Once King of Laptops, Toshiba Targets Niche

Orange County Business Journal, Oct 8-Oct 14, 2007 by Tolkoff, Sarah

TECHNOLOGY: Company going after profits with laptop for gamers

The local portable computer division of Japan's Toshiba Corp. is looking for profit in new places-from the pockets of online gamers.

Toshiba America Information Systems Inc., the Irvine-based unit of the Tokyo maker of computers and other electronics, recently released a handful of powerful laptops aimed at game geeks.

The laptops have bigger, brighter screens with higher resolutions, faster processors, more storage space and software that Toshiba says can allow for faster downloads of graphics.

"We are trying to address the needs for high-performance gaming in something that's portable," said Chris Casper, product marketing for Toshiba. "We do a lot to tweak a design for different customer groups. These are niche markets of people who value technology."

The niche market is where Toshiba can get a premium on its laptops and see higher profits, according to Leslie Fiering, senior vice president of research for San Jose-based market researcher Gartner Inc.

"Gamers are notorious for spending top dollar to get that last ounce of performance," Fiering said. "Because they value these features, this where Toshiba can take their (research and development) and engineering and add some bells and whistles."

Playing to niche markets helps Toshiba squeeze profits out of laptops, where" falling costs for components and a glut of low-cost machines have forced manufacturers to duke it out on price alone.

"A company like Toshiba is big with a lot of overhead," Fiering said. "It's hard for them to compete at those price points and make money. They've got to go to areas where their investment in technology will pay off-areas where there isn't so much competition and they can charge more."

There's also the matter of market share.

In the 1990s, Toshiba ruled the market for laptops, thanks in part to U.S. tariffs on screens that put it at an advantage over U.S. rivals, which had to pay more to import screens from Asia.

These days, Toshiba is No. 4 in laptops, with about half of the 21% market share of No. 1 Hewlett-Packard Co., according to Framingham, Mass.-based market researcher IDC Corp.

Dell Inc. is second in laptops with about 15%. No. 3 Taiwan's Acer Inc. has about 13% market share.

Acer is likely to grab more business with its $710 million pending buy of Irvine's Gateway Inc. The deal is set to give Acer Gateway's retail business and its budget eMachines brand.

Toshiba's U.S. unit has an estimated $2.6 billion in annual sales. Most is from laptop sales.

Segmenting the market for laptops helps Toshiba keep up with rivals-many of which also make high-end laptops for game players, Fiering said, but at higher prices.

Dell and HP make laptops geared toward game players that go for hundreds of dollars more than Toshiba's.

Toshiba's game model starts at about $2,000 and is set to be sold directly from the company online and at some stores. Similar computers from Dell sell for about $2,500. HP's newest goes for $3,300.

Toshiba and its competitors have been readying their product lineups for a projected "crossover"-the point at which sales of laptops outpace those of desktops.

Industry watchers debate when that will happen.

Toshiba's Casper contends it happened sometime this year.

"Because (laptop) prices have come down so much and you can get the same kind of performance as in a desktop, more people are buying notebooks than ever before," he said.

Toshiba started selling desktop computers for consumers in the late 1990s but quit a few years later after failing to gain a foothold.

"We made a decision 10 years ago to exit the desktop market because we saw where the tech trends are going," Casper said. "We saw that there wasn't too much advantage anymore to having a desktop."

Toshiba is looking to tailor its laptops to other groups besides gamers, including college students and movie buffs.

"The niche markets are people who value technology," Casper said.

Toshiba is playing catch-up to the big players in marketing its computers to different groups.

"The market has gotten very complex in terms of user segmentation and geographies," Gartner's Fiering said. "Success really depends on having a very blended and balanced portfolio, so mat if one segment slows down they are getting income from the other. I think that's really going to be the next hurdle for Toshiba."

Toshiba was one of the first computer makers to come out with portable PCs in the 1980s.

Performance wasn't as much of an issue then, since the technology of the era couldn't come close to that of a desktop, Casper said.

"We basically started the modern notebook design about 20 years ago," he said. "Back then, it was real easy because it was only the business traveler who used them."

Toshiba plans to sell a less-expensive, stripped-down laptop for game players at Best Buy Co.'s stores, where Toshiba hopes to attract more casual players.

It's actually a souped up version of Toshiba's Satellite laptop series and goes for about $1,500. It has a smaller disk drive, a slower processor and a standard graphics card-good for a newbie but not for the hardcore gamer.