Canon Computer a Latecomer to PC Movement : Industry: Costa Mesa company relying on brand name recognition, with ambitious goal of $1 billion in sales by 1997.
COSTA MESA — Yasuhiro Tsubota, president of Canon Computer Systems Inc., doesn’t have a personal computer on his desk. His secretary prints his electronic mail for him every morning so he can read it and respond on paper.
Tsubota has used PCs before, he says, so he isn’t intimidated by them. His preference, though, is “to deal with people rather than computers,” he said.
Soon enough, he will have a PC in his office as part of an internal electronic mail network at the company headquarters in Costa Mesa. “But I would use a computer as a driver uses a dashboard,” he said, “to get a quick look at how our company is doing today.”
Tsubota has to know where his company stands to take the division, a relative latecomer in the computer industry when it started in 1992, from annual sales of $300 million now to its ambitious goal of $1 billion by 1997. He is betting that Canon’s reputation as a reliable brand name in the printer and copier business will win it PC customers.
This year, he expects sales for the company, a privately held subsidiary of Tokyo-based Canon Inc., to total $500 million. “We plan to be very aggressive,” he said. “You have to do that in this industry or else.”
Tsubota is venturing onto a field that has defeated some formidable competitors. Cypress-based Mitsubishi Electronics America, for example, left the PC systems market in 1990 after losing more than $65 million.
But Tsubota is betting that Canon’s game plan--a flexible management team that can respond quickly to fast-changing American tastes for computer products, a diverse line of low-priced PCs, the resurgence in brand loyalty and the technological superiority of its printers--will guarantee his company a place among the industry’s leaders.
“Japanese companies have done badly in the PC market in the last five years because the product cycles shortened and their centralized management operations reacted too slowly,” said Philippe de Marcillac, PC analyst for Dataquest Inc., a market researcher in San Jose. “Canon is definitely late to the market. It has to move fast.”
Canon could have suffered the same fate as Mitsubishi. It stumbled in the PC market in 1989, when the Japanese parent company introduced the Navigator, a computer that combined a PC, a printer, fax machine and telephone headset.
The Japanese designers of the product, unfamiliar with the U.S. market, didn’t realize that the $2,449 computer lacked the speed and permanent memory to be competitive. It was discontinued in early 1992, said Ron Okamoto, director of PC product marketing for Canon.
Tsubota explained that there have always been two schools of thought about PCs. “One said the multiple functions would be integrated on the PC, while others believe they would be like separate stereo components.”
Navigator was introduced before its time, Canon officials say, and it taught them to create an autonomous U.S. subsidiary that could anticipate market trends better.
Tsubota, fresh from consulting for Steve Jobs’ NeXT Computer Inc., was brought in to head the Canon computer unit in April, 1992. The parent company gave him $20 million to create the organization.
While other brand-name companies have been slashing their prices to wipe out competition from so-called clone makers, Canon has banked instead on using the success of its unique printer technology to expand its PC sales, which now account for roughly 20% of the parent company’s overall revenue.
The so-called BubbleJet printer lays down tiny bubbles of quick-drying ink on paper with nearly the same print quality as a laser printer but at a lower cost. Canon has won 5,000 patents related to the technology since the 1970s. It exchanges licenses on the patents with market leader Hewlett-Packard Co. and makes the hardware, or engines, for HP’s laser printers.
But in the lower end of the market for so-called inkjet printers, Canon chose to compete with HP. Canon has seized 18% of the inkjet printer market from HP, which holds 51%, according to Dataquest.
Earlier this year, Canon launched a second generation of bubble-jet printers to appeal to small businesses that can’t afford laser printers, which cost three times as much.
Canon has also introduced a color bubble-jet printer. That market is expected to grow from 1.2-million units sold in 1994 to 2.72 million by 1997, according to BIS Strategic Decisions in Norwell, Mass. Canon has about 5% of the market, while HP has 90%.
For Canon, “printing is their ticket for the future,” said David Dukes, co-chairman of Ingram Micro Inc., a computer distributor based in Santa Ana.
The black-and-white printers are priced at about $399, low enough to be affordable for the small businesses that Canon has targeted for its computer sales. Analyst De Marcillac said that strategy seems wise, given that small businesses and home offices will soon be the largest part of the market.
Canon’s computers are sold in more than 5,000 stores now, up from about 3,800 last fall. Tsubota is expanding the number to target larger corporations as well as the government.
The company also successfully revived the multi-function computer concept with a new model, the seven-pound NoteJet, which doubles as a portable computer and a bubble-jet printer. Okamoto considers it the company’s flagship product, and he predicts more innovations to come.
The company faces challenges, one of the biggest being from HP.
“We shipped 5 million inkjet printers last year,” said Richard Snyder, group general manager for HP’s deskjet printer group in Vancouver, Wash. “That’s means we ship more in a month than Canon does in a year.”
But Canon isn’t wavering from its goal of having $1 billion in revenue by 1997, Tsubota said, and he envisions the company growing from 200 employees now to about 500.
Recent expansion has been outside Orange County, where Canon employs 130 at its headquarters. The company built a warehouse and computer assembly plant in Memphis, Tenn., and established a research unit in Portland, Ore., to develop computers that run software developed by NeXT, in which Canon owns a stake.
The company chose to build outside California, Tsubota said, not to escape the state’s high business costs but to locate the warehouse near the assembly plant.
The philosophy at Canon, as at other Japan-based computer makers, is that a company should design and manufacture its products in the markets where they are sold, Tsubota said, so that management can stay flexible. “Our structure is set up so that we have more freedom here,” he said. “Japan participates only in certain product lines.”
This year, Canon has already introduced 10 computer models, including a new printer line and color scanners. Tsubota’s strategy so far has been to divide the company’s resources among several categories of computers: portables, office models and multimedia computers, which have fancy video and sound capabilities for entertainment software.
Tsubota is also betting that the industry’s new PowerPC computer chips, the first to challenge Intel Corp.’s hold on the market for the microprocessor, or main computing brain, will gain acceptance slowly over the next several years. The chips are a product of a joint venture of Apple, IBM and Motorola. Canon would make computers based on the chips under a license.
“We’ll jump in when the timing is right,” he said.
Canon Computer Systems
* Established: 1992
* Headquarters: Costa Mesa
* President: Yasuhiro Tsubota
* Employees: 200
* Parent company: Tokyo-based Canon Inc.
* Business: Manufactures and sells printers, scanners and computer systems for small businesses and home offices
* Revenues: $300 million in 1993, about $70 million from computers
* Divisions: Advanced Technologies Operation in Portland, Ore., creates PCs that run software developed by NeXT. An assembly plant in Memphis, Tenn., does final assembly on other models.
Source: Canon Computer Systems;
Researched by JANICE L. JONES / Los Angeles Times
