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Thursday, April 2, 2009

ALSO OUT THERE

¥1 deals redrawing netbook PC market


Staff writer

Personal computers for as little as ¥1 are currently on sale, attracting flocks of customers and sending shock waves through Japanese PC makers.

News photo
Cheap as dirt: An employee of home appliance shop Bic Camera in Tokyo's Yurakucho district displays a notebook computer Tuesday priced at 1 yen in a sales campaign with wireless service operator EMobile Ltd. SATOKO KAWSAKI PHOTO

Major electronics retailers Bic Camera Inc. and Yodobashi Camera Co. have since July been selling a package of a netbook computer and an Internet connection card for as cheap as ¥100, or sometimes even ¥1, on condition that customers keep using EMobile Ltd.'s wireless data service for at least two years.

A netbook is a simplified notebook computer with a smaller display and no DVD drive. It is used mainly to surf the Internet and for e-mail.

A netbook usually retails at around ¥40,000 to ¥60,000, but EMobile Ltd. has made the huge discounts possible by paying sales incentives to retailers in a bid to gain long-term subscribers of its wireless Internet services.

Total shipments of netbooks soared to 1.2 million units last year, up from 100,000 in 2007, and much of the increase can be attributed to EMobile's so-called one-coin PC campaigns, said Harunobu Tobe, a market researcher at Fuji Chimera Research Institute Inc.

Retailers hope one-coin PCs create new ways of selling computers and potentially broaden the clientele to include even the elderly, many of whom have never previously bought a PC.

"For customers, it is a huge deal that the initial cost is so low," said Tetsuya Watanabe, head of procurement at Yodobashi Camera. "It will spread PCs from 'one per house' to 'one per person.' "

Despite the almost zero yen price campaign, Yodobashi Camera still makes a profit because EMobile pays retailers an undisclosed one-off incentive fee when they sell one of its packages, Watanabe added.

Under the package deal, a consumer must use EMobile's wireless Net connection, which costs between a minimum of ¥2,900 and a maximum of ¥6,880 a month, for at least two years. At the start of the third year, the fees are cut to range between ¥1,000 and ¥4,980.

Meanwhile, the basic capabilities of computers in the EMobile package are equivalent to many regular notebook computers.

Some of the latest ¥1 netbook computers packaged with EMobile's data cards are equipped with a 160-gigabyte hard drive, similar to that of regular notebook PCs.

While the low-price package may be a bargain for many computer users who need to use wireless Internet service outside their homes or offices, Japanese PC makers are unhappy, given the extremely low profitability of netbook computers and the entry of strong foreign rivals in the emerging market, analysts said.

The domestic netbook market is dominated by foreign makers, which can cut costs through mass production.

The market for netbook PCs in Japan is dominated by two Taiwan makers, Asustek Computer Inc., which holds a 58.0 percent share, and Acer Inc., with a 20.8 percent share. They are followed by Hewlett-Packard Co. with 7.9 percent and Dell Inc. with 3.8 percent, Fuji Chimera's Tobe said. Japanese PC makers, including Toshiba Corp. and NEC Corp., also make netbooks, but are probably losing money, according to an industry source.

Both Toshiba and NEC declined comment on whether their netbook products are breaking even.

However, the future may not be rosy for EMobile either, and consumers may need to rush if they are interested in the ¥1 computer campaigns, some analysts said.

EMobile, 37.6 percent owned by telecom company EAccess and 35.7 percent by the Goldman Sachs Group Inc., has never posted a quarterly profit since its inception in January 2005. EMobile spokesman Naomasa Suzuki said the company aims to end the red ink in this year's October-December quarter.

Tobe of Fuji Chimera said he is unsure whether EMobile will ever make money, but praised its strategy of discounting the package of netbook PCs and its data cards to gain long-term customers for its service.

While EMobile has set no date to end the promotion, Tobe said the company may stop the campaign, which is "bleeding" money, sometime soon.

EMobile's Suzuki declined comment on how long the firm will continue to pay retailers an incentive fee, which enables them to offer one-coin PCs.

PC shipments in general will have a tough year due to the recession, Tobe added. Even though hardware prices are extremely low, consumers may be discouraged from paying monthly data transmission fees, he said.

Tobe forecast this year's shipments at a modest 1.6 million units, a conservative estimate given most of last year's shipments of 1.2 million units were made after retailors began the one-coin PC campaign sales in July.



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