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NEC faces tough market in Japan

The company introduced its first industry-standard Windows-Intel PC just last month, but is already discounting prices on consumer PCs by as much as 30 percent.

While Japanese giant Toshiba faces an inglorious retreat from the U.S. consumer desktop PC market, another Japanese goliath, NEC, is getting a rude wake-up call in its home PC market.

The company introduced its first industry-standard PC in Japan just last month, but is already discounting prices on consumer PCs by as much as 30 percent, in a market beset by slow growth and cutthroat pricing.

Over the last 15 years or so, Japan's No.1 PC vendor has marketed personal computers based on its own proprietary design. Though these PCs use Intel processors and run Windows software, they employ a proprietary architecture that's incompatible with other Windows-Intel boxes. Last month, NEC finally relented and introduced the PC98-NX systems, its first industry-standard PCs.

But the move hasn't alleviated the harsh market conditions the company now faces, nor has it revitalized a corporate structure based on the markets of the 1980s, when NEC's proprietary PCs dominated the market and generated much higher profit margins. "An ongoing issue is that prices had been held high to protect profits. NEC may be trying to get more volume now," according to Bruce Stephen, an analyst with International Data Corporation.

Compaq, among other companies, has forced the issue by introducing low-cost Presario systems in Japan that are similar to the sub-$1,000 systems the company has sold with great success in the U.S., Stephen said.

The new NEC systems haven't sold well so far, and at the same time, NEC faces a price war with rival Fujitsu, according to a report in the online edition of Nikkei Business Publications.

System prices are falling rapidly, the report states. For example, an NEC ValueStar NX system with a 200-MHz MMX Pentium processor and 3.2GB hard drive has already been reduced to $1,640 from $2,350.

More troubling is the fact that Fujitsu has gained significant market share at NEC's expense by aggressively selling PCs based on the industry-standard Windows-Intel architecture. In the early 1990s, NEC had well over 50 percent of the Japanese PC market, but the company's share has dropped precipitously over the last two years to about 35 percent, according to major marketing research firms.

IBM Japan, which also sells industry-standard PCs, is another major force in the East Asian country, while a number of U.S. PC makers such as Compaq and Dell have significantly increased sales efforts of late.

Adding salt to the wound, consumers have reportedly refrained from purchasing desktop PCs, due in part to an overall downturn of the Japanese economy. With growing uncertainty surrounding Asia's overall economic condition, consumer confidence in Japan could decline further, with delayed PC purchases a result.