New Japanese-Language Operating System Raises Heat On Japanese Computer Giant

AFTER years of stability and limited competition, the Japanese computer market is facing upheaval. Last year Japan saw a fierce personal computer price war sparked by software innovations.

The price war was started by the introduction of DOS/V, an IBM-compatible, Japanese-language operating system in 1992. Now Windows NT, another software breakthrough, threatens to intensify the competition.

Until 1992, most Japanese computers operated only with proprietary software. One company's programs could not work on a competitor's machines. NEC, which according to market analyst Dataquest held 52 percent market share last year, owed much of its success to having the largest library of Japanese-language software.

Internationally, however, MS-DOS run on IBM-compatible machines is the software standard. Despite their price advantage over Japanese PCs, IBM-compatibles had not been popular because DOS could not work with the complex, three-tiered Japanese alphabet. Half-price imports

The arrival of DOS/V brought a flood of foreign companies into the market with prices around 50 percent of comparable NEC units.

For most of 1992, NEC downplayed the threat from low-price ``invaders.'' Although the firm made one substantial price reduction, Akira Kobayashi, senior managing director at NEC, said the company's superior distribution and range of Japanese-language software would keep it ahead.

So far, NEC has kept most of its market share. Compaq, for example, has reportedly shipped 10,000 machines a month this year. This represents only about 5 percent of the more than 2 million PCs expected to be sold this year.

But at the end of this year, Microsoft's Japanese-language version of Windows NT will be released. Windows NT includes its own operating system and has advanced capabilities for working in a network of computers. Once it is installed, the user can run any software with Windows NT without worrying about compatibility.

Windows NT spells an end to NEC's greatest competitive advantage - proprietary software. Despite initial resistance, even NEC now recognizes that Windows NT should become the new operating standard both internationally and in Japan. In a major about-face, the company has begun working closely with Microsoft on the Windows NT project. Shinichi Manaka of Microsoft Japan expresses enthusiasm about future projects with NEC. ``Microsoft is more than happy that a greater range of professional applications and hardware parts are coming out in Japan.'' NEC competitors

While Windows NT turns up the heat between NEC and foreign players, the other Japanese competitors are struggling. Fujitsu, Toshiba, Sharp, and Hitachi have been slow to meet the challenge. Fujitsu, currently No. 2 in the market with an 8.3-percent share, just introduced a line of cut-price IBM compatibles. Yet it also continues to produce PCs with its proprietary architecture.

``I can't understand these other firms' strategies,'' says Hideyo Waki of Tokyo Denki University. If Fujitsu ever wanted to be a major player, it should have acted six months ago, Prof. Waki says. ``Fujitsu is just too late.''

Privately, NEC management concedes that its greatest challenge now is foreign firms in the hardware field. NEC's most significant hardware development is a new graphic accelerator called S-cubed. The chip allows NEC machines to process Windows NT faster than other machines. However, IBM has countered with a print accelerator called WEITEK which, according to Waki, is the fastest of its kind.

NEC may therefore have to rely on its strong distribution and customer service to save the day.

Foreign companies such as Compaq and Dell may be global giants, but their Japanese subsidiaries are underdeveloped. IBM alone has a mature distribution system in Japan, but a limited customer base. Strong distribution

While NEC can count on distribution and consumer loyalty in the short term, the downward drift of prices will continue to add uncertainty. Already Fujitsu, Sharp, and Hitachi are buying some of their machines from low-cost Asian nations. NEC is buying parts overseas, but insists that it will maintin domestic assembly.

Most Japanese firms still have scope for price-cutting via distributers. As late as last year, NEC distributors enjoyed markups of about 35 percent, compared with about 10 percent for Compaq dealers. Such disparity is unlikely to last long, commentators say.

In the short term, this ability to slash prices and a strong distribution network may preserve NEC's market share.

``NEC can hold sway in the PC market for the foreseeable future,'' Waki says.

The Japanese PC market has lost forever the stability that incompatible systems provided to domestic producers. Once Windows NT arrives, the competition gets hotter.