October 29, 1998 6:00 PM PST

Sony still a laggard in PCs

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After more than two years in the U.S. consumer PC market, Sony is still trying to find the secret of success.

Although the Japanese electronics giant has recently seen an increase in notebook sales, its Vaio desktop line is languishing--or not even present--on U.S. shelves.

More important, PC business shortcomings compound larger financial problems at Sony, which said yesterday that it expects to report operating losses for the first time in six years.

A random survey of major computer retailers across the country reveals that the Japanese company is not keeping up with major U.S. players. For example, the company introduced new desktop systems earlier this month, yet retailers won't have the systems until some time in mid-November.

Large retail stores continue to press traditional brands from Compaq Computer, IBM, and Hewlett-Packard (HP), and Packard Bell-NEC at the expense of the stylish mauve computers from Sony.

"Retailers are coalescing around boxes that sell well," said Bruce Stephen, a PC market analyst with International Data Corporation, and this doesn't include Sony in most cases.

When the company launched its PC line in April of 1997, Sony was poised to grab a large share of the PC market by blending its strengths in consumer electronics with personal computers. But that potential never became reality in any significant way.

Moreover, Sony's strategy of selling consumer electronics devices tied to a PC is threatening to marginalize the company even further in the hyper-competitive retail environment.

But Sony says it has a studied, deliberate strategy of establishing the Sony brand name, according to Ken Omae, vice president of marketing. He says bluntly that Sony has no intention of selling "stripped down" PCs but rather is trying to appeal to a more sophisticated audience. The company's "convergence" strategy is targeting products "which link audio-visual with IT [information technology]," Omae says.

Omae points to a PCV-E308DS Vaio model that features an "i.LINK" FireWire IEEE-1394 connection technology for linking up with Sony Digital Handycam camcorders for creating movies and "S-Link" technology which allows users to control Sony CD Changers and MiniDisc Decks to edit and record customized MiniDiscs.

But Sony will have to get these systems in front of more customer's faces to have an impact. Sales representatives at PC Mall report that no Sony desktops are in inventory and that the company isn't keeping up with other companies that are offering newer, faster systems already.

Calls and in-store visits to a Circuit City, Best Buy, CompUSA, and New York-based J&R Music and Computer World reveal that few Sony desktop PC models are available to compete against other brands, and sometimes then only outdated PCs at that.

The only model offered at Circuit City's San Francisco store is one with an aging, first-generation 266-MHz Celeron processor. Compaq and others are now offering systems based on the faster, second-generation Celeron chip. A Circuit City store in San Mateo, California, carries no Sony models but more than a dozen Compaq, HP, and IBM computers in total. A representative did say the store was awaiting delivery of new models coming in November, however.

On CompUSA's online site only one Sony consumer desktop model can be found. Also, a CompUSA sales representative in a San Bruno, California, store said that Sony PCs were being deemphasized. A visit to the store revealed a raft of Compaq, IBM, and HP models and one aging Sony model pushed off into the corner.

Retailers such as Staples carry mostly Compaq, IBM, HP, and Packard Bell lines. Office Depot carries only HP and Compaq, according to the company's Web site.

Omae says Sony targets stores like Best Buy and Good Guys which emphasize audio-visual consumer electronics.

But Sony's problems in the computing business stem in part from a slow-burn strategy of establishing a brand first and sales later. "We are not planning to make profits out of hardware sales," said Kunitake Ando, head of Sony's PC business unit Information and Technology, in July at the Windows World Expo in Tokyo.

Unfortunately, the strategy may be working all too well. "Sony's goal is not to generate market share but to figure out convergence," IDC's Stephen noted.

"It is a live [convergence] integration exercise. The danger is that they get boxed out eventually by the 'superbrands'" such as Compaq, IBM, and HP, he added.

How much longer the company's experimentation with convergence will last is anybody's guess, but financial hardships at company headquarters may soon play a factor. Sony expects a loss of $313 million for the second half of its fiscal year ending in March.

Sony pinned some of the blame on price wars for products such as computer displays, mobile phones, and semiconductors to tough competition from other Asian manufacturers, who slashed prices as their currency valuation slumped.

While the PC unit wasn't singled out as a contributing factor, Sony may have to start looking at cutting underperforming operations with predictions of a continued sharp drop in earnings and revenues for the next six months.

"Sony seems to have history of taking time with product refreshes. Whereas other vendors offer new models every two months, Sony refreshes its lineup every four months or longer," said Cameron Duncan, an analyst with retail market research firm ARS.

Retailers make money by selling large volumes of systems, and the result of not making systems at the right price points at the right time can result in waning enthusiasm for a product.

To be fair, Sony has started to enjoy some success in the notebook market. It's ultra-thin 505-series notebooks and its mainstream slim notebooks have been selling well, retailers and analysts report. But there too the company faces stiff competition from vendors who are increasingly eyeing the growing market for consumer notebooks such as IBM and Compaq.

Also, the Vaio desktop line does have some loyal customers. "I can tell you from personal experience Vaio desktop PCs have been, and continue to be, extremely popular amongst our audio-video enthusiast clientele. Additionally, I have observed Vaio owners to be very loyal to the brand, often purchasing their second or third Vaio PC," said an official at Good Guys.

But the company is not a player in the low end of the market where boxes are selling best, said IDC's Stephens.

The bottom line is that "Sony just doesn't have configurations that are enticing computers that will entice buyers," Duncan said.

 

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