Japanese PC, Chip Companies Lose Ground

In March, NEC announced that it would pull out of the Asia-Pacific PC market. This, according to news agency Reuters, follows an earlier announcement that it would exit the Europe, Middle East and Africa market.

NEC's withdrawal—only months after it launched its own netbook—joined a number of announcements by Japanese hardware companies in recent months, including job cuts at Toshiba and Panasonic and an earnings warning by consumer electronics giant Sony. In addition, Fujitsu also announced it would buy out Siemen's stake in their joint venture, while Toshiba went after Fujitsu's hard-disk drive business.

In a phone interview with ZDNet Asia, Reuben Tan, senior manager for personal systems research at IDC Asia-Pacific, said he was not surprised by NEC's announcement. In the current economic and competitive landscape, it was "inevitable that there will be some consolidation happening".

According to Tan, NEC's total shipments in the region over the last five quarters have been "very flat", if not downward. On top of that, the PC vendor sells over 20,000 units quarterly in the Asia-Pacific excluding Japan region—a small volume relative to some of the larger players. "To sustain a multi-country business across the Asia-Pacific with the support, spare parts and marketing...for units [in the range of 20,000] each quarter is actually very expensive," he explained.

NEC, he added, had very price-competitive models, but that route to compete on price lacked differentiation. The Singapore-based analyst said: "As they tried to compete in the market and...take the game back to the Taiwanese or American [brands], in the course of the process, they could have missed out on what made them attractive in the first place. At the end of it all, they became a brand that was 'one of them'...it became rather uniform—a brand that didn't really stand out, at least for me, in any particular one area."

Tan pointed out, however, that NEC is not the only Japanese vendor that faces increasing pressure in a competitive landscape, nor are Japanese vendors the only casualties in the current economic environment. "If you talk about this recession, there isn't any vendor that isn't immune to it...everyone's impacted and the key then is which one can remain afloat."

The Japanese brand, he added, still had competitive advantage—Japanese products are known for their industrial design, feature set and in general are perceived to be quality goods. There are customers that have an emotional attachment to notebooks such as the Sony Vaio.

At the same time, Japanese vendors also need to be watchful of their Korean counterparts, noted Tan. Korean PC vendors, as with their automotive counterparts, "have started to push quite aggressively", with some launching in new markets including Singapore in the coming quarters.

Beyond the PC players, Japanese semiconductor players are also feeling the pinch. According to Shane Rau, IDC's research director for computing, networking and storage semiconductors, Japanese firms have been more badly hit by the global downturn.

"Japan's economy is driven by exports and this downturn has been caused by an excessive fall-off in demand, so it is having strong effect on Japan's economy and [therefore] its native semiconductor suppliers," the San Mateo, Calif.-based analyst noted. "Their reliance on supplying chips for device exports, notably consumer devices, means that Japanese semiconductor suppliers are being affected more than the worldwide average."

Consolidation is also taking place in the Japanese semiconductor industry, with NEC Electronics announcing last week that it would merge with Renesas—formed out of an integration of the semiconductor units of Hitachi and Mitsubishi Electric—by Apr. 1, 2010. The new company, the Kyodo News International reported, would create the world's third-largest semiconductor company after Intel and Samsung.