US Workstation Makers - Still Top Dog in Japan

Ever since Fujitsu supplanted IBM Japan in 1980 as Japan's number one computer vendor, domestic manufacturers have gone on to dominate most local market segments. But when it comes to workstations -- those powerhouses of the downsized business LAN -- Japanese manufacturers have enjoyed only moderate success.

by John Boyd

In Japan, domestic computermanufacturers (with a lot of government assistance) have so far done a thorough job of keeping aggressive American competitors at bay. In mainframes, minicomputers, and supercomputers -- not to mention desktop PCs, portable computers, and personal digital assistants -- Japanese companies dominate the local markets. Japan is "the only market outside the US where domestic vendors set the rules," says Steve Furney-Howe, a director of Nihon Sun Microsystems, a subsidiary of Silicon Valley-based workstation manufacturer Sun Microsystems.

Interestingly, though, workstations are the single market segment in which Japanese manufacturers have failed to gain the upper hand on their own turf. In the workstation market, US computer firms like Sun have continued to remain top dog for the past decade.

Last year was no exception. According to market researcher IDC Japan, in 1994 Nihon Sun Microsystems and Hewlett Packard Japan (formerly Yokogawa Hewlett Packard) between them grabbed over 45% of a market worth almost ¥596 billion. If we toss in IBM Japan's 5% share, and a couple of points from Nihon Digital Equipment Corporation and Silicon Graphics, "foreign" firms account for more than half of the Japanese workstation market.

Big brother is working

Workstations are the desktop PC's big brother. Anything that PCs can do, workstations -- with the help of their multi-user, multitasking UNIX operating system and powerful applications -- can generally do faster, better, or with more flash. It is in the areas of graphics development, database searching, networking, computer-aided design, 3D modeling, and transaction processing that workstations really shine.

The combination of high performance and sophistication has long made workstations the darlings of scientists and engineers. Since assuming the role of office and departmental servers, however, workstations have entered the corporate world in a big way. Workstations are now the key component in client/server computing as corporate IS (information systems) managers attempt to reengineer the business and downsize from mainframes.

These powerhouses began life running on the same CISC (complex instruction-set computer) microprocessors found in desktop PCs. That changed in the second half of the 1980s, however, as US manufacturers introduced new generations of workstations redesigned to run on speedy, high-performance RISC (reduced instruction-set computer) chips of their own design.

Taking the RISC

The early move to RISC is what has kept workstation manufacturers ahead of aggressive PC vendors in the power game, and it is a major factor in the continued US domination of the Japanese workstation market. "A key reason why Japanese manufacturers couldn't take the lead in workstations is that they did not develop their own RISC technology," says Satoshi Uchiyama, a senior analyst with market research firm The Gartner Group. "Sun (SPARC), HP (PA), IBM (PowerPC), DEC (Alpha), and Silicon Graphics (MIPS) all have their own RISC microprocessors -- but not a single Japanese manufacturer can say the same."

Before the RISC changeover had got properly underway, pioneering US workstation manufacturers like Apollo (since bought out by Hewlett Packard) and Sun were competing not only with major Japanese computer vendors, such as NEC, Fujitsu, Toshiba, and Hitachi, but also with a string of electronics manufacturers (who saw the emerging workstation market as their passport into the lucrative world of computers). These newcomers included Omron, Oki Electric, Mitsubishi Electric, Sumitomo Electric, and Sony. And all the Japanese manufacturers were relying on the same CISC chips to compete against each other.

As US vendors made the switch and used RISC to power ahead, bringing out new models faster than ever, Japanese firms found they couldn't keep pace. "To keep up, they [Japanese companies] required their own technology and basic architecture, which they didn't have," says Uchiyama. The result was a market shake out, with foreign manufacturers taking the lead.

Making alliances

Japanese manufacturers still in the game have now formed alliances with their US competitors in order to gain access to RISC technology. Virtually all the second-tier players (and even a first-tier player or two) have been relegated to focusing mainly on internal or niche markets. Yet this only begs the question: Why did the Japanese allow this to happen?

"It's not that they couldn't have made their own RISC microprocessors," points out Mitsuhiro Honda, a manager in Hewlett Packard Japan's workstation marketing operations in Fuchu. "But the key applications available also came from US vendors, and the combination was just too powerful." Japanese manufacturers found it difficult to justify throwing their best people into developing workstations for a market that did not seem likely to rival that of mainframes or PCs, Honda adds, so "making alliances became the natural thing to do."

Partnering for success

When it comes to alliance-making, Hewlett Packard is a good case in point. In 1994, HP held an 18.3% share of Japan's workstation market, second only to Sun. Hitachi, Mitsubishi Electric, and Oki Electric have joined HP's Precision RISC Organization (PRO), where they can share in the fruits of HP's technology and help defray part of development costs. Other PRO members include Yokogawa Electric, Convex, Stratus, and Korea's giant chaebol, Samsung.

Equally significantly, NEC -- which has long relied on Silicon Graphics' MIPS RISC technology -- recently penned a separate deal with HP to jointly develop and manufacture next-generation PA chips for high-end servers. While the agreement lets NEC relabel and market HP's current high-end UNIX servers, it does not give NEC access to technology that will emerge from the joint-venture that HP and Intel have embarked on to create a future microprocessor based on both their technologies. Honda estimates that 70% of HP Japan's business now flows through alliance partners, relabeling deals, and VARs (value-added resellers).

Relying on resellers

Nihon Sun goes one better than that. Nihon Sun Microsystems held first place in Japan's workstation market in 1994, with a 27.0% market share, yet apart from minuscule sales to government and education institutions, Nihon Sun does no direct selling. Rather, it supports a long list of resellers, including Fujitsu, Toshiba, Nihon Unisys, and Fuji Xerox. Says Nihon Sun's Steve Furney-Howe, "We have chosen to use Japanese vendors' strengths to expand our marketing bandwidth far beyond what we could have accomplished on our own." Furney-Howe believes that not competing directly in the market is the right strategy. "HP has also entered into various partnerships, but it could experience conflicts when it competes in the same channels as its partners. We [Sun] act as the backline support; we co-sell with our partners, making joint-calls on customers, where we try to work as one company."

The Sun reliance on others to sell its boxes, however, contains the seeds of possible trouble. Fujitsu, Sun's number one reseller, has started marketing its own Sun-compatible workstations to complement what it sees as a narrow product-offering from Sun.

At the high-end, Sun has fallen behind in bringing out next-generation RISC boxes. Currently, its most powerful workstation uses a 32-bit 75-MHz SPARC RISC chip, far less powerful than most of its competitors' offerings, and a generation (or two) behind Nihon DEC's high-end 64-bit Alpha workstations (which are rated at 300 MHz). Only in June did Sun finally announce new 64-bit UltraSPARC chips that should eventually bring it back into the power game with a vengeance.

To fill the long vacuum at the top of Sun's product line, Fujitsu came out with its own high-end workstations running on Fujitsu-designed HyperSPARC chips with clock speeds ranging up to 120 MHz. Fujitsu was able to do this by tapping technology gained when it bought out Ross Technologies, a US-based SPARC design house. Roughly one-third of the Sun-related workstation models now marketed by Fujitsu are of its own design. "Fujitsu will introduce more of its own models," says Junichi Saeki, a director at market researcher Dataquest Japan. "Sun's share will certainly decline."

The threat to Sun of shrinking channels doesn't stop at Fujitsu. Toshiba, another long-time Sun reseller, last year signed a deal with IBM to license the latter's PowerPC RISC technology and AIX UNIX operating system. According to a Toshiba press release, "PowerPC will become one of Toshiba's primary RISC architectures." While a company spokesman says officially that Toshiba has no plans to make PowerPC-based workstations right now -- only "process computers" for industrial control -- those in the know at IBM Japan insist that Toshiba is developing PowerPC servers.

Great expectations

Like Sun and HP, IBM has been active in creating alliances in order to extend its market reach and help defray the high costs of developing new generations of chips. In addition to Toshiba and Apple, IBM has signed PowerPC agreements with Hitachi, Canon, Matsushita/3DO, Group Bull, Harris, and Thomson-CSF, among others.

"Our desire is to make the PowerPC an industry standard," proclaims Kenta Dezawa, director of IBM Japan's Power Systems Brand Management (which oversees the company's workstation business). "In order to do that, we want to see the PowerPC used in various companies' machines and in a wide number of industries, as well as on different IBM platforms."

Given IBM's much maligned mix of incompatible hardware and operating systems, a narrow refocusing on as few technologies as possible would seem to be the right step. But when it comes to pushing workstations, Dezawa faces tough competition from inside his own company: IBM's successful minicomputer, the AS/400, competes directly for some of the same market segments. Given that the AS/400 is a $10 billion industry for IBM, it's not something that IBM is likely to let die out any time soon.

In Japan, for example, the AS/400 market is three times bigger than IBM Japan's workstation business, and Dezawa confesses that it is a competitor in some areas. Nevertheless, he insists IBM Japan is throwing its weight behind workstations, and declares the company will be a contender for top market share within three years, despite holding only a 4.9% market share in 1994. "No one believed me when I said we would grow 50% last year, but we did," Dezawa advises. "Now I'm saying we will be the UNIX industry's leader in Japan by 1998."

Many analysts, however, remain skeptical. "That would be very difficult to achieve," says Dataquest Japan's Saeki. "IBM still doesn't have enough sales channels, and the established channels prefer Sun and HP." And David Kellar, a computer analyst with market researcher IDC Japan, points out that, "Just having PowerPC machines is not enough. IBM Japan has been lax in localizing its products and manuals, and not enough effort has gone into tailoring its workstations for the Japanese market."

The RISCy future

One US workstation manufacturer that has had relatively little success in building partnerships is DEC (Digital Equipment Corporation). After enjoying much success in the '70s and '80s with proprietary systems such as its mid-range VAX mainframes, DEC, like IBM, was caught napping in the 1990s.

DEC came late to the RISC technology table. Although the company now boasts the fastest machines on the market, there are few still-unallied computer manufacturers for DEC to work with as sales partners. Invigorated by its extraordinarily fast Alpha workstations, however, and as a result of some painful cost-cutting (including the shredding of many staff), DEC is now bouncing back.

"We were on the defensive," admits Ed Manning, group manager of Nihon DEC's UNIX/Windows NT marketing group. "It was challenging, character building -- but the change is dramatic. You now see a new DEC."

Dataquest Japan's Saeki concurs, saying he has never before seen such a paring down of the workforce and changes in management in any computer company in Japan. "They are still struggling, but the financial situation improved last year and will probably improve again this year."

DEC is pursuing a dual OS strategy, pushing both UNIX and Microsoft's 32-bit Windows NT. While DEC's efforts to market NT are going well in the US, Saeki cautions that the reception in Japan is unclear. "End users who are aggressive in accepting new technology will likely chose Fujitsu and NEC on Intel [rather than DEC] to implement Windows NT, because they look safe for the future."

IDC Japan's Kellar has similar misgivings. "DEC's outlook for the time being looks brighter. They have long experience providing critical support to users, so there is a lot of potential there -- as long as they can keep coming out with new generations of Alpha machines." But therein lies the rub, Kellar notes, pointing out that while current workstation shipments will probably help defray DEC's investment in Alpha, five years from now -- when future-generation fabrication plants will eat up between $2- and $4-billion in investment, it is unlikely DEC will be able to meet the necessary investment on its own.

It is these astronomical costs that have prodded HP to join up with Intel, and IBM with Apple and Motorola. "You need to be able to ship in volume," says Kellar, which is something DEC will find difficult to do on its own. "If you can't, you go out of business."

"We've gone through a tough transition," responds Nihon DEC's Manning. "Now it's the turn of our competitors to keep parity with their 64-bit technology -- and that's not a trivial matter. We're already beyond critical mass in hardware and applications, so now we're attacking Sun and HP's (customer) base."

With this kind of aggressive attitude in the American camp, it seems a good bet that US workstation manufacturers will continue to do well in Japan.ç