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Compaq to try again in Japan

Canon will now sell Presario PCs at its stores throughout Japan, displacing Apple Macs.

Compaq Computer (CPQ) has signed a marketing and distribution deal with Canon that may pry open the relatively closed Japanese PC market to a U.S. manufacturer.

The agreement is a setback for Apple Computer. Apple was Canon's exclusive U.S. brand and one of the few U.S. brands to sell well in Japan. Falling sales of Macs, however, prompted Canon to seek a new partner, Canon executives said.

Canon owns a chain of retail stores located throughout Japan which sell PCs and peripheral equipment, such as printers.

While both companies stated that this is the first time American and Japanese companies have teamed up to promote U.S. computers in Japan, it may not be the last. Massive consolidation in the PC industry is making U.S. computers both attractive to foreign distribution partners and affordable for overseas customers, some say.

Under the deal, Compaq will launch a new line of Presario consumer PCs for the Japanese market this spring. Canon will have the exclusive rights to distribute the new line and will work with Compaq on other promotional tie-ins.

Canon Sales chairman Seiichi Takikawa told the same news conference that the main reason for the company to seek a deal with Compaq was the U.S. PC vendor's strong competitiveness in pricing.

He added that a declining share of sales of Apple products in its total sales also prompted it to seek a new line of PCs.

Macintoshes accounted for about 60 percent of Canon Sales' total computer sales in 1996 but declined to less than 50 percent in 1997, Takikawa said.

"With the tie-up with Compaq, we can now seriously aim at raising our share of Japan's PC sales to ten percent from the current seven percent," he noted.

Canon Sales is the sole distributor of all products of Canon--a top manufacturer of cameras, printers, and photocopiers--in the Japanese domestic market.

Compaq, its Japanese subsidiary, and Canon Sales would start their business cooperation in Japan this spring, the two companies said.

Industry data shows that Japan's huge 1.3 trillion yen corporate computer market--comprising servers, workstations and mainframe computers--is dominated by big Japanese makers. In the third quarter of 1997, Compaq ranked only seventh in sales of corporate-use computers in Japan, with a 6.2 percent market share. "We believe that we have found the right way to do business in Japan," Compaq senior vice president Michael Heil told a news conference.

He said that Canon Sales had a strong sales infrastructure, powerful marketing ability, and intimate knowledge of Japanese consumers.

Canon Sales sold about 500,000 PCs per year in Japan in 1996 and 1997, he added.

Hajime Takayamagi, president of Compaq's Japanese unit, said the deal would let his company raise its share of the Japanese market by at least one to two percentage points from slightly more than three percent at present.

Observers noted that Compaq's recent market gains and manufacturing initiatives, combined with Japan's economic problems, underpin the deal.

"Compaq has achieved a kind of market leadership in the United States in consumer markets. They now have the opportunity to build a successful brand in Japan, many Asian countries, and in Latin America," said Richard Zwetchenbaum, an independent PC analyst. "Success in one sphere leads prospective partners to want to deal with them. Compaq can take advantage of the insider status that Canon affords it."

Build-to-order initiatives will also make it easier for manufacturers to design distinct lines of PCs for deals like this, he pointed out. Earlier in the week, in fact, Compaq signed a deal with RadioShack, under which Compaq will make a distinct line of Presarios that will only be available through that chain.

Still, cracking the Japanese market won't be easy, noted Kevin Hause, an analyst with International Data Corporation. Although the Japanese market may be opening up, spending is still way down.

Reuters contributed to this report.