Toshiba Desktops: Equium Mass

Toshiba hopes to take the corporate market by storm with the launch of its desktop PCs. But, says Tim Phillips, this effort to shake off its notebook-only image may be in vain

They don?t hang about, these Toshiba guys. They?ve only been going 122 years and they?ve started manufacturing desktop PCs already.

Well, that?s not fair. It?s been under consideration for ?at least 18 months?, according to Andy Didcott, desktop sales manager at the PC division. And in the US and France, Toshiba has already tentatively dipped its toe in the market, selling consumer PCs. That?s not the plan for the UK and the rest of Europe, though, where it will be an assault on the medium and large business market.

On the face of it, Toshiba has a strong position. Six out of 10 corporates already possess Toshiba notebooks. The products have maintained their reputation for innovation and good build quality, while rivals like Compaq and Dell have suffered. The dealer channel remains committed, and Toshiba has not backed off and taken on a broadline distie. In addition, the volumes Toshiba commands mean that it has buying power and distribution savvy.

But Toshiba also has some important weaknesses. The most significant is that when customers move to single sourcing, Toshiba drops out of the frame because it only makes notebooks. Didcott concedes the point. ?Customers have asked us to make desktops, and when you hear companies like Andersen Consulting and EDS advising that the best way to cut the cost of ownership is to have a single vendor source, we?re out of the loop. Plus, some dealers are trying to restrict their product ranges,? he says.

Compaq makes the point more forcefully. ?We already have a strong position in the corporate market because customers are looking for expertise across the whole enterprise. That?s a big strength for us. Toshiba only knows the client end,? says James Griffiths, Compaq senior product manager for commercial desktops.

?One of the big issues at the moment is the cost of ownership and return on investment. Because we can add value across the desktop and the server, we can help. To have success needs a breadth of knowledge.?

But Toshiba plans to follow its desktop PCs with a raft of servers next year. Add the length of time corporates need to evaluate the products, though, and you can see why Toshiba predicts it won?t make a serious impact on the corporate market for two years, even with the support of Computacenter ? the top 10 dealer which accounts for four out of five Toshiba sales.

?The evaluation process is long for the corporate market, and initially that will go against Toshiba, too. Outside their existing accounts, they will find it very difficult,? gloats Griffiths. He predicts the fledgling Toshiba desktop team will have a rude awakening when they reach out to the large companies that have been such good customers in the past. ?If they expect the desktop market to be the same as the notebook market, they?re in for a big shock. Notebook purchases are more personal. Desktops are more functional,? he says.

That explains why Toshiba is only pitching for one per cent of the desktop market in the next nine months. ?We will sell seven or eight notebooks to each desktop,? says Didcott. ?Toshiba will retain its product focus on notebooks.?

If Compaq chooses to attack Toshiba on its profile in the corporate market, Gateway 2000 thinks the company will fail because it cannot be innovative enough. ?What they?ve done in the notebook arena is laudable. Undoubtedly, they?ve had product leadership. They have a strong and robust brand, a reliable product and a lot of dealer support. But it doesn?t give you the right to succeed in the desktop market,? says John Shepeard, UK general manager at Gateway 2000.

Shepeard says that to succeed, Toshiba has to build to order. ?We have no inventory issue for example, and can be fast to market ? between seven and 10 days. That means we don?t have to write off any inventory at all. Some of the things that Toshiba is good at in the notebook market we are brilliant at in the desktop market. They can?t be technology leaders,? he says.

Didcott says Toshiba does build to order, although he admits that?s an order of four possible configurations. ?Our products are built in Scotland by SCI. We will only commence production when we launch, and we will make only to order. We can do that ? it?s a volume-related issue. Then we will ship direct to the reseller.?

Shepeard isn?t convinced. ?With its notebooks Toshiba can hold a fire sale at P&P if needs be. The desktop market has a different set of rules. The channel will be a natural hamstring injury to getting innovative product to market,? he says.

If Toshiba?s current protestations that it is a technology leader look thin in the desktop market ? good monitors and DVD drives don?t make Gateway, Dell, IBM or Compaq run for cover ? Didcott doesn?t accept that he is destined to be an also-ran in the innovation business. ?The reality is that in the portable market, we have a churn on models at six months. We are more used than anybody to forcing that change. And to be honest, the demand for new technology can?t be any worse than it is for portables.?

The Equium range ? a combination of Maximum and Equity which does nothing to salvage Japanese vendors? poor reputation for choosing product names ? is certainly a conservative start. Three desktops, one minitower ? the specifications offer no surprises.

In fact, the surprises owe more to what Toshiba has left out than to what it has put in. Specifically, the standard configuration doesn?t have a CD-Rom drive in it. Toshiba claims that resellers didn?t want it as standard, because the UK market still doesn?t demand a CD drive in the way the US does. But with Toshiba?s branded monitors adding a healthy premium to the price, it will also help Toshiba?s resellers to hit the price points they need.

Support will be a standard package as well ? three years, with one year on-site. Toshiba wants its resellers to provide the support, and will pay them to do it, but accepts that Unisys, its notebook support contractor, will be doing most of the support work.

Further down the line, Didcott is predicting more innovative features, especially making Toshiba first to market with DVD drives (ironic considering its stand on CD-Rom). With a $3 billion R&D budget, he points out, Toshiba?s brand demands innovation.

But there is one problem that Toshiba can?t fix with aggression or innovation. That is, one part of its business is competing directly with the other. At the same time as Toshiba?s desktop business launches its first set of press advertisements, all grouped around a neat X-Ray theme along with a dealer awareness campaign, the big brothers in the notebook business are kicking off a campaign encouraging users to upgrade from a desktop to a notebook.

Didcott draws a graph ? the more senior the potential user in an organisation, he says, the more likely that person is to need a notebook computer. At the low end of the market, it?s a desktop every time. In the middle ground, he concedes, the notebook business group ? kept entirely separate from the new desktop business ? will get the eyeballs of the middle management. And that?s how Toshiba likes it. ?That?s the way it is,? admits Didcott after some pressing. ?Of course I?d like to say to them, I?d love you not to do those portable ads, but that?s just selfish.?

Others think that Toshiba?s desktops will be squeezed between the marketing muscle of its competitors ? and the marketing muscle of its own notebooks. Without subsidy from the notebook division, it can?t compete. ?Toshiba will have to woo support away from Compaq and IBM, and in the short term, the only way to do that is through margin,? comments Shepeard. ?I suppose if anyone can do it, Toshiba can,? he says, sounding unconvinced. He adds that it isn?t a possibility he ?loses sleep over?.

Didcott won?t compete on margin either, he says. There isn?t the money to do it is his reason ? odd for a $57 billion company, but not so odd for one that insists its divisions make a profit, and that is playing a three-year game to establish its desktop business.

?We are competing with Compaq?s Deskpro 4000 range, Dell Optiplex, IBM 2XX,? he says, showing system units priced handsomely between #1,250 and #2,000. He won?t compete by undercutting, despite channel pressure to do so.

?There isn?t enough margin in it. Everyone wants a tool to attack the direct vendors for example. They also want that weapon at #799 in the short term. I would love if it were possible. But it?s not going to happen,? he says.

The same price pressures, he admits, did for the plan of launching consumer PCs in the UK. Despite pull from retailers, and despite the brand recognition that comes from 38 per cent of UK households containing a Toshiba product of some kind, Toshiba couldn?t build the PCs cheaply enough, or handle the volumes without a distributor.

Toshiba becomes another in a long list of computer builders to try the desktop for size. Few have been dramatically successful, especially outside their existing accounts. Digital, for example, has had a torrid time making its desktops succeed. Sony canned plans to launch. Many mainframe vendors have trodden this path before and been unable to resist the march of Compaq, Dell and a revitalised IBM.

The dynamics of the corporate market, which until now has kept expanding for Toshiba when even internally it predicted its market share would fall, may soon start to undermine its leadership position.

As the cost of ownership becomes more of an issue for buyers, Toshiba will feel the chill when single-sourcing freezes the company out. Its best bet now is to pick up some business from corporates that have recently upgraded ser-vers, and can therefore afford to wait until Toshiba has PC server products.

Toshiba will continue to be what it always was ? a notebook vendor with some other business attached.