Any list of the great industrial achievements of our time would have to include the Wilkinson double-edged blade. We heard of a case in which an unfortunate man accidentally swallowed one. It gave him a tonsillectomy, an appendectomy and a vasectomy. He somehow recovered the item… and it was still good for 10 shaves. IBM’s European business used to be that good. But in 1992 the company lost its edge. IBM’s problems in Europe, reflected in its annual report, are hardly over. They are likely to worsen. And in Japan, where big business likes big computers – when it can afford them – IBM’s prospects for 1993 are already making observers nervous. Their concern appears to be justified. At home, IBM seems to have reached the nadir in some of its businesses during 1992. It reported that US revenue rose slightly.
Turmoil
However, its losses at home ballooned due to huge restructuring costs. If IBM’s domestic operations have finally been pared down far enough to permit the company once again to grow and prosper, it should be able to export its success, ameliorating its problems in key foreign markets. But if IBM faces another year or two of turmoil in the United States, its problems will be made all the worse by foreign woes. IBM’s talk of a few orderly spin-outs could prove naively optimistic and it could be forced to jettison whole businesses that, under more favorable conditions, it would wisely prefer to retain, imperfections and all. IBM is still too dependent on the mainframe business, and not just financially. The company’s strategies in the mid-range – where its RISC machines and AS/400s show great potential for growth and profitability – are said to have been constrained by concerns over self-impact. This is a topic about which honest people can differ. We agree heartily with those that assert that IBM’s mid-range groups could embarrass and even hurt the company’s mainframe division by fielding impressively more clever and vastly more efficient computers. But we cannot accept the hypothesis that IBM might gain more than it would lose by arbitrarily restraining its young and vigorous mid-range systems developers. That might well have been the case during the 1970s and most of the 1980s, when the IBM name could easily outweigh other factors in a customer’s mind. But the preponderance of evidence about the computer business shows that the IBM name no longer has its old magic… and it hasn’t for the past few years. IBM is still universally recognised as the greatest powerhouse in just about every significant part of computing. But customers are also impressed with many of its competitors and, the facts show, quite willing to give technology, cost and support weight that can more than offset IBM’s big name. This attitude didn’t arise overnight. It seems to have originated in the personal computer segment about the time Compaq proved it could supply 286 machines that were comparable to IBM’s… and do so in a more timely fashion.
By Hesh Wiener
By the time Compaq reinforced its good impression with 386-based processors, a flock of clone makers had made desktop computing the most impressive bargain in recent history. Customers learned to think of computers more as platforms and less as exotic paraphernalia. Everyone knows there is a quality difference between name brand personal computers and generic machines but the premium put on the famous products has become very small indeed. A similar situation has arisen in the technical workstation and server segment, where Unix standards have by and large offset the formerly overwhelming advantage of corporate logos. While end users do draw distinctions among various manufacturers and their products, the Sun name (or that of DEC or Hewlett-Packard) commands respect comparable with that accorded the much larger IBM. Soon, a similar attitude will become commonplace in the commercial mid-range systems market, for the software vendors in the Unix market are just as committed as Microsoft in the personal copmputer world, if not quite as wealthy or ingenious. IBM’s RS/6000 products a
nd also its AS/400 line (despite proprietary software and other distinctions) cannot continue to succeed unless they provide good value for money along with the comfort of the IBM logo. The mainframe business has been affected, too, but only indirectly… so far. IBM’s image in the mainframe world isn’t different from that in other segments. But mainframe software is controlled by IBM, not Microsoft or The Unix Conspiracy. This gives IBM the ability – and responsibility – to provide the system software users see as well as platforms to support it. Nonetheless, customers know full well what it costs them to run their big systems, even if IBM, which lost its price list, apparently does not. It is this last factor – the high cost of extending the scope of mainframe-based applications – that has discouraged hard-pressed customers in the US from adding mainframe power at a rapid pace even as they have rapidly added desktop machines and minicomputers. Now that Europe and Japan have caught the economic disease from which America is beginning to recover, the same considerations could put a big dent in IBM’s large systems business.
Guest
And, having held off longer in the vain hope that the negative economic signals would prove false, IBM’s European and Japanese customers will be obligated to make more drastic cutbacks in mainframe expenditures than will their American counterparts. They will be particularly sensitive to the way IBM, a guest in their countries, behaves. That is why we think this is hardly the most opportune moment for IBM to wield the weapon of ad hoc pricing. The company will probably discover, to its chagrin, that it cuts both ways.
Copyright (C) 1993 Technology News of America. All rights reserved.
