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November 4, 1991

DOWNSIZING DRIVES LEADING JAPANESE COMPUTER MAKERS TO FIRST RECESSION IN THEIR HISTORY

By CBR Staff Writer

The Japanese computer industry is heading for the first recession in its history as a result of a sluggish semiconductor market and the trend towards downsizing. The Nippon Keizai Shimbun estimates that the combined pre-tax profits for the year to March 1992 of Japan’s five major computer manufacturers, Hitachi Ltd, Toshiba Corp, Mitsubishi Electric Corp, NEC Corp and Fujitsu Ltd, will fall by 22%. All five are directly affected as they make dynamic random access memory chips. Other contributory factors are the general slowdown in the Japanese economy, the tardy US recovery, the appreciation of the yen and the poor business performance of the banks and securities houses and the resulting downturn in investment in new hardware. In the past the industry has enjoyed annual sales growth rates of 20% and the companies are now responding to the situation. Hitachi has revised its computer sales targets for the year to March from a ‘conservative’ 12% increase down to 10%. Toshiba has been hardest hit, with its sales for the six-month period showing an unprecedented 8% decline as compared with the same period last year. As a result it scaled down sales targets for the full year ending in March to a decline. Consumer demand has also fallen for its market-leading notebook computers. Toshiba senior vice-president Kunika Mizushima says, in Japan, computer demand has started peaking a year after it did in the US, forcing manufacturers to rethink capital investment plans. It is no longer certain that the investment costs of mainframes can be recovered, says Hitachi vice-president Takeo Miura. Corporate customers are moving away from mainframes and in many cases devising their own computer systems and treating manufacturers as providers of products – traditionally customers have looked for manufacturers to bundle both software and service into the price of their mainframes. Frequently, companies opt for workstations over mainframes, which means a loss in sales of big, expensive peripherals. Open systems are also taking hold. Fuji Bank, a leading city bank, is operating a 24-hour-a-day system that uses personal computers and workstations to analyse information and develop new financial instruments. Noboru Makino, former chairman of Mitsubishi Research Institute, concludes that downsizing is a growing phenomenon, computers are becoming like household appliances. It is inevitable that industry profits will deteriorate further. He adds that the Japanese market and industry are still more buoyant than Europe or the US but, now computer demand has peaked, it might take two more years for the industry to get out of this predicament.

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