Last summer, one of life's seemingly immutable laws was suddenlyto desktop PCs a year ago. An unspectacular performance forced it to revamp its UK range, but it needs to do more to outstrip its rivals. broken. England still lost the test series and the rain still fell at Wimbledon, but Toshiba, which had been known as the portable PC manufacturer since some of us were in short trousers, changed tack and launched a range of desktop computers.
Rivals such as IBM, Compaq and Hewlett Packard were producing portables of the quality which had once been Toshiba's unique selling proposition.
The vendor already had about half the portable market in its hands and portables accounted for only about a fifth of all PC sales, so it would have been difficult to increase revenues without venturing into pastures new.
Corporate customers were also increasingly looking for a single source of supply for desktop and portable PCs, and Toshiba was beginning to fear that its portable sales would suffer if it could not offer a fuller range. So the Japanese giant decided the time was right to diversify.
Toshiba is relatively pleased with its first year in the desktop arena.
'Our expectations were modest,' says Justin Clarke, Toshiba's desktop business manager. 'We didn't expect to get to where we are in portables.
(Market research company) Romtec has us at number 10 in indirect desktop business, which we think is a very good result.'
The customer base is slowly broadening. 'The obvious place to start was with existing notebook customers,' he adds. 'What we've found in the UK is that we have started winning new customers.'
But impartial observers have yet to be convinced about Toshiba's first year in desktops. 'I don't think anyone could call it a wild success,' says Jeremy Davies, a director at market research company Context.
'It has been an interesting foray into the market, but Toshiba hasn't made a massive success of it,' adds Simon Pearce, senior research director at IDC. He says Toshiba's desktop sales are so low that they do not even register on IDC's market share analysis.
The initial problem was quality. Toshiba decided to take advantage of its reputation in portables and designed and built the desktops itself.
The company chose a global design with localised manufacturing - machines for the European market are made in Germany.
So far, so good. But despite its strong consumer brand (remember 'Hello, Tosh, got a Toshiba?'?) Toshiba in the UK decided not to sell its Infinia brand of home PCs and to concentrate instead on the Equium business range.
The first generation Equium PCs, the 5000 and 6000 series, were run-of-the-mill products with anodyne styling and few distinguishing features.
They made little headway outside Toshiba's existing customer base. The vendor tacitly acknowledged this in April this year, replacing the 5000 and 6000 with the completely redesigned Equium 7000. This has a more distinctive Toshiba design, plus built-in management and ease of maintenance features which Toshiba hopes will distinguish it from rival products (see box).
'We've learned that you need more than just a "me, too" proposition,' Clarke admits. 'People can look at the 7000 series and see that it's more of a Toshiba product.'
Analysts are more impressed this time. 'The second iteration of the Equium looks very interesting,' says Howard Seabrook, research director at Gartner Group Europe. 'You're starting to see some more innovative touches and a Toshiba signature.'
But Clive Longbottom, strategy analyst at CSL Consultancy Services, points out: 'It's a very narrow range. I wouldn't even say it was highly focused.
You just take it or leave it.'
There are still only a handful of models in the 7000 series, rather than the hundreds of permutations which can be turned out by the likes of Dell or Compaq, which have moved to a build-to-order model - something Toshiba says it currently has no intention of doing.
Some observers argue that this kind of flexibility - allowing the reseller or manufacturer to match the customer's specification exactly - is more important to buyers than distinctive styling or fancy features.
'I'd like to see some more variants on the mini-tower machines, and also some servers,' says Darryl Rose, Toshiba product manager at Logitek Distribution.
'I'd like to see some servers by the end of August when business starts to pick up, so we can at least sell complete systems. Toshiba needs to become established and that would be a prime time to do it.'
Some analysts believe the server market, with its higher margins and potential for solutions-based sales, is Toshiba's real goal. 'The whole reason for Toshiba bringing out the desktops was to bring over its servers, which are very strong in Japan,' Longbottom argues. 'The Equium has done moderately well in Europe, but not well enough to bring in the servers.'
Toshiba has had plenty of experience of making servers for the Japanese market, although these are largely based on Kanji rather than western network operating systems such as NT or NetWare. The company has also recently launched servers in the US and promises these will migrate to Europe, although it will not say when. 'We've always said we will get into the server business in Europe,' Clarke insists.
Toshiba's strategy for its desktops seems, inevitably, to have been based on its experience of portables. This, perhaps, accounts for the limited choice of specifications and also for the fact that it has been a little slow in its product cycles.
'One of the things Toshiba has to understand is that iterations and turns have to happen a bit faster in the desktop market,' says Seabrook. 'Customers don't want six-month-old technology. Toshiba has had a year to get up to speed.
It has to learn to demonstrate greater nimbleness of foot.'
He argues that the availability of desktop product ranges must overlap so that customers can re-order machines to match their existing installed base, while new ones can buy the latest technology.
Rose says Toshiba did exactly the reverse in the spring, leaving its resellers without Equium products for four weeks during the switch to the 7000 series. 'Toshiba lacks the knowledge of how the desktop market works. It doesn't realise that you can not discontinue a model without having the next one ready to replace it,' he adds.
Toshiba has provided a lot of assistance for its resellers to market the Equium, Rose says, but he is less keen on the manufacturer's marketing efforts. 'I'm not over-impressed with the marketing it has put out in the trade press,' he explains. 'It doesn't say enough about what the product can do for you. The marketing push has to come from the distributor.'
Longbottom believes a more radical approach is required, but thinks that is unlikely owing to the economic crisis in Toshiba's Asian heartland.
'It's got to re-market the whole thing,' he says. 'It has to completely disassociate itself with what's happening in the rest of the world. Toshiba needs a full marketing campaign. But it's digging its fingernails into the crevices as hard as it possibly can. It's unlikely to invest a billion dollars in marketing the Equium in Europe.
'I think Toshiba is coming from too far behind,' Longbottom adds. 'It really needs to consolidate first in Asia, which is difficult enough at the moment, then move through Australasia and into the West.'
The Japanese crisis has hit Toshiba hard. It barely broke even in the financial year to March 1998, making a $5 million profit on sales of $40.4 billion. Profits in 1997 were only $540 million on sales of nearly $44 billion.
But Toshiba has a well-known brand name and reputation for quality on its side, and at least the weakness of the yen could make its prices more attractive.
'The Equium is not an easy sell,' says Rose. 'You have to push it because it's not an established desktop line and there's no comfort zone. People are happy to consider it because Toshiba is on their list of acceptable brands, but they don't automatically think of it.'
This is par for the course, Seabrook believes. 'There was always a belief that it would take time to crack the desktop market, because there's an evaluation cycle and people like to see a couple of product cycles to ensure the supplier is serious about being in the market,' he says.
Toshiba admits it has made mistakes and is trying to adjust to the demands of the desktop arena. 'We have learned from experience that the way you do desktop business is different from the way you do notebooks,' says Clarke. 'We have changed internally to recognise that.
'Successful desktop marketing comes down to two things. You have to have a current, up-to-date specification and you have to be up there on pricing.
Many companies regard desktop PCs as a commodity product,' he adds.
Toshiba, therefore, adjusts its desktop prices more often and has decided to undercut the tier-one brands and compete favourably on price with tier-two manufacturers such as Fujitsu and Olivetti, which has gone down well with resellers.
'I see it as a strong brand product,' says Rose. 'Toshiba is lower on price than Compaq and the three-year warranty is a good story.'
A list price of #550 without monitor for a Pentium II/266 is very competitive, he adds. Margins on the Equium are low - like those on Toshiba's portable machines - but the same is true of most rival desktop brands and the product quality is similar to that of a Compaq or a Dell.
But Rose does complain about Toshiba's pricing policy for its monitors and CD-Rom drives. 'It's better for me to put a different monitor on top of the unit if it's acceptable to the customer,' he says. And to match the front of the Equium machine, customers must pay #99 for a Toshiba CD-Rom drive when a Panasonic model would cost more like #30.
If Toshiba is to make a go of desktops, it must rely on its resellers, with whom it has a reputation for straight dealing. The manufacturer remains firmly committed to the indirect sales model and says it has no plans for direct sales. It is selling desktops through its notebook resellers and is not looking for any extra resellers at this stage. Inevitably, this will lead to potential conflicts of interest, but Toshiba seems resigned to that.
'You can't get away from resellers selling competitive products, especially as we came into the market fairly late,' Clarke points out. 'So we don't have a problem with them selling competitors' products.'
Rose claims there was no arm-twisting by Toshiba to force Logitek to take the Equium.
No one seems to think that selling desktops will damage Toshiba's pre-eminent reputation in the portable sector. Many observers think its brand will be strengthened by a broader product range, and that this is essential to ensure its future. 'I don't think Toshiba can continue beyond, say 2002, purely making laptops,' says Longbottom.
Toshiba's first year in the desktop market has seen it make a reasonable start, but it needs to put in more effort if it is to make a long-term success of selling desktop PCs and servers.
It will not be one of the top five PC makers within the next few years, but with luck and hard work, it could fulfil its modest aim of being in the top 10 - after all, there are not that many contenders for the top slots and some of Toshiba's tier-two rivals are struggling.
Toshiba's attitude so far has seemed rather laid back, but it knows it must try harder. When asked how easy it has been to compete with established desktop brands such as Compaq and Dell, Clarke replies: 'It's as easy as it is for them to compete with us in the notebook market.'
Which, as anyone from Compaq or Dell will tell you, is not very easy at all.
THE NEXT GENERATION
After the lukewarm reception that greeted its first generation of desktop PCs, the Equium 5000 and 6000 ranges, Toshiba revamped the design and launched the Equium 7000 series in April.
Features of the Equium 7000 range, which is split into the 7000S slimline and 7000D full-sized casings, include:
- A single NLX-based component architecture across the range for ease of evaluation and maintenance
- An instant access panel - a side opening door on the system unit which enables upgrades and audits to be done more efficiently and makes it easier for resellers to customise systems before shipment
- A management software bundle, including DMI compliance, Intel LANDesk Client Manager, Wake-on-LAN, ACPI and Toshiba Secure Sleep for user security and remote administration and configuration
- More distinctive Toshiba styling
- Three-year, on-site warranty.
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