Toshiba plans initial DVD sales launch in US

Software content drives hardware decisions

In early November, Toshiba Corporation announced that it will launch sales of its digital video disk (DVD) equipment in the US market rather than in Japan. The Japanese launch of DVD products will follow their US release by about three months. Traditionally, Japanese manufacturers introduce new systems and formats in the domestic market first. Toshiba has decided to follow a different course for DVD however, choosing instead to target the lucrative, high-profile US market. The current initial product release date is set for September 1996 in the US, followed by an end-of-year launch in Japan and Europe.

The reason for Toshiba's new marketing strategy seems to be based on content, and can be summed up in one word: Hollywood. The DVD is positioned to take on a wide variety of current media, such as videocassettes, CD-ROMs, and laser discs. When it comes to the entertainment market, consumers make their purchase decisions based on content rather than media type or technology, and hardware (player/recorder) sales inevitably depend on the success of the software component. DVD vendors must first obtain prerecorded program content and entice potential buyers with the range of popular titles available on DVD before they can hope to sell the more lucrative hardware needed to use those discs. (The disks themselves are a commodity item offering very little profit for the manufacturer; most of the cost of a prerecorded disk goes to the content provider.)

Not only does the US offer the widest range of popular software content to entice buyers, it also represents the biggest potential DVD sales market as well. Several major US media companies, including MCA, Sony Pictures, and Time Warner, are already preparing movies and other software in DVD format.

Initially, DVD players/recorders will probably be priced under $700. DVD drives for PCs, which will not hit the market until several months after the entertainment-use DVD units, will be priced under $300.

While September is Toshiba's target date, actual launch of DVD systems will depend heavily on final agreement of the DVD technical standard. The two rival camps of manufacturers that were pushing their own incompatible formats -- setting the stage for what threatened to be a repeat of the VHS-Betamax VCR battle -- have agreed on a single-standard compromise, but engineers from the major consortium members are still working out the technical details.

At press time, other DVD manufacturers were still undecided about product release date and initial markets. If Toshiba proceeds with its plans, though, it seems a good bet that Matsushita, Sony, Philips, and others will not allow Toshiba to get too much of a jump in the lucrative North American market. Industry sales estimates for the next five years see Toshiba as a DVD market leader, with perhaps a 20% worldwide market share.ç

Fire scorches laptop production schedules

Major lithium-ion battery factory destroyed

Just-in-time manufacturing is a
cost-saver -- assuming everything goes as planned, with all needed components produced on schedule and available in time. Like a Christmas dinner ruined by a minor-but-essential ingredient having been left out of a recipe, though, a catastrophic shortage of batteries has threatened to replace vendors' sugar-plum visions of a holiday sales surge for notebook computers with the reality of no presents under the tree.

When fire razed the Sony Energytec lithium-ion battery manufacturing plant in Koriyama, Japan, in early November, it broke a vital link in the global procurement chain for notebook computer components. Sony has been by far the largest supplier of lithium-ion batteries to the commercial market, including many Japanese and US manufacturers of notebook computers and cellular phones. The now-destroyed Sony plant was producing more than 3 million such batteries per month -- nearly half the world's open-market supply.

The cause of the fire had not been determined at press time, but the blaze was devastating, almost totally destroying the top two floors of the three-story facility. The first floor, which housed the production line, suffered significant damage as well, but Sony officials were hopeful that some of the battery production equipment could be salvaged and moved to another facility. Even if that proves feasible, though, it would be weeks before significant production could be resumed.

In expectation of increased demand, Sony has been building a second lithium-ion battery plant, in Tochigi. The company will expedite completion, but that facility is not expected to come online until spring. While alternate suppliers, such as Sanyo Electric (which has been producing some 2 million units per month) and Matsushita Battery are gearing up to make up for the shortfall, lithium-ion batteries are expected to be in short supply for some weeks to come. That, in turn, may translate into a market shortage of cellular phones and notebook computers from some manufacturers during the holiday sales season.ç

Year-on-year Japan PC sales up by 64%

Home-users, mid-sized businesses spur PC demand

Calendar year 1995 will be a banner year for PC sales in Japan, with over 5.5 million units shipped, according to market researcher IDC Japan. (And, due in large part to the late-November release of Japanese Windows 95, the PC shipments for fiscal year 1995 are expected to top the 6 million mark.) The 5.5 million forecast represents a whopping 63.6% increase over calendar year 1994 PC shipments (3.4 million), and it is triple the 21% year-on-year increase predicted by industry analysts just 9 months ago.

Medium-sized business are leading the PC-purchase parade, with firms of between 5 and 299 employees expected to buy some 1.74 million new PCs in 1995 (31.4% of the total purchases), followed closely by home users, who will snap up 1.72 million units (31.0%). This represents a 40% and 80% jump, respectively, over 1994 PC purchases by buyers within those categories. The biggest percentage increase, though, will come among small businesses (1 to 4 employees), which are expected to buy some 590,000 PCs -- a whopping 140% increase over their 1994 purchase level of 246,000 units.

Pentium-equipped PCs will account for about 43.3% of total 1995 shipments, or 2.4 million machines. About 53% of 1995 PC purchases will be replacement machines, IDC predicts -- a movement spurred in part by the increasing speed and memory requirements of OSes such as Windows 95. Over 76% of PCs shipped in Japan in 1995 will have a version of Windows (3.1, 95, or NT) preinstalled; nearly 1 million PCs will be shipped with Windows 95 preinstalled.

Japan's installed PC base at the end of 1995 will be approximately 13.5 million units. Medium-sized firms and home users each account for about one-third of this installed base, while large corporations account for about one-sixth and small companies about one-twelfth. IDC Japan estimates that 10.7% of Japanese households now have a PC, and that this will increase to 42% by 2000.

Among businesses, some 35.2% now have a PC LAN (local area network) installed, compared with just 25.5% in 1994. The computer-per-employee ratio among Japanese firms is about 1-to-3 among large corporations, but only about 1-to-8 among medium-sized firms and 1-to-14 among small businesses. Universities and colleges have about 1 computer per 9 students, while the ratio in Japan's elementary and secondary schools is a lowly 1 computer per 33 students.ç

Standards sought for large-scale systems

Japan hopes to avoid being left out in the cold again

It was largely through the efforts of US companies that today's de facto PC standard was developed, putting US hardware and software firms firmly at the top of the world PC profit chain. Having seen itself left out in the cold in that evolutionary process, Japan is taking steps to ensure that the same thing doesn't happen with the standardization of parallel computers and distributed processing systems.

The Parallel Distributed Processing Research Consortium (PDPRC), formed in October, brings together 21 universities and 10 major Japanese computer corporations in a partnership that seeks to establish industry standards. The PDPRC is a rare example of cooperation between industry and academia in Japan, and expectations are high that the effort will prove successful. By the turn of the century, the consortium will spend some ¥1 billion (half contributed by participating members, and half by the Ministry of Education) in research and development activities. These will focus on two main development projects: high-speed MPUs (main processor units) and OSes (operating systems) for parallel computers, and dedicated languages for distributed processing.

The consortium's research work will be carried out mainly by university researchers, but corporate researchers will work with them at university facilities, and regular meetings will be held to ensure the timely exchange of data between corporate and academic participants. It is expected that powerful parallel computers and distributed processing systems will be vital for development of tomorrow's advanced multimedia infrastructure and applications, and Japan intends to have a voice (if not take the leading role) in creating both hardware and software standards.ç

Japanese computer/electronics firms report strong sales

Japan's major com puter and electronics companies enjoyed good sales during the first six months of fiscal year 1995 (April to September). Despite the continued sluggishness of Japanese economy, nearly all firms reported higher demands for their products and boosted their annual forecasts.

NEC saw 1st-half 1995 sales increase by 9%, to ¥1,518 billion, and now expects full-year FY95 sales to reach ¥4,300 billion yen, an increase of 14% over 1994 sales. Strong domestic sales of computer and communications products and higher worldwide demand for semiconductors are contributing factors. NEC expects full-year pre-tax profits to hit ¥90 billion.

Hitachi saw its pre-tax earnings for the first six months of the fiscal year jump by 28% (to nearly ¥55 billion), and has raised its full-year estimate to ¥120 billion, an increase of 20% over its earlier estimate and a 35% improvement on the previous year's performance. Strong sales of information systems and electronic devices were credited for the increase. Hitachi plans to expand its investment in semiconductors to increase capacity at existing plants and accelerate construction of new facilities.

Mitsubishi Electric announced 1st-half FY95 pre-tax profits of ¥37 billion, a 39% increase. Sales of information and telecommunications systems and electronics products are strong, but office-use electrical sales are weak. FY95 pre-tax profit is forecast as ¥82 billion on sales of ¥2,650 billion, a 29% year-on-year increase.

Sharp reported pre-tax profits of ¥35 billion, up 12%, although export sales experienced a decline (due in large part to changes in the dollar-yen exchange rate). Toshiba, meanwhile, saw a 31% increase in its 1st-half pre-tax profits (to ¥32 billion, on sales of ¥1,677 billion), based on strong sales of semiconductors, CD-ROMs, and hard disk drives.ç

International cooperation on 1G-bit DRAM production

The memory chips being shipped today are largely of the 16-megabit variety. Although sample shipping of 64-megabit chips has begun, these are not yet being mass-produced, and 256-megabit memory chips are still under development. Success in modern fast-paced markets calls for long-term planning, though, so four semiconductor industry leaders (including one Japanese firm) are joining to plan for next century's 1-gigabit chips.

Mass production of the 1-gigabit memory chip is not expected to start in earnest until 2000 or later (though NEC claims it will ship samples beginning in 1998). To ready themselves for future market needs, however, Toshiba (Japan), Siemens AG (Germany), and IBM and Motorola (US) have reached an agreement to cooperate in a ¥100 billion-plus technological research effort. It is expected that 1-gigabit DRAM chips will be an important component of advanced multimedia infrastructure; the cooperative effort will not only speed 1-gigabit chip production, but will accelerate development of related chip technologies as well.

A major hurdle for development of a 1-gigabit chip is the tremendous up-front cost; total capital investment will run into several hundreds of billions. By reaching a cooperative agreement, the four firms will be able to share costs and knowledge. This undoubtedly will put pressure on other Japanese industry players, such as Mitsubishi, NEC, Hitachi, and Fujitsu, to form new development alliances or beef up their current partnerships. (NEC has been cooperating with AT&T and Samsung, while Hitachi is working with Texas Instruments.)ç