Tech Industry

Why Toshiba is losing notebook share

Toshiba's once-unassailable spot at the top of the notebook world appears to be eroding.

Toshiba's once-unassailable spot at the top of the notebook world appears to be eroding.

Price competition from major and secondary manufacturers is raising the Related story: Compaq leads in notebooks competitive temperature in the notebook arena. Moreover, one-time bit players such as Dell Computer, among others, are coming on strong because of a market development known as "commoditization"--the emergence of widely available notebook components from Intel and other suppliers that mirrors a phenomenon which has already occurred with desktops.

Commoditization allows computer vendors to participate on a more level playing field since many of the critical components are widely available and standardized.

As a result, long-time market leader Toshiba has slipped

Toshiba price cuts
Product
line
Starting
price
Percent
cut
Satellite 220/225
$1,599 20%
Satellite Pro 430-460 $1,299 19%
Tecra 510-530 $2,699 15%
Tecra 740-750 $3,099 22.5%
Portege $2,999 26%
Libretto $1,499 25%
from holding market shares of close to 40 percent in certain segments to overall shares of around 21 percent. At the same time, the company's lack of a full, complementary line of desktop PCs and server computers and its failure to implement a build-to-order strategy has begun to hamper its ability to keep up with the competition, a situation that will only get worse over time.

With one-fifth of the market, Toshiba's position is not exactly a bad place to be. "There has been some drop in our share over the last 6 to 12 months, but look at the computer industry as a whole. Is there anyone else with more than a 20 percent market share except for Compaq in servers?" asked Michael Stinson, senior director of product marketing at Toshiba.

"They've got some serious problems," countered Matt Sargent, an analyst with Computer Intelligence. "There is more product available. People are closing in on price. They lost some focus by going into desktops, and they did that poorly," he said.

Sargent's statements are backed by CI's own data. Last September, Toshiba accounted for 41.5 percent of sales in the retail and dealer notebook channels combined, and 57.9 percent of the retail channel. In September, Toshiba held 25.3 percent of the overall market and 24.3 percent of the retail market, and the market has been growing at a rate of more than 20 percent.

Toshiba's problems can be roughly divided into those created by outside competition and those created by internal strategy decisions by Toshiba.

Externally, Compaq Computer, IBM, Dell, Hewlett-Packard, and other manufacturers are becoming major forces in the notebook world, which imperils Toshiba's lead. Second-tier manufacturers have also entered the picture, and have gained market share at times when Toshiba has been short of product.

The company has faced growing price competition from IBM and Compaq, said Randy Giusto, notebook analyst at International Data Corporation. In the past few years, he summarized, "The pattern shows increasing competition and lower prices."

As a result of wider choices, resellers say that Toshiba's name is becoming one of many. "Toshiba is not as asked for as it once was. I see inroads by [fellow Japanese manufacturers] Hitachi and Fujitsu," said Steve Cohan, president at Entre Computer Center.

Internally, Toshiba's lack of diversity in its product line is beginning to hurt the company competitively, Giusto said. Compaq and Hewlett-Packard admit that the majority of their notebook sales come in large enterprise deployments that include servers and desktops.

"It is starting to hurt them going forward," said Giusto, who added that getting a full enterprise strategy won't be easy either. "You have to have more than product. You have to have pre- and post-sales support."

Toshiba launched a desktop effort earlier in the year, but so far it has yet to generate much interest.

Stinson countered by stating that Toshiba is working on filling out its computer line. It has released desktops and will come out with servers in the first half of the 1998 as well as increased customer support. "If we are going to become one of the three manufacturers they [big customers] consider, we need to provide them with a full line of products."

Toshiba has also not kept up with the efforts of the major vendors to streamline manufacturing, said Giusto. IBM is already building notebooks through a channel assembly program, under which notebooks are completed after the customer order is placed. Compaq will be making its notebooks under similar programs beginning in January.

Toshiba's Stinson says his company too will unveil "build to order" initiative to remain competitive, but did not specify when. Toshiba is already performing some custom configuration work.

Streamlined manufacturing cuts out manufacturing and inventory costs, a savings intended to produce lower street prices and greater market share for manufacturers. On top of the cost savings, build-to-order manufacturing helps reduce inventories, which has been a core problem for Toshiba.

The company has alternated quarter by quarter between oversupply and lack of product. As a result, surplus product in one quarter gets sold in the next. Over time, these surpluses result in price erosion.

"The big challenge for Toshiba going ahead comes from 'build-to-order' and channel configuration," Giusto said.

Meanwhile, Toshiba today cut prices across its notebook lines and introduced four new standard-sized notebooks.

For the high end, Toshiba introduced the Tecra 750DVD and Tecra 750CDM. Featuring a 233-MHz Pentium MMX processor, both models use Toshiba's proprietary chipset, a 4.77GB hard drive, and a built-in 56-kbps modem. The 750DVD model comes with a DVD-ROM drive instead of a CD-ROM drive. The 750DVD starts at $5,799 and comes with 64MB of memory. The 750CDM starts at $5,399 and comes with 32MB of memory.

The company also released two new models of the Satellite Pro. The 480CDT features a 233-MHz Pentium MMX processor and a 3.82GB hard drive. It starts at $3,999. The 460CDX features a 166-MHz Pentium MMX processor and starts at $2,499.