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Toshiba's Toughest Sell

By Kenji Hall In mid-1992, Atsutoshi Nishida arrived in the U.S. on a mission to restore Toshiba's status as the No. 1 notebook computer maker. The Japanese electronics conglomerate had lost market share to its main rival, Compaq Computer, after a vicious price war and Toshiba's own management missteps. To fight back, Nishida, then president of Toshiba America Information Systems, brought the art of the sales pitch.

For years, Toshiba had won over customers with new technology: Its laptops were the first to come with a miniature 2.5-inch hard-disk drive and a longer-lasting lithium-ion battery. But businesses were passing on Toshiba's T-3400, a 4.5-pound notebook, one of the lightest on the market.

Nishida thought they just needed encouragement. Toting the T-3400 around, he visited customers and used a mix of cunning and showmanship to coax one after another to sign deals. He persuaded one U.S. sports-shoe manufacturer -- Toshiba won't say which -- to buy notebooks after turning up with his sales team decked out in the company's footwear. By 1994, Toshiba had snatched back the No. 1 spot.

LOTS OF PROMISES. Now Toshiba's newly appointed chief executive, Nishida is again drawing on his mastery of the hard sell. Since he started in June, the 61-year-old has been talking nonstop about growth to anyone who'll listen. At a July 28 earnings announcement, Nishida said Toshiba expects to earn $5 billion this fiscal year, up 9% from last year. Less than two weeks later, he was promising more: an average annual sales growth of 8% for its semiconductor unit, from just over 1%, and 7% sales growth for the unit that makes PCs, TVs, cell phones, and DVD players, from around 3.5%.

Against a backdrop of recent job cuts and cost reductions at Toshiba, the emphasis on growth is a welcome contrast. "We've been restructuring and have largely attained what we set out to do," Nishida says. "So that's why we are shifting to a growth strategy."

Yet considering Toshiba hasn't met profit targets since 2000, it's a tall order. Analysts are skeptical that Nishida can sustain such robust growth for a company with a vast empire of products ranging from power plants and trains to flat-screen TVs and memory chips. Nishida has yet to give a detailed outline of his plan, but he comes across as confident he'll succeed. "Toshiba has internal targets that are even higher than the ones that have been announced," says Nishida, in an interview. "Much higher."

BUSY BOOKWORM. It's the sort of bold statement that could be expected from Nishida. Over two decades, he earned a reputation for decisiveness and pluck in the PC division. Traditionally, Toshiba's power-generating equipment unit had been the fast track to the executive suite. But Nishida caught his superiors' attention after revitalizing Toshiba's PC unit -- twice. First in 1993, when he led the effort to regain the top spot in notebook computers, and later in 2003, when he again took the reins, halting losses and restoring the division to profitability.

In a conference room at Toshiba's headquarters overlooking Tokyo Bay, Nishida shows a knack for recalling facts and figures. He politely interrupts questions to set the record straight on business strategy and semiconductor spending. A self-professed bookworm, Nishida says he often reads half a dozen books at a time, ranging from Jack Welch's autobiography, Winning, to historical novels about Japanese medieval ruler Oda Nobunaga.

But he's rarely at rest. Most mornings, he's at the office by 6:30 a.m., and in just weeks he has managed to visit nearly all of Toshiba's dozens of offices and plants in Japan.

BLISTERING BUILDUP. Nishida's tenure coincides with the end of a painful four-year retrenchment. Hit by the U.S. economic slowdown in 2000, Toshiba pulled out of the money-losing DRAM chip business, set up joint ventures for TV displays and other laggard units, sold off assets, and trimmed its global workforce by 20,000, to 165,000.

Growth won't come cheap. Nishida will spend $5 billion on a blistering buildup of Toshiba's semiconductor business over the next three years. That's roughly half of the entire budget for new factories and equipment through March, 2008. Much of it will go toward expanding a plant in Yokkaichi, where so-called NAND flash-memory chips are made.

These chips account for nearly all of the semiconductor division's operating profits and come standard in cell phones, iPod-like music players, USB memory clips, and digital camera memory cards. Those gizmos have been in such high demand that Toshiba and partner, SanDisk (SNDK) in Sunnyvale, Calif. -- which combine for a third of the global NAND market -- are filling only 70% of orders.

BRUISING BATTLE. Nishida is also counting on new technologies. Toshiba plans to equip high-definition TVs with the powerful Cell chip, developed in a three-way venture with Sony (SNE) and IBM (IBM), though Toshiba hasn't said when the chip will be used in new products. It's months away from launching next-generation DVD technology, so-called HD-DVD, which promises sharper pictures and more storage space than current DVDs.

And along with Canon (CAJ), Toshiba is investing in what's known as surface-conduction electron-emitter display, or SED, a kind of flat-screen TV that the companies say offers clearer images and consumes less power than plasma and liquid-crystal displays. The investment could start paying off in 2007.

But on every front, Toshiba is in for a bruising battle. Korea's Samsung Electronics already has 50% of the NAND market and is outspending Toshiba, pouring $5.9 billion into semiconductors this year alone. Samsung is also offering deep discounts to major customers such as Apple (AAPL), whose iPod Mini uses Samsung memory chips, according to market research firm iSuppli (see BW Online, 8/26/05, "A Memorable Deal for Apple and Samsung?"). And upstarts Hynix Semiconductor in Korea and Micron Technology (MU) in the U.S. have pushed prices down further to grab a share of the business.

TIME TO CHOOSE. Also, Toshiba's TV market share is expected to shrink to 3% in 2006 from 4% this year, says Deutsche Securities in Tokyo. And its HD-DVD will be going head-to-head against Sony's Blu-ray disks, which can store more data and have broader support from Hollywood studios.

Analyst John Yang of Standard & Poor's says Toshiba has spread itself too thin to succeed at everything. "It has to make a crucial decision: Is it a chip company or not?" says Yang. "It's trying to be a chipmaker and at the same time spend on TVs, PCs, CT scanners, and elevators. If Toshiba wants to survive or remain a major player a decade from now, it has to make a decision."

Nishida says he has no plans to narrow Toshiba's focus "We're seeking a balanced mix," he says. "It would be dangerous to focus too heavily on memory chips, as we've seen with DRAM, since we would be exposed to every shiver in the market." But if Toshiba can't meet its targets, Nishida may have a tougher-than-usual time selling his plan.

Hall is a correspondent in BusinessWeek's Tokyo bureau

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