEC had better have a DOS/V contender in the wings if it wants to stay on top. The company's name recognition will definitely act in its favor, and learning from its US competitors now and then quickly playing its cards over the next year may lead NEC to capture a hefty chunk of the market. In any case, though, the days of NEC's 50%-plus market dominance are surely gone forever.ç
Flat-panel display market ready to fly
Corporate purchases will speed ascent
With nec's announcement in late June that the company intends to invest ¥85 billion over the next five years to build up production in the plasma display panel (PDP) market, the world seems to have awakened to the realization that flat-panel displays will be the next lucrative market. Over the past few years, there has been overwhelming interest throughout the Japanese industry in developing digital, high-definition televisions. Yet flat-panel displays would seem to have greater potential demand and -- since monitor and TV standards have already been settled -- will likely be mass produced sooner.Of the various types of sleek displays being developed, color plasma displays (based on the plasma monochrome display technology that was pushed as an alternative to LCDs in the 1980s) seem most fashionable. Poised to dominate this segment of the market is Fujitsu, which has used the same incremental development strategies that succeeded with LCDs to develop a 21-inch plasma display that is less than 4-centimeters thick. NEC's recent proclamation of investment in production places it in the small pack chasing Fujitsu for a share of the still-small-but-promising PDP market -- a market expected to reach about ¥260 billion by the year 2000, and triple two years later.
Yet, press coverage surrounding NEC's announcement ignores an important point: NEC entry may push plasma into prime time. There is no mistaking NEC's billion-dollar bet that plasma displays are the solution to the large flat-panel conundrum. Liquid-crystal dis- plays (LCDs) are not the answer; since the panels are manufactured by creating arrays of transistors over a large surface area, it is difficult at best for display sizes greater than 14-inches or so. For really large displays -- those greater than 80 inches -- projection systems will remain dominant for some time to come, but this leaves a large gap. Even though many companies are trying to develop new technologies to fill it, plasma display panels seem the most promising solution.
More potential than LCDs
Japan's search for the next display technology can only be hindered by the continued slow economy. In view of cost pressures, the plasma pack's bet on an old technology may seem a tad daft. As NEC manager Makoto Miyakawa bluntly admits, "Plasma display panels are not really a market yet. But NEC expects they will be by 1996."Manufacturers are eyeing a market with immense potential. In 1994, worldwide LCD-panel production output reached ¥640 billion, of which over 90% was by Japan. Japanese companies, now threatened by their Asian neighbors, hope to preempt their competitors' entry into the race. At stake is the potential of placing a wall-hanging TV in every home, and a multimedia terminal in public places. Left behind are all but a few small US companies with the staying power to chase this elusive and expensive long-term goal.
On the right road at last
Yet, this long-term vision is a necessity. Large flat-panel displays -- like their smaller LCD brethren before them -- have had their share of wrong turns. Originally envisioned as replacements for cathode ray tube (CRT) displays, new niche markets are now being sought. The original developers of flat-panel technology pinned their marketing strategies on the fashionable slimness of the new displays -- a 21-inch plasma display panel is only 4-centimeters thick, while a 21-inch CRT unit sits like Jabba the Hut and commands an entire desk. But flat-panel manufacturers have not been able to crack the price barrier into the personal computer display market, leaving large displays -- still priced at ¥500,000 to ¥800,000 -- in limbo.Still, of all the display technologies currently envisioned, plasma display panels show the most promise in breaking this barrier. All the production-development cycle needs is a push, in the form of a small niche market that will purchase the 21-inch displays at their current 6-foot display price.
Many companies are looking at the nascent Hi-Vision market. While derided by many Western industrialists as a dead technology, the Japanese HDTV standard is being heavily pushed by a 25-company NHK-lead consortium. Next year heralds the start of Japan's push to sell high-definition television (HDTV) sets to the consumer, a push leading up to the 1998 Nagano Olympics. Manufacturers expect to be able to match the price of CRT HDTVs, giving their thin entry a better-than-thin chance as mass production slims manufacturing costs.
Other manufacturers are not betting on such a risky market. Alternative niche markets, while smaller, are possibilities. Wide TVs, large computer displays, presentation screens, and large displays for public places are areas where large flat-panel displays may have a chance. Based on successes in these markets, Fujitsu hopes to raise production from a current anemic 1,500 displays per month to 20,000 in 1996 and 100,000 in 1997, while NEC hopes to be producing 150,000 displays per month by the year 2000.
Technology from
the mysterious East
Other technologies have the potential of creating large flat-panel displays,
but most have been developed into products here in Japan. Most of the technology
was created in the West, but in what is now an old story, only the Japanese
had the staying power to commercialize the product. Only a few companies have stayed in the flat-panel race. One is Tektronix of the US, which is jointly developing a simpler alternative to the PDP with Sony Corp. Their entry, dubbed plasma-addressed liquid crystal (PALC), is expected to cost less than plasma displays, while several industry analysts claim that the PALC display's use of a mature technology results in a better looking screen. This joint project solves problems on both sides. As Sony manager Setaguchi explains, "While Tektronix had the basic patents, we had the manufacturing processes."
Another technology is Canon's ferroelectric LCD (FLCD) technology, which simplifies the LCD production process enough to break the 14-inch barrier. At present, the company has a 15-inch version on the computer display market and is developing a 21-inch display. While the FLCD panels have brilliant picture quality and are less than 8-centimeters thick, the technology does not scale as easily as plasma, making anything as large as a 30-inch display a Herculean technological feat.
One thing is for certain: companies trying to enter the market without the benefit of Japanese experience in manufacturing will inevitably fall behind. "Money is not enough," remarks Emi Takase of Hitachi, "[Companies] need the technology manufacturing experience and know-how to produce flat panel displays." Hitachi has joined a consortium developing HDTV plasma displays with Japan's government-owned broadcasting giant, NHK (the force behind the push for HDTV at the 1998 Nagano Olympics). While the technology is slightly different than Fujitsu, the aim is the same: to develop the next generation of display devices.
For the most part, US companies seem to have conceded the race for this potentially lucrative market. While Fujitsu's Beirne admits that, "We essentially missed the boat on manufacturing LCDs," Fujitsu has made up for its lost gamble by single-mindedly developing the AC technology for its color plasma display panels. While US companies all left the flat-panel display market, Fujitsu redeveloped a basic technology. Today, the company maintains a lead of at least a year over competitor NEC, while US companies are more than a year behind.ç
DVD-standards division
will separate industries
Separate standards look here to stay
For a standard still at least a year from being commercialized, digital video disks are creating a great deal of fuss. The two competing camps, Sony/Philips and Toshiba/Matsushita/Pioneer, will try to keep their names in the press as much as possible over the next few months. Despite the initial dismal prognosis, Sony looks to be making a comeback with its strong showing in the potential CD-ROM upgrade segment of the market (with its MMCD standard). Toshiba, meanwhile, maintains its strong base in the entertainment sector with its SD (super density) family of formats. More than ever, the two camps' division points to a divided marketplace, bifurcated into movie media and computer media.Though Matsushita has never dropped its mantle as aspiring mediator between the alliances, the Sony/Phillips and Toshiba/Matsushita/Pioneer camps look to be separated forever. As hinted by Philips' request a few months ago for royalties on DVD technologies (in accordance with its CD-technology patents), the battle seems to be spreading to several levels, including legal. The driving force behind Toshiba's selection of the two-platter annealing technology (the basic technology in manufacturing SD-format disks -- see "The DVD Battle," June) was to exempt its alliance from royalties, though, and this foresight leaves its alliance in a good legal position.
What began as a narrow divide separating the camps has now grown into a deep chasm. And with Sony courting CD-ROM manufacturers for allies, the chasm only grows wider. So far, the MMCD alliance has gathered Acer Peripherals, Alps Electric, Japan Victor, Mitsumi Electric, NEC-Home Electronics, Ricoh, and Teac, all of whom currently manufacture or supply CD-ROMs and CD-ROM drives. The signing of NEC-Home Electronics in July is a key play by Sony, as parent NEC will most likely follow its subsidiary's lead and supply PCs with DVD drives (just as Gateway 2000 recently announced it would do).
On the other hand, the Toshiba alliance still has an impressive list of content providers, including MCA, Time-Warner, Corolco Pictures, MGM, Paramount, Nippon Columbia, Victor Company of Japan (JVC), Toshiba EMI, and Pioneer LCD. Even with many major studios remaining aloof, this show of power guarantees a majority share of the entertainment market for the SD alliance.
Consumers are likely to be stuck with a market that continues to suffer from a split personality. The whole purpose of the DVD standard was to heal the rift between the varying forms of digital content: movies, music, and data. Yet, the current division of the market into computer applications and entertainment applications will leave consumers with a machine (supplied by the Toshiba alliance) that replaces video tape players and a disk drive (supplied by the Sony/Philips alliance) that replaces the CD-ROM drive. If either standard is to eventually dominate the market, the decision looks to boil down to which hardware platform will become the general home appliance. In effect, the two alliances are betting on the outcome of the now not-so-philosophical debate over whether the multimedia terminal of the future will be a computer moved into the living room, or a TV moved onto the desktop.ç
Can callbacks keep up the competition?
Opening a market in japan isa difficult thing; yet, callback services have been able to break into the Japanese market through the regulatory cracks. While callback services account for only an estimated 1% of long-distance customers, telecommunications giants KDD, ITJ, and IDC fear the start of a revolution.
Over the past two years, KDD has lost large segments of the long-distance market, dipping below 70% for the first time in 1994. After several rounds of price cuts, the international carrier has settled down to fighting its competitors by adding value to its services. According to one industry analyst, "KDD cannot afford to cut their prices indiscriminately. Callback services will continue to beat them on price alone for years to come."
Callback services are grabbing market share fast -- so fast, that the lumbering long-distance carrier has begun to specifically target the pesky little service providers. (Some callback users claim that, when they dial the overseas callback number through KDD, more often than not they get only a "this call cannot be connected" message.)
Recently, KDD requested that some callback international telephone service companies modify their adapters, on the grounds that they were engaging in an illegal activity by accessing KDD lines using an adapter that does not properly route through KDD circuits. The international common carrier has pleaded its case to the Ministry of Posts and Telecommunications (MPT), and has asked that the situation be rectified by ministerial ordinance.
Although the ministry has assured KDD that it will investigate the case, the current Telecommunications Business Law cannot restrict the use of such an adapter. In addition -- sensitive to adopting any measure that strengthens telecommunications regulations at a time when Japan's high communications costs are being criticized -- the ministry is unlikely to act.
And this gives free reign to callback services. Possible new contenders are interpreting the ministry's statement as permission to enter the market, and established providers are using the breathing room to improve their services before pickings get lean. As Japan's long-distance providers try to close the price gap, callback services are finding that they have to evolve. "Today, callback services are the cost-effective alternative," Pacific Link Vice President David Schilling agrees. "Yet, the push for transparency in dialing is so strong that, by the end of 1996, you are either direct dial or you're dead." Direct dialing -- possible by using the controversial adapter that automates the callback procedure -- is the next step in improved service offered by callback providers, and should keep them alive through 1997.
The MPT is not ignoring KDD's post-monopolistic plight. To fill some of the holes that callback services are exploiting, the MPT has formally approved "breakout" services, giving Japanese telecommunications companies some recourse to fight back. Breakout service enables a call made via a leased line from Japan to the US (by a virtual private network, for example) to be used to initiate a call from within the US to a third nation. This breakout arrangement is cheaper than calling directly to the third nation from Japan. KDD, IDC, and ITJ were grated permission to offer the service effective as of July. Breakout services are limited to users leasing international lines from Type-I telecommunications carriers, and are expected to cream the most lucrative customers off the top of the callback roster.
For once, however, with the government seemingly unwilling to risk consumer displeasure and roll back deregulation to protect the long-distance carrier trio, callback services can look forward to a growing market share. While this makes deregulation unavoidable, callback services cannot become carriers. In the end, the callback service providers can only harvest Japan's customers and leverage their profits and experience in the international value-added markets.ç
