by John Boyd

HP ready to do the full monty here?

Hewlett-Packard went all the way with its Japanese partner this summer. It happened when it acquired the remaining 25 percent share of Hewlett-Packard Japan (HPJ) from its JV ally, Yokogawa Electric, for JPY60 billion. With a full grip on the reins, the question now is: Can Hewlett-Packard become a leader in the local printer and PC markets, as it has done elsewhere around the globe?

HPJ was established in 1963, under the moniker Yokogawa-Hewlett-Packard. At that time, Yokogawa Electric owned 51 percent of a business focused on test and measurement equipment, for which both companies were renowned. Over the years HP steadily expanded its reach into computers, printers and imaging equipment, to the point where -- in 1998 -- such products accounted for almost $40 billion of its $47.1 billion overall sales. By contrast, Yokogawa Electric continues to concentrate on test and measurement, even though the joint venture has followed Hewlett-Packard into computers. Last year, IT products represented 63 percent of HPJ's JPY299 billion revenues. Given that IT so overshadows Hewlett-Packard's traditional business, Lew Platt, HP's CEO, decided this spring to split the company into two entirely separate businesses, with the IT portion retaining the name Hewlett-Packard.

In a visit to Tokyo in July, Platt said it made good sense to buy out the remaining HPJ shares held by Yokogawa, so that the operations in Japan could also be separated along product lines. Now that Platt has gained full control, what next? To date, HP has had spotty results in Japan. It has long been a leader in Unix servers and workstations, yet has made negligible impact in the PC and printer markets, where it's most widely known abroad. There are signs these shortcomings here are being addressed. For years, HPJ's inkjet printer sales were so miniscule in Japan, they fell into the "Others" section in the annual market-share pie charts, despite HP's virtual dominance of this segment elsewhere. But following the renaming of the company to Hewlett-Packard Japan in 1995, things began to look up, and HPJ recorded a 2 percent market share in inkjets in 1997.

Last year, according to market researcher IDC Japan, HPJ's inkjet share jumped to 7 percent, and, in the process, it dislodged NEC from the No. 3 spot. This year, signs already indicate HPJ will achieve a double-digit share. Nevertheless, Epson, with 52 percent of the market, followed by Canon with 32 percent, continue to hog the domestic inkjet business, which accounted for about 70 percent of all printers shipped in Japan during 1998. Explaining the company's rise out of printer obscurity, an upbeat Lee Ting, managing director of HPJ, said the firm had worked to strengthen sales channels, and was now designing products better suited to the Japanese market. Ting was less sanguine, though, about the company's PC prospects. "Besides the Compaqs and the Dells here, we face strong local competition," he said. But he added, "Splitting the company will now allow us to better focus on the different markets."

To date, HPJ has concentrated almost exclusively on the PC business segment, where it's made some small progress. "More people (in business) now know the name Hewlett-Packard, better than they did Yokogawa Hewlett-Packard," says Miya Akatsu, a PC analyst with IDC Japan. "In PC servers too, some of the channels are now getting requests for Hewlett-Packard PC servers by name."

Yet though HPJ is inching forward in the business domain, it is virtually a no-show when it comes to consumer recognition. "Hewlett-Packard doesn't have a consumer PC business in Japan," says Akatsu, "This is why their market share is lower here than in regions like the US and Western Europe." The consumer sector, she notes, "is very hard in terms of revenues, so HP has hesitated to enter this market, given it faces major vendors here like NEC, Fujitsu, Sony."

Such dithering is proving costly. Japan's PC consumer segment is currently setting record growth rates -- despite the depressed economy -- and now accounts for 40 percent of the overall market. And look what can be achieved with determination and a classy product. Sony and Apple had both abandoned the consumer segment until quite recently. Now, with smash hits in the Vaio and the iMac, Sony and Apple are the companies actually driving this segment's expansion. If HP wants to be regarded as a world player in PCs, it has to make a dent in the Japanese market. To do that it needs to strip away all inhibitions and expose itself to the full rigors of the consumer segment. In other words, no half measures, but go out there and do the full monty.

John says he keen to hear your opinion, but not while you're doing the full monty. So contact him via boyd@gol.com.

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