A Wily Pc Maker Rewrites The Rule Book

Sotec's low-price, high-tech units leave the giants far behind

Soichi Obe, president of Sotec Co., a rising star in Japan's personal-computer industry, is a master of survival. For years, Japanese giants such as NEC Corp. and Fujitsu Ltd. made costly products and had the local market to themselves. Obe got by supplying notebook PCs to companies such as Dell Computer Corp. and, more recently, Gateway 2000 Inc. Now, the engineer-turned-entrepreneur is taking on the giants with inexpensive, feature-packed desktops and notebooks. "Finally, Japanese are hankering for quality and reasonable prices," says the amicable Obe, 48. "It's our kind of market."

The timing could not be better. After languishing for years, shipments of home-use PCs are skyrocketing as the Japanese discover the Internet. They jumped more than 80% from April to June from a year earlier, according to Dataquest Inc.; shipments to businesses have surged nearly 20%. A year ago, Yokohama-based Sotec was hardly a blip in industry statistics. Since then, it has burst out of the ranks of upstarts to emerge as Japan's No. 6 computer maker in market share. Sales in 1999 are expected to reach $230 million. Unlisted Sotec, with a staff of 100, claims to be comfortably in the black.

Sotec was first to market a fully powered sub-$1,000 PC. That was a year ago. And there's no mistaking its product for the stripped-down "white boxes" popular in the U.S. for the past couple of years. Sotec's $900 PC Station is powered by a 466-MHz processor and comes with a monitor, 64 megabytes of memory, a 64-gigabyte hard drive, and a DVD-ROM drive. Sotec's price-busting strategy has shaken the big PC makers awake. NEC recently introduced a $1,220 model in its Valuestar desktop line. But price isn't everything. "Japanese want full-featured models," says Kanae Maita, a PC industry analyst with Dataquest in Tokyo. And Sotec delivers the most for the least.

TOKEN FINE. The PC Station began a winning streak. In July, Sotec hit again with its trendy, iMac-inspired e-one, a desktop PC that retails for $1,150, 20% less than an iMac. Its popularity has forced Apple Japan Inc. into the offensive. In August, it filed a lawsuit demanding that Sotec pay a token $900 in penalties for copying its design. Obe acknowledges that the iMac's transparent casing inspired his designers but says that's where the similarities end. "If they were really serious," Obe says, "they'd ask for more in penalties." Sotec expects to sell 500,000 e-ones by yearend, about the same as full-year sales of the PC Station. Marketing manager Masahiko Yamada says that should give the company 7% to 8% of Japan's 10 million unit PC market.

Sotec isn't alone in targeting thrifty consumers. FIC Sales Corp., the Japanese marketing arm of a Taiwan PC maker, just introduced a $700 desktop with a 350-MHz processor--but minus software. It's gearing up to market a stripped-down, $630 desktop. Vertix Link Corp., a Web-based retailer, has just given away 10,000 IBM PCs to subscribers to a designated Internet service provider for three years. It plans to pass out 90,000 more. "From now on, profits will be in software," predicts Vertix Chairman Kazuo Kanayama.

Sotec's biggest worry is the giants. Outsourcing and cheaper components have enabled NEC and Fujitsu, Japan's leading PC makers, to cut prices. Fujitsu now offers a $900 FMV-Deskpower model. U.S. makers are also coming Sotec's way. Gateway Japan has just introduced the J-400, a bare-bones machine priced at $630. So far, though, none have matched Sotec's leading-edge technology and low price. "Sotec has a good business model and an edge on competitors," says Masahiko Kondo, a manager with Laox Co., a major PC chain.

A Wily PC Maker Rewrites the Rule Book (int'l edition)

Sotec has a fast, efficient supplier network. Now, Obe wants to take this show on the road. To develop worldwide sales, he has just formed an alliance with his main suppliers: Kyoden and South Korea's TriGem Computer and Korea Data Systems. Sotec will design, while its partners produce and assemble. Fast-growing eMachines Inc. of Irvine, Calif., is the first customer.

Obe also is branching out. He plans to launch a Net-access service next year and has inked an online-trading deal with Nomura Securities Co. Next on the agenda is a public offering, either in Japan or on the Nasdaq, to finance sales channels in China, Vietnam, and elsewhere in Asia. Staying ahead of the giants is Obe's latest survival strategy.

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