Toshiba Announces Major Renovation of Personal Computer Business

16 September, 2003

Comprehensive reshaping program will further sharpen company's
core competence and regain cost competitiveness

TOKYO -- Toshiba Corporation today announced that it would reshape its portable personal computer business and implement a series of strategic measures designed to restore the business to profitability. The wide-ranging program revealed today covers all aspects of the company's PC business, including enhanced product development, reorganization of manufacturing and supply, intensive cost reduction measures, and a sharper focus on sales and marketing through structural innovation. Toshiba will take rapid steps towards full implementation of the program and expects to achieve an early turnaround in results.

Toshiba has long been a world leader and technical innovator in the market for portable PCs. However, consolidated results for April to June 2003, the first quarter of fiscal year 2003, saw the business record a loss. This result reflects overemphasis on a wide product line-up, the impact of price erosion, a shift in market demand from large-sized businesses to home-use and small-to-medium-sized businesses, and the need for structural reforms.

Toshiba has met diversifying demand from different markets by producing an increasingly wide range of platforms and an increasingly wide range of motherboards, the main printed circuit board found in every computer. The burden of producing this extended line-up was not confined to development but also influenced procurement, manufacturing, logistics and sales and marketing, producing a dispersion of resources at each step of the business process. In addition, price erosion in the first quarter of fiscal 2003 far exceeded initial expectations, and appropriate countermeasures were not implemented in a timely manner.

Toshiba is now promoting a series of measures that are expected to make an early and effective difference. The company is reorganizing its domestic and overseas sales structures, reducing the number of platforms and motherboards, reviewing product strategy to improve development efficiency, expanding production at its facilities in the Philippines and China, and promoting effective utilization of manufacturing outsourcing. Implementation of these measures is expected to revive market responsiveness and drive the company toward reinforced profitability.

Toshiba has consistently led the portable PC market in advanced products incorporating leading-edge technologies, most recently in video processing, wireless connectivity and storage. Combining this approach with world-leading capabilities in electronic devices established Toshiba as the pioneering brand in the portable PC market, a global presence supported by a highly experienced sales and marketing operation. With the emerging age of ubiquitous networks and computing, in which portable PCs are expected to be a key product, Toshiba is readying itself for further growth, and has reaffirmed its basic strategy of introducing advanced strategic products offering technological innovations that create new markets.

Outline of measures

1) Reorganization of sales structure
Toshiba will direct more sales and marketing resources to the home and small-to-medium-sized business markets, both areas of fast growing demand, while maintaining its commitment to full support for corporate accounts. This will be accompanied by reorganizations to enhance sales structures in the US and Europe. In the Japanese market, alongside efforts to increase sales to the consumer market, part of the domestic sales function will be transferred to Toshiba Information Equipment Co., Ltd., a sales subsidiary, which will seek to reinforce sales to the corporate market segment. In China, today’s fastest growing market, Toshiba will reinforce its marketing capabilities and cultivate increased sales.
2) Development strategy
Measures to reduce the number of motherboards by 30% and the component count by 20% will boost development efficiency, shorten product development times and cut costs by encouraging greater use of common parts. To enhance overseas R&D capabilities, the number of engineers at Toshiba’s plant in Hangzhou, China will be increased to 150 from 100. Development of commodity models will be shifted to outsourcing, another move expected to enhance development efficiency.
3) Enhanced supply capability
Toshiba will promote cost-efficient production for the global market by raising monthly output at its Philippine plant from 180,000 units to 200,000 units in the second half of FY2003, and will push production at Hangzhou from 70,000 units to 120,000 units in the same period. Ome Complex in Japan will reinforce its role as the core facility for product development, manufacturing technology and prototype production. Monthly production at Ome will be reduced accordingly, from 80,000 units to 50,000 units in the second half of FY2003. The scale of configuration-to-order of PCs at facilities in the US and Germany will be reviewed, and gradually shifted to the Philippines and China. In line with this move, more products produced in Asia will be shipped directly to customers in the US and Europe. Outsourcing of manufacturing will grow to approximately 30 percent of all production in the second half of FY2003, up from 20 percent.
4) Intensive cost reduction effort
Toshiba will make intensive efforts in cost reduction to improve profitability. This will cover all stages of the business process, from product development to sales and marketing. Sales and general administrative expenses will be reduced by reorganization of sales structures. Toshiba plans to reduce the workforce in PC operations, in Japan and overseas, by some 500. Development costs will be reduced by streamlining the number of platforms and increased utilization of design outsourcing. Procurement costs will be reduced by component count reductions and greater use of common parts, while reformation of manufacturing and supply will reduce manufacturing costs.

Note: All restructuring programs will be implemented in compliance with the legal procedures and regulations in each country.

Information in the press releases, including product prices and specifications, content of services and contact information, is current on the date of the press announcement,but is subject to change without prior notice.