Here's A Pc For Peanuts

In recession-plagued Japan these days, 128,000 yen-or roughly $1,024-goes a lot farther than it used to. It buys about four nights at a first-class hotel, maybe three rounds of golf at a nice course, two nights of carousing at exclusive Ginza nightclubs and, lately, one total revolution in the nation's giant computer industry.

Since Oct. 1 of last year 128,000 yen is what Houston-based Compaq Computer Corp., the third largest maker of personal computers in the world, has been asking for its desktop PC. By U.S. standards, it's not a bad price. By Japanese standards, however, it is an unfathomable price-a full 50 percent beneath the price tag for a similar model sold by NEC Corp., Japan's flagship computer company, which controls about half the PC market. Japanese analysts immediately scoffed-a "gimmick," one brokerage house decided-and NEC reacted like an elephant that's just had a fly land on its back-it ignored it.

Now, the elephant is twitching, because Compaq is no longer its only irritant. The world's top two PC makers-IBM and Apple-have followed Compaq's lead, and this week they will be joined by red-hot Dell Computer Corp., which will try to duplicate its successful U.S. strategy-selling customized computers by mail order-in Japan. Though the U.S. firms still claim only about 17 percent of a $7.2 billion market, the signs of a turnaround are unmistakable. Suddenly, in an industry that many analysts thought would go the way of consumer electronics-straight into Japanese hands-the Americans are coming on strong. Says John Stern, of the American Electronics Association in Tokyo: "To compete with the Japanese you have to take it to them in their backyard."

If imitation is the sincerest form of flattery, Compaq should be pleased. On Monday, just days before Dell CEO Michael Dell is expected to unveil his strategy for the Japanese market, mighty NEC will announce new models and much lower prices. Though NEC executives insist the move has been long planned and isn't a response to the American firms, no one believes it. With a cheeky advertising campaign-one full-page newspaper ad pictured a mastodon in front of an urban skyline, a sly shot at NEC-Compaq successfully created a stir. Says an NEC executive: "They've posed a major challenge to us." Asked if he thinks the elephant blinked, Masaru Murai, president of Compaq KK, the company's Japanese unit, nods cheerfully and says, "Yes, it has."

What has caused the remarkable turnaround, and how real is it? Two major changes-both of which are irreversible-have cracked open the Japanese PC market and given the U.S. firms some momentum. For years it was difficult to make IBM-compatible PCs powerful enough to run software programs that could handle the complex Japanese language. Expensive additional gizmos-like memory add-ons that could read Japanese characters-were needed, and few Japanese bothered to buy them. In addition, NEC had grabbed its dominant position by developing its own operating system-the internal codes that tell a computer what to do-and reams of Japanese software that can run only on that system. It became, in effect, the only PC game in town.

Two years ago that changed for good. American chip powerhouse Intel Corp. came out with a microprocessor that made PCs much more powerful. Furthermore, IBM launched in 1991 a new version of the operating system it licenses from another American powerhouse-Microsoft. Combined with Intel's powerful chip, the new system-called DOS V- has no problem with foreign languages. It can "speak" Japanese like a native and creates a bridge that enables Japanese consumers to buy software popular in the United States and Europe, like Lotus 1-2-3.