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Hitachi to shut down U.S. PC sales arm

The company says it will "liquidate" Hitachi PC Corporation in the U.S., more evidence of the hard times Japanese computer companies are having here.

Hitachi said it will shut down its PC company in the United States, more evidence of the hard times Japanese computer companies are having in the U.S. market--and overall.

Hitachi said it will "liquidate" Hitachi PC Corporation in the U.S. and roll operations and personnel into Hitachi Data Systems, which sells large-scale computers. Toshiba went through a similar restructuring in the winter of 1997. Sony has also had problems breaking into the U.S. consumer desktop market. Mitsubishi's only portable offering in the U.S., the ultrasmall Pedion series of notebooks, has not fared well either.

"The operations, products, and channels of Hitachi PC Corporation [U.S.], will be phased into Hitachi Data Systems with emphasis on PC servers," Hitachi said in a statement. "Accordingly, over time, the Hitachi PC name will be superseded by the Hitachi Data Systems designation."

U.S. market dynamics have contributed to the reorganization, particularly in notebooks, according to executives. "We began moving away from the retail channel about a year ago. It wasn't profitable for us," said Michael Krieger, vice president of server products at Hitachi. "Pricing in the consumer notebook market went right through the floor," he added.

Meanwhile, U.S companies, such as Compaq and IBM, have been stepping up their assault on the consumer notebook market. Notebook PC giant Toshiba has also been aggressive in this segment.

Hitachi was ranked No. 10 in the U.S. notebook market in the second and third quarters of 1998, according to International Data Corp. (IDC). Hitachi is expected to have shipped about 170,000 notebooks in 1998, IDC said. By contrast, manufacturers such as IBM, Compaq, and Toshiba ship hundreds of thousands of units in one quarter.

"[Additional Japanese notebook PC makers] came into the market when Compaq, IBM, and HP did not have enough product to meet demand...but then the market returned to its natural competitive state and second-tier [players] didn't have the brand equity to compete," said Ian Morton, an analyst at Hambrecht & Quist.

Hitachi will continue to offer its current line of notebooks through March but "evaluate" the product line after that, Krieger said. "We'll discontinue some and bring in new ones...but definitely evaluate these products."

Hitachi has gained some ground in the U.S. notebook PC market but not seen exceptional success. In January, it announced a 2.9 pound "mini-notebook," but this design came after others had already made a splash. Companies such as Gateway, Sony, and Toshiba have had compact notebooks on the market for at least six months--or longer. Moreover, heavyweight Compaq is now targeting this market with a lightweight Presario model.

In the desktop PC segment, Hitachi PCs are distinguished by cutting-edge designs that integrate computer functions into a liquid crystal display (LCD) monitor. However, these, apparently, have not sold well. Back in November of 1997, Hitachi brought out an "all-in-one" desktop PC that featured a computer built into a 13-inch LCD screen. It was about one-third the size of a traditional desktop.

"The fusing of our information technology business in North America reflects the evolving nature of the marketplace and our desire to build greater critical mass in a broad range of information solutions for our customers in North America," Hitachi said.

Krieger said that Hitachi's server computer business is becoming increasingly important and will push integration of "client" PCs with Hitachi servers and mainframes. For example, some of Hitachi's most successful products now are its four-processor servers based on Intel Xeon processors. It is also offering more powerful servers which use eight Xeon processors, one of the few companies to do so.

The electronics giant also reported worse financials today. Hitachi said today that its consolidated net loss will exceed its original forecast, due to restructuring costs and the strong yen, among other reasons.

Hitachi now says its consolidated net loss will be 375 billion yen. Hitachi had previously forecast a net loss of about 125 million less than this figure for the year ending March 31.

Hambrecht & Quist's Morton says that for Japanese companies selling PCs in the U.S. has always been a challenge. "It's not like selling [consumer electronics] off the're also selling a solution." Moreover, Japanese PC makers simply don't have the brand equity of large U.S. PC companies.

Market timing has also been bad. Sony, for example, came out with a high-end PC just when the market was turning to low-cost models. "The market dynamics shifted and they were caught trying to sell high-end products."