Laptops Take OffDeidre A. Depke and Neil Gross
Perhaps you've heard it on a late-night cross-country flight. Or on a commuter train. Or maybe in the waiting room at your doctor's office. At any time of day or night, and just about anywhere, you can trace that click-click-clicking--to an executive, a salesperson, or a student hunched over the keyboard of a tiny laptop computer.
Lately, that clicking has been getting a lot louder. From classrooms to courtrooms, laptops are becoming part of the American routine. Already, these remarkable little machines are posting the fastest growth rates of any type of computer in the world. And by the second half of the decade, some market-watchers predict, they will account for more than half of all personal computers sold.
That click-click-clicking is music to the ears of a PC industry whose mainstay desktop machines have run into a sales slump. "The growth of laptops is going to be the dominant trend in the PC business for the next four to five years," says Albert A. Eisenstat, Apple Computer Inc.'s executive vice-president for business development. Shipments of desktop PCs to U. S. businesses, according to Cambridge (Mass.) market researcher Forrester Research Inc., peaked last year at 6 million units and will shrink to 4.9 million machines by 1993 (chart, page 122). By then, however, laptop sales will more than triple and account for 35% of all PCs sold in the U. S., up from 19% now.
LEGAL EAGLES. That has computer companies from Apple to IBM to DEC scrambling to get their share of the market. All three--and dozens of other suppliers--are rushing out new models this year to grab a slice of what is already a $7.5 billion market. They will be competing against such well-entrenched laptop leaders as Toshiba, NEC, Tandy, Zenith Data, and Compaq. And despite rapid growth, there are already signs of overcrowding, including price-slashing and a shortage of key parts.
But the move to laptops is anything but a fad. Laptops are so sophisticated now that they can actually substitute for desktop PCs. Workers who spend a lot of time on the road use laptops to give them all the electronic assistance that desktops supply back in the office. And in many instances, laptops are making it possible to work in whole new ways. Take Snow Christensen & Martineau, a law firm based in Salt Lake City. These days, its 55 lawyers bring their laptops right into the courtroom. "That sometimes surprises the attorney on the other side," notes Partner Paul J. Graf. It also gives Snow Christensen litigators an invaluable edge: They can tap into a case-precedent data base on their laptops or call up a copy of a witness's deposition to check for discrepancies in oral testimony.
The laptop boom is also changing the computer industry itself. As they take over more of the market, the new machines are altering not only how PCs are used, but also how they are designed, built, and sold. Laptops--especially the new "notebook" models, small enough to fit in a briefcase and weighing eight pounds and less--are far more, well, personal than desktops. For customers, laptops are becoming personal accessories, and something of a status symbol. For computer makers, accustomed to selling bits, bytes, and megahertz, the challenge will be to appeal to consumers on a visceral level: "This is more of an emotional purchase than other sorts of computers," says Peter Teige, an analyst at Infocorp, a Santa Clara (Calif.) researcher.
Laptops are already setting new patterns in computer distribution. By next year, just 30% of all laptops sold in the U. S. will move through computer dealers, says John Dunkle, president of researcher WorkGroup Technologies Inc. These outlets still sell 80% of desktop PCs. But laptops are being sold where consumers buy: through mass-merchandise chains, consumer electronics stores, and mail order.
Because they're more consumer-oriented, laptops are expected to expand the market, perhaps finally reaching the die-hard technophobes who for a decade have resisted desktops. A new variety of laptops, so-called tablet computers, promises to make computers more accessible than ever by "reading" handwriting entered on the screen with an electronic pen. That should make computers usable by the millions of workers and consumers who have never used a conventional PC. Already, such computers are being tested with traffic cops, delivery people, and utility company meter-readers. "The pen computer has the potential for a marketplace bigger than the existing PC market," insists Kathy Veith, the IBM vice-president in charge of its pen-based tablet systems.
LIGHTER AND BRIGHTER. So far, the roar of the laptop revolution has produced only a pounding headache at IBM and Apple, America's No. 1 and No. 2 PC makers. In the 1980s, both companies struggled in vain to develop competitive homegrown laptops. IBM's PC Convertible, introduced in 1986, was quickly overtaken by laptops that were smaller, lighter, brighter, and cheaper. Apple's 16-pound Macintosh Portable, introduced in September, 1989, has never sold well, despite two big price cuts. In 1991, both companies are desperately trying to get back into laptops before the market passes them by. "We're not going to miss the boat on this," promises Apple's Eisenstat.
IBM is equally determined. "The market expansion is real, and the opportunity is huge," says Winnie Briney, IBM's personal systems marketing director. To make sure that Big Blue's 1991 laptop isn't a reprise of the Convertible failure, IBM marketing troops crisscrossed America for a year, asking dealers and big customers for input on various laptop mock-ups. "I think I've seen eight versions of the thing," says an executive at a top computer store chain. Those who have been privy to the parade of IBM prototypes report steady improvements. One version, originally due out last October, was scrapped because it used the passe Intel Corp. 80286 microprocessor, not Intel's newer 80386SX. Another improvement, a "stepped" keyboard, was ordered up after customers objected to flat keyboards, says Briney.
HARD LESSON. But IBM's new love affair with consumer research won't help if it can't get its product-development bureaucracy moving faster. Big Blue learned the hard way with the Convertible that the rapid evolution of portable computer technology is unforgiving. By the time the Convertible went into production in 1986, its screen was already a generation behind. If anything, the pace has quickened since then.
To keep up, IBM and other U. S. computer makers are learning how to cooperate more closely with Japanese suppliers--even while they compete with them. Indeed, the biggest change wrought by laptops will be a significant expansion of Japan's role in the international computer market. Japanese electronics giants, most notably Toshiba Corp., already control about half the market for finished laptops. And Japanese electronics makers dominate crucial laptop technologies: liquid-crystal-display (LCD) screens, floppy-disk drives, and memory chips.
Relying on Japanese suppliers for key components is nothing new: For most of the PC era, U. S. computer makers have shopped in Japan for memory chips and other essential parts. What is new is that to make laptops, U. S. suppliers must also rely on Japanese expertise in design and manufacturing. Shrinking PCs down to notebook size is impossible without the miniaturization techniques that Japan's electronics giants mastered in calculators, camcorders, and watches.
So, instead of just buying chips and components, U. S.-based manufacturers are creating partnerships with Japanese companies that help design entire laptop systems and then manufacture big chunks of the finished products. "You can't shop around for components in this market, you have to have strategic alliances," says Enrico Pesatori, the newly appointed president and chief executive of Zenith Data Systems Corp. One of his first tasks is to strengthen ZDS' relations with its Asian suppliers. "You don't fight with them, you work with them," says Pesatori.
That's why IBM has teamed up with Toshiba to catch the next wave in laptop screens: color. Their joint venture will build color LCDs for both companies, starting this spring. "Alliances are the way to do business," says Robert L. Carberry, IBM's assistant general manager for personal systems.
COMEBACK? IBM's competitors apparently agree. Industry sources say that Apple is negotiating a deal for Japan's Sony Corp. to manufacture a laptop. American Telephone & Telegraph Co. has teamed up with Matsushita Electric Industrial Co. to build its upcoming Safari notebook. Texas Instruments Inc. is plotting a comeback in the PC business by selling laptops designed with a Japanese partner.
Even Compaq Computer Corp., which became an overnight sensation in notebook PCs in 1989, did so largely by teaming up with Japan's Citizen Watch Co. Although the basic design of Compaq's LTE laptop came out of its Houston headquarters, it took a collaboration with Citizen's engineers to squeeze the machine's components into an 8 1/2-by-11-inch package. Citizen subassemblies make up so much ef the finished machines that one market researcher counts all LTEs as Japanese imports.
The results of such Japanese-American alliances can be impressive. Today's notebook PCs are a vast improvement over the first battery-powered portables that showed up in the 1980s. As pioneers such as Tandy Corp.'s Grid Systems Corp. subsidiary learned, those machines were so big and expensive that their appeal was limited mainly to jobs such as automating the routines of auditors and other traveling professionals. For the average PC purchaser, buying a laptop then meant paying a 50%-to-100% premium over the price of a desktop--then settling for poor screen quality, no hard-disk storage, and in many cases, insufficient internal memory to run popular programs.
Now, laptops do just about everything their desktop counterparts do. Many use the same Intel 80386SX chips found in the best-selling desktops. Their tiny hard-disk drives can store as many as 60 million characters of information. And they have the internal memory and graphics to run Microsoft Corp.'s Windows 3.0 graphics software. So impressed is AT&T with the current crop that it isn't waiting for its own computer division to start cranking out notebook PCs in April. Instead, it has ordered 2,500 machines from Toshiba, Grid, and AST Research.
AT&T is in a hurry to launch a bold experiment that it hopes will make salespeople in its Business Network Sales Div. more productive: Within the next year or so, thousands of them will be kicked out of their offices, to spend nearly all their work time on the road. "We would have done this sooner, but we couldn't do it with the technology that was available," says Roger D. Dalrymple, manager of information technology. "But all of a sudden, the technology came together."
The new laptop technology played a big role in Operation Desert Storm. Tens of thousands of the machines were used in logistics to track supplies, coordinate troop movements, and figure out how to feed the allied soldiers. Some laptops were used to plan Harrier jet missions, and others were scheduled to go along with troops to the front lines if the land war had continued.
Back at home, laptops are making it possible for American managers and executives to be more responsive. "In the 1970s and 1980s, you could say, `Let me have your card, and I'll get back to you,' " says J. Bowmar Rodgers, executive vice-president at Poqet Computer Corp., a maker of tiny, one-pound "palmtop" PCs. In the `90s, customers want the price quotes or the insurance-premium estimates from a laptop on the spot, he says. Tomorrow's executives are being groomed for the laptop age: When exam time rolls around at Harvard business school now, the traditional blue books are gone. Instead, the school's 1,500 MBA candidates take their tests on laptops, handing in a floppy disk at the end of the exam.
PRICE BREAKS. Even though the U. S. market has always been the first to embrace other types of computers, laptops seem to be an international phenomenon from the start. In Japan, laptops now account for 43% of all PCs sold. By 1993, the figure is expected to grow to 61%. And European buyers are hopping on the laptop bandwagon, too. This year, one in eight PCs sold in Europe will be a laptop. By 1995, that figure will be one in three, market researchers say. Italy's Olivetti made its biggest product splash in years when it announced on Feb. 28 that it would build its new line of laptops at a factory in Nuremberg. Analysts say Olivetti will also build machines for Digital Equipment Corp. to sell in the U. S., starting in April.
The laptop lifestyle is spreading faster and faster as prices for the machines drop. These days, laptop versions of the older IBM PC/XT and PC/AT sell for around $1,000, only slightly more than comparable desktop machines. And the newest notebooks, based on the Intel 80386SX, may not command a premium for long. When Compaq brought out its LTE 386s last October, its price started at $6,499--59% more than Compaq charged for a comparable desktop. Three months later, AST Research Inc., a PC clonemaker based in Irvine, Calif., trotted out its own 80386-based notebook machine for $2,995, almost exactly what it charges for a similarly equipped desktop. Since then, other clonemakers have brought out comparable notebook PCs in the $3,000-to-$4,000 range.
Such prices make laptops truly competitive with conventional PCs, widening the market beyond folks who need a mobile computer. Richard V. Miller, vice-president for PC product marketing at NEC's American subsidiary, NEC Technologies Inc., says that most of the growth in laptops now will come from customers who are buying them as desktop replacements. William T. O'Shea, vice-president for systems marketing and development at AT&T, says that up to 40% of today's desktop owners will switch to laptops. The result, says NEC's Miller, is that "the number of people who opt for a laptop is going to explode."
If the boom continues at the current, overheated rate, there's danger of a shakeout. With dozens of new competitors crowding into the market, "there are too many people trying to compete for the same dollars," complains Albert J. Agbay, president of Leading Edge Products Inc., the U. S. computer subsidiary of Korea's Daewoo Telecom Co. Leading Edge itself plans to add five aggressively priced machines to its one-model laptop line this year.
THE PAYOFF. But price alone won't guarantee success. An overcrowded market means that suppliers who can keep a constant flow of state-of-the-art laptops coming are the most likely survivors. And thatis where Japan's huge investment in electronics manufacturing technology really pays off. Take LCD screens. They were invented in the U. S., but it was Japanese electronics companies that spent the past 20 years learning how to manufacture them, starting with digital watches. These days, the crisp, page-size LCD screens used in notebook PCs are as tricky to produce as semiconductors and require huge investments in manufacturing equipment. Sharp Corp. alone has committed more than $650 million to LCD R&D and production over the next three years, and Toshiba plans to spend $625 million on LCDs within the next four years. Toshiba expects a payoff in color LCD screens later this year, and by 1995, monochrome displays with twice the clarity of current LCDs.
In the U. S., there is virtually no competition for such Japanese manufacturing might. Only a handful of tiny U. S. companies are even working on LCD technology, and they have little chance of ever catching up with Japanese pricing or quality. But despite the commanding lead of Japan's LCD makers, the Commerce Dept. recently substantiated charges by U. S. screenmakers that Japanese manufacturers are selling LCDs in the U. S. at artificially low prices. Commerce will decide in April whether or not to level punitive duties on LCD imports. Even if they do, however, a U. S. LCD industry is unlikely to spring up: Japan's screenmakers are expected to respond to higher duties by shifting some LCD work to the U. S. Sharp has already announced plans to do final assembly of LCDs in Seattle.
FOLDING BOARDS. Screens are only Japan's most visible advantage in laptops. Japanese electronics companies are also pushing hard in technologies such as application-specific integrated circuits (ASICs), which save space by combining the functions of many components on one chip. They are pioneering new chip-mounting technologies, such as tape-automated bonding, a method of gluing chips directly onto the board instead of using solder. And they are working on flexible circuit boards, which can actually be folded up to fit in small spaces.
In the 1990s, Japanese suppliers are also intent on mastering the technologies that have thus far eluded them, such as miniature hard-disk drives. Toshiba and Victor Co. of Japan (JVC), for example, are racing to perfect drives with 1.8-inch platters that will nearly double the capacity of today's most compact drives.
But it is in laptop manufacturing that the Japanese have their greatest edge over Western PC makers--thanks to their experience in making Walkmans, camcorders, and other portable consumer-electronics items. Those products made the Japanese experts in production engineering. Now, with decades of knowhow, companies such as Toshiba are able to refine the automated manufacturing and assembly process constantly--so that they can keep cranking out high-quality products in large volume for less money. "When it's all said and done, what makes or breaks you is how reliably and how cost-effectively you can assemble these laptops," says Pallab Chatterjee, director of Texas Instruments' Semiconductor Process & Design Center in Dallas.
The consumer-electronics experience has also taught Japanese laptop makers how to update their product lines continuously with new models that incorporate the latest technologies. "Computer cycles are short, but nothing compared to the Walkman," notes Susumu Shinbori, general manager in Sony's Supermicro Systems Group. Toshiba, for instance, came up with 12 distinct laptop models in 1990. Zenith, which ships more laptops than any other Western supplier, offers just four basic models.
AMERICAN KNOWHOW. Still, the Japanese don't have all the marbles. U. S. laptop makers continue to shop at home for some of the most important laptop technology. Conner Peripherals Inc., for example, remains by far the leader in making miniature hard-disk drives for notebook PCs. The fast-growing Silicon Valley company "has outstanding skill in making small, low-power, high-capacity drives," acknowledges Kiyoshi Hayamizu, director of the application technology department at NEC's PC sales promotion division. Moreover, Intel remains the only source of key microprocessor chips. And laptop makers around the world still turn to a handful of U. S. companies--Cirrus Logic, Chips & Technologies, Western Digital--for vital "logic" chips.
In one area--marketing--U. S. PC makers remain years ahead. Apple, IBM, and others have spent a decade building up a huge base of customers and the distribution channels to reach it. "The issue is not where the parts come from," says Howard Elias, Tandy's vice-president for computer merchandising. "The real issue is the value-added, what the marketing company produces." Tandy's value-added is a network of 7,000 Radio Shack stores that blanket the U. S. Personal-computer market leaders Apple and IBM also have thousands of dealers and millions of customers, all primed for their laptop offerings.
IBM's biggest edge, as always, is its decades-old relationship with the leading corporations around the globe. And its new notebook PC, which dealers say will be introduced by April, is clearly pitched at that audience. Big Blue intends to focus its marketing message on reliability, service, and the ability to link the new laptops into corporate information networks. PC clonemakers and Japan's electronics giants already manufacture laptops that are lighter and less expensive than IBM's seven-pound, $5,995 notebook (table, page 120). But they can't begin to match IBM's marketing and customer-support apparatus.
When IBM's laptop customers hit the road this summer, they'll be able to call an 800 number for help, and they can drop in at any of IBM's network of 1,900 U. S. computer dealers for service. To speed things up, IBM plans to use a nationwide depot system to rush replacement parts to dealers. That could be an important advantage, since notebooks take a lot of jostling and are prone to breakdowns. Computer repair shops say that laptop parts--particularly for Japanese brands--are sometimes hard to come by.
WIN-WIN. Can marketing clout continue to overcome Japan's manufacturing might? Until laptops, there seemed to be no contest. Throughout the 1980s, Japanese electronics giants were surprisingly ineffectual in turning their advantages in desktop computer components into success in the U. S. desktop market. "I have been in this business for eight years, and for all eight years people have been predicting that the Japanese would own this business," says Peter J. Rogers, an analyst at investment bank Robertson, Stephens & Co. "It hasn't happened."
Some experts still think it never will. Market researchers point out that even Japanese companies that lead in laptops haven't had much success in the larger desktop market. Toshiba, for instance, has nearly 20% of the U. S. laptop market. But it supplies just 2% of desktop PCs in the U. S., according to International Data Corp. NEC has 10% in laptops and only 2.4% of desktops.
Still, if laptops do become the best-selling type of computer, the Japanese can't lose. If they simply hold on to what they have now in laptops, they'll wind up with half of the biggest PC market. Even if they don't, they'll still control the key laptop technologies. Either way, Japanese electronics makers seem destined to dominate in the laptop era.
LAPTOPS, 1993-STYLE UPCOMING TECHNOLOGY WHAT IT DOES WHERE IT'S COMING FROM DATA: COMPANY REPORTS, BW
COLOR LCD SCREENS
Will improve graphics quality
Toshiba, Sharp, Hosiden
More highly integrated sets will make notebooks smaller, more
Intel, Chips & Technologies, VSLI Technology, Western Digital
1.8-INCH HARD-DISK DRIVES
These 100 Mbyte drives will offer almost twice the storage of today's units but will be 39% smaller
Conner, Toshiba, JVC
These power sources will have 50% more life
Hitachi Maxell, Sanyo, Matsushita
FLASH MEMORY CARDS
Used in place of a hard-disk drive, they will reduce power consumption and cut weight
Intel, NMB Semi, NEC
FLEXIBLE CIRCUIT BOARDS
Combined with tape-automated bonding techniques, boards will be more reliable and take up less space
Sony, Compaq, Toshiba