A humbled Toshiba, lately losing momentum in the notebook market, is now trying to change its business practices in order to reassert itself.
Cutthroat price competition and technology one-upsmanship
As recently as 1996 Toshiba commanded 30 percent of the U.S. notebook market, but recent numbers show the company closer to 20 percent market share.
Analysts say Toshiba's notebook PC business could incur an operating loss of about $79 million this business year to March 31, a sharp turnaround from last year, when it earned an estimated $713 million in profit--60 percent of the Toshiba group's total operating profit.
What remains to be seen is how fast Toshiba can fix its troubles. Toshiba vice president Tetsuya Mizoguchi told Reuters that Toshiba's upcoming launch of a "build-to-stock system," aimed at keeping inventories to a minimum, would help the firm recover its competitive edge in the notebook market in the 1998-99 fiscal year.
Under the BTS inventory system, Toshiba will produce notebook PCs based on sales results, theoretically allowing it to maintain a stock level of less than one month's sales, Mizoguchi explained. The company expects to clear most of the excess inventory of notebook and desktop PCs built up in its distribution channels by around March.
"Our rivals in the U.S. market still have large inventories, and they will continue to cut prices," said Mizoguchi, who is in charge of Toshiba's PC business. "We are taking appropriate measures and we expect higher sales in 1998," he said. One measure the company won't take is a write-off of inventory, however.
Trimming inventory levels would be a drastic turnaround from current practices.
Toshiba's inventory woes come as a result of lower-than-expected sales, combined with the company's chronic delivery problems, said sources in the computer reseller channel.
Compounding those woes, Toshiba set high sales projections in 1997 that the company did not meet. At the same time, cutting-edge technology became easier for all vendors to incorporate. While this meant that the technical performance of notebooks rose as a whole, any distinct advantage Toshiba might have had declined.
Nathan Nuttal of Sherwood Research notes that Toshiba isn't alone in having problems managing inventory of portables.
"Historically in the portable PC market there have been inventory problems, either too much or too little inventory. Every major portable PC manufacturer has had some sort of major supply problem," Nuttal says. "It's not as simple as projecting the number that will be sold." Potential problems that can crop up include a shortage of displays and other specialized components unique to notebook designs.
One way to reduce bottlenecks in notebook production is to simplify notebook designs by using common components such as modular hard disk drives across several models. Another way is reduce the number of models offered--Toshiba company currently offers five different lines and 18 different model numbers.
"They have plans to weed out their lines so they don't have so many [products] to manage. They're clearing up any service and reliability issues they may have had in the past," says Katrina Dahlquist, an analyst with International Data Corporation.
Toshiba says it will continue to focus its business on expensive corporate-use notebook PC lines, but in early February the firm launched a low-end consumer notebook line with prices starting at $1,699.
While analysts expect the value-priced notebook segment to grow significantly in 1998, the market will also be flooded with a number of new models in the wake of Toshiba's big push.
Sherwood's Nuttal is bullish on Toshiba's chances for regaining momentum. "Everyone is chasing them and trying to steal their market share. They have a solid strategy moving forward, and they're well positioned," he said.
Reuters contributed to this report.