The Japanese electronics and computer giant, which earlier this year revised profit projections downward in light of its poor performance in the United States, will suffer a loss estimated at $30 million in its PC business for the fiscal year ending March 31, according to Nikkei Business Publications, a major Japanese publisher. The loss highlights the troubles the company has faced in attempting to expand its presence here.
Another ominous trend for the world's leading supplier of notebook computers is that it can't count as much on the fat profit margins from notebooks to subsidize its entry into new PC sectors such as servers. The average selling price of notebooks is expected to drop significantly in 1998 due to a combination of global economic conditions and increased competition.
A representative for the company in the United States declined to confirm the financial results of the PC business, saying that Toshiba does not break out the financial results of individual operations.
Toshiba's global computer business accounted for 40 percent of the company's consolidated profits in 1996, but in 1997 the unit's poor results will drag overall earnings down. One piece of good news is that results aren't as bad as predicted. Analysts had been forecasting that the company's PC business could post an operating loss as large as $79 million.
The company will post a profit for all its groups of 10 billion yen ($77.5 million), according to Nikkei. The figure is down from a previously forecast profit of 75 billion yen ($581 million), according to the Nikkei report.
Toshiba's ill-timed foray into the market for consumer and corporate desktop PCs appears to bear the brunt of the blame. It initially predicted worldwide PC shipments would reach 4 million units, including sales of new consumer and desktop PCs in the United States, but the company had to revise forecasts down by 1 million units, the report said.
Part of the revision was necessitated by slow sales of the company's consumer systems in the United States. Although attractively designed, the full-featured machines were priced too high at a time when consumers were clamoring for sub-$1,000 PCs. In late 1997, the company pulled out of the U.S. consumer PC market.
Meanwhile, competition heated up in the notebook market and Toshiba experienced swollen levels of product sitting in U.S. distribution channels. In 1997, Toshiba lost more than ten percentage points of market share in the notebook segment, according to various reports from major marketing research firms.
The picture doesn't get much brighter for Toshiba in 1998. The company has said it is planning to roll out server computers this year, but now there is an excess of supply and manufacturers such as Compaq and Hewlett-Packard aggressively are cutting prices to clear out inventory. Moreover, a host of newer players such as Dell Computer, Gateway 2000, and Micron are pouring servers into the market.
In an attempt to make its corporate desktop PCs more attractive to IS managers and buyers, Toshiba recently redesigned many of the systems so that they are easier upgrade and service. Yet here too, the company faces stiff competition and slim profit margins.
So far in 1998, sales of PCs have not been increasing fast enough to make up for continuing price reductions, resulting in revenue shortfalls for some vendors. Compaq said sales have dropped 34 percent from last quarter, placing the blame on slow sales to commercial customers, a traditional stronghold for the PC giant.