This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2013/08/01/business/global/nec-to-exit-japanese-smartphone-market.html

The article has changed 4 times. There is an RSS feed of changes available.

Version 1 Version 2
NEC to Exit Japanese Smartphone Market NEC to Exit Japanese Smartphone Market
(about 3 hours later)
TOKYO — NEC has become the latest Japanese smartphone maker to fall by the wayside, underlining the failure of the country’s once-proud electronics industry to keep pace with the likes of Apple and Samsung. TOKYO — NEC, once the leading cellphone maker in Japan, said on Wednesday that it would quit making smartphones, acknowledging that it had lost sight of the development of mobile technology and failed to keep pace with the likes of Apple and Samsung Electronics.
NEC, once the leading mobile phone maker in Japan, said Wednesday that it would stop making smartphones, after  watching its share of the overall domestic mobile-phone market dwindle to 5.3 percent, down from 28  percent in 2001. The retreat in the face of competition from an American and a South Korean company highlighted the country’s shift from electronics industry leader to laggard over the course of the last decade.
“We were late to enter the smartphone market, and we were unable to develop attractive products,” Isamu Kawashima, the chief financial officer of NEC, said at a news conference here. “That’s what it comes down to.”
Like other Japanese phone makers, NEC clung to old-fashioned flip phones — great for making phone calls, taking pictures or playing simple games, but not for much else — as rivals elsewhere were developing smartphones that put the entire Internet and more in users’ pockets. The first NEC smartphone did not appear until 2011, four years after Apple’s iPhone.
The strategic failure cost NEC hundreds of millions of dollars in losses as its share of the Japanese cellphone market slipped into the single digits. And corporate Japan suffered another blow to its once vaunted reputation for innovation.
“NEC was like the face of the Japanese phone industry,” said Nobuyuki Hayashi, a technology consultant and writer. “Losing them will be very upsetting for those who take pride in Japanese manufacturing.”“NEC was like the face of the Japanese phone industry,” said Nobuyuki Hayashi, a technology consultant and writer. “Losing them will be very upsetting for those who take pride in Japanese manufacturing.”
The decision accelerates a consolidation of Japanese smartphone makers, who have watched their ranks fall to five — with the departure of NEC — from nearly a dozen only a few years ago. Indeed, the NEC smartphone business was already included in the remnants of the handset divisions of two other companies, Casio and Hitachi. The three units were combined in a venture called NEC Casio Mobile Communications in 2010, with NEC holding a controlling stake. NEC’s surrender is the latest in a series of consolidations. In 2010, NEC absorbed the remnants of the mobile phone divisions of two other Japanese stalwarts, Casio and Hitachi, with NEC holding a controlling stake. In 2008, Kyocera acquired the phone-making arm of Sanyo. In 2010, Fujitsu and Toshiba combined their handset businesses; Fujitsu bought out its partner last year. Mitsubishi, another big electronics company, got out of the phone business entirely.
Facing similar pressure, other Japanese cellphone makers have also gotten together. In 2008, Kyocera acquired the phone making arm of Sanyo. In 2010, Fujitsu added the Toshiba handset business. Another electronics company, Mitsubishi, got out of the phone making business entirely. Analysts say NEC and other Japanese cellphone makers were tied too closely to Japanese network operators, developing what has come to be known in that country as a “Galápagos” effect; devices were cut off from the evolution of the phone business elsewhere. As a result, the makers failed to grasp the significance of the rise of the smartphone.
The decline of NEC reflects the Japanese cellphone industry’s transformation from world leader to laggard in little more than a decade. In 1999, the leading Japanese network operator, NTT DoCoMo, introduced one of the first mobile online services, called i-Mode, giving Japanese customers on-the-go access to video games, shopping and other services. As Japanese consumers embraced the smartphone in a big way, the companies had nothing to offer. Although flip phones from NEC and other Japanese makers are still in wide use in the country, smartphones now make up a majority of new sales. Japanese brands struggle to compete with imported smartphones, especially the iPhone.
NEC pioneered the development of phones for i-Mode, adding cameras and other capabilities that seemed futuristic at the time. NEC phones were featured in early mobile data services in countries like Britain and Australia by network operators.
But analysts say NEC and other Japanese cellphone makers were tied too closely to Japanese network operators and were too dependent on the domestic market, developing what has come to be known in that country as a “Galapagos” mind-set. As a result they failed to grasp the significance of the rise of the smartphone.
Finally, even Japan succumbed. Although flip phones from NEC and other Japanese makers are still in wide use in the country, smartphones now make up a majority of new sales. But Japanese brands struggle to compete with imported smartphones, especially the iPhone.
“As the market for mobile phone handsets, including the rapid spread of smartphones, has dramatically changed, economies of scale have become increasingly important for the maintenance and strengthening of competitiveness,” NEC said in a statement. “However, NEC’s mobile phone handset shipments are following a downward trend, and it is difficult to foresee improved performance in the future.”“As the market for mobile phone handsets, including the rapid spread of smartphones, has dramatically changed, economies of scale have become increasingly important for the maintenance and strengthening of competitiveness,” NEC said in a statement. “However, NEC’s mobile phone handset shipments are following a downward trend, and it is difficult to foresee improved performance in the future.”
By last year, Apple had become the market leader in Japan, with the iPhone achieving a 25.5 percent share of overall handset sales, according to the MM research institute. By last year, Apple had become the market leader in Japan, where the iPhone had won 25.5 percent of overall cellphone sales, according to the MM Research Institute. Even Samsung, which has been slower to establish a foothold in Japan than elsewhere, surpassed NEC last year, with a 7.2 percent market share.
Even Samsung Electronics of South Korea, which has been slower to establish a foothold in Japan than elsewhere, surpassed NEC last year, with a 7.2 percent market share.
In smartphones, Apple is even more dominant, with 40 percent of the Japanese market in the first quarter, according to another research firm, IDC.In smartphones, Apple is even more dominant, with 40 percent of the Japanese market in the first quarter, according to another research firm, IDC.
For NEC, the final straw may have come when DoCoMo turned to a Samsung smartphone, the Galaxy S4, in an effort to stem the loss of subscribers to two rival network operators, SoftBank and KDDI, which have been marketing the iPhone aggressively. For NEC, the final straw may have come when NTT-Docomo turned to a Samsung smartphone, the Galaxy S4, in an effort to stem the loss of subscribers to two rival network operators, SoftBank and KDDI, which have been marketing the iPhone aggressively.
DoCoMo does not offer the iPhone; instead, it has been featuring the Galaxy S4 alongside a Sony smartphone, the Xperia A, in a summer sales promotion. It is the first time that DoCoMo has featured a Samsung phone so prominently. Given the longstanding ties between DoCoMo, a former state-owned monopoly, and domestic phone makers, the decision was widely seen in Japan as a slap in the face to the Japanese industry. Docomo does not offer the iPhone; instead, it has been featuring the Galaxy S4 and a Sony smartphone, the Xperia A, in a summer sales promotion. It is the first time that Docomo has featured a Samsung phone so prominently. Given the longstanding ties between Docomo, a former state-owned monopoly, and domestic phone makers, the decision was widely seen in Japan as a slap in the face to the Japanese industry.
There could be further bad news in store for the Japanese smartphone makers. DoCoMo has been talking with Apple about adding the iPhone to its range. There could be further bad news in store for the Japanese smartphone makers. Docomo has been talking with Apple about adding the iPhone to its range.
“Nothing has been decided and we’re always considering which models to launch,” DoCoMo said in a statement. “Nothing has been decided and we’re always considering which models to launch,” Docomo said in a statement.
The iPhone would not be an easy fit for DoCoMo. The company has been trying to build up its range of mobile Internet services, with offerings as varied as games and organic vegetable delivery, so it would be reluctant to see customers switch to Apple’s App Store. DoCoMo also objects to the sales quotas that Apple imposes on network operators, requiring them to promote iPhones heavily, at the expense of Japanese alternatives. “There will be further consolidation in the industry,” said Jean-Philippe Biragnet, a partner at the Bain & Company consulting firm in Tokyo. “There is not space for more than two or three of these players. The question is, Who?”
Although this would hasten the demise of the weakest Japanese smartphone makers, analysts say additional casualties are likely anyway. Among the domestic brands, the leaders last year, according to MM, were Fujitsu, with a 14.4 percent share of the overall mobile handset market; Sharp, with 14 percent; and Sony, with 9.8 percent. Among the domestic brands, the leaders last year, according to MM, were Fujitsu, with a 14.4 percent share of the overall mobile phone market; Sharp, with 14 percent; and Sony, with 9.8 percent.
Panasonic and Kyocera trailed, though they were slightly ahead of NEC. Panasonic and Kyocera are much weaker, though they were slightly ahead of NEC, whose share of the business had fallen to about 5 percent last year from nearly 28 percent in 2001, according to MM.
“There will be further consolidation in the industry,” said Jean-Philippe Biragnet, a partner at Bain & Co., a consulting firm, in Tokyo. “There is not space for more than two or three of these players. The question is, who?” Among the remaining contenders, only Sony has a significant presence outside Japan. The other Japanese phone makers have been outflanked at the high end of the smartphone business by Apple, Samsung and others, and at the low end by a growing number of Chinese manufacturers.
Given the company’s shrinking market share, it is unclear whether Japanese consumers will notice NEC’s withdrawal from the smartphone business. NEC was in talks with one of the Chinese companies, Lenovo, about a partnership aimed at saving the smartphone business, but the negotiations broke down several weeks ago, making the company’s announcement Wednesday inevitable, analysts said.
Tadayuki Shinozaki, an analyst at MM, said: “Given that the size of the Japanese cell phone market is quite large, I think it’s possible that NEC’s decision to leave the smartphone business may not have much of an effect on the overall market.” For fans of retro-styled Japanese flip phones, which have come to be known here as “gara-kei,” short for “Galápagos phone,” there was at least one saving grace in NEC’s announcement. The company said that even though it was quitting the smartphone business, it would continue “developing and producing conventional mobile handsets.”
For fans of retro-styled Japanese flip phones, there was at least one saving grace in NEC’s announcement. The company said that even though it was quitting the smartphone business, it would continue “developing and producing conventional mobile handsets.”

Joshua Hunt contributed reporting.

Joshua Hunt contributed reporting from Tokyo.