(7 of 11)
In fact, IBM's aggressive new posture poses a threat to virtually the entire computer industry. "IBM is creating a dangerous situation for competitors in the marketplace," says computer-industry observer Gideon Gartner. Among those most at risk are makers of so-called plug-compatible computers that run IBM software but sell for less. Such firms thrived during the 1970s, when IBM was slow in delivering equipment. Now, however, a burst of IBM price cuts and new models could badly hurt them.
That has already happened to Magnuson Computer Systems (1982 sales: $18.4 million). The San Jose-based maker of medium-size computers prospered in the late 1970s when IBM failed to ship a rival system on time. But IBM fought back in 1981 by slashing prices and introducing a new model. Then, last October, IBM announced two additional computer models and cut prices again. "There was no question. That was the fatal blow," declares Magnuson President Charles Strauch. The company, which has chopped its work force from more than 640 employees to about 100 over the past 18 months, filed bankruptcy papers in March.
Other firms have also been hit hard. Like Magnuson, Storage Technology enjoyed a big jump in business in 1981 when IBM ran into technical difficulties introducing a new memory device. The Colorado-based company, which makes high-performance memory equipment, gained some 300 customers because of IBM's troubles. However, when Big Blue brought out an improved new line last year, Storage Technology's profits dropped to $64.7 million, from $84.2 million in 1981. Says Jesse Aweida, who co-founded Storage Technology after 13 years with Big Blue: "IBM used to be active in only certain areas of the computer business. Now it wants to be active in the whole business."
One big reason for IBM's clout is the major investments it began making in the late 1970s to upgrade manufacturing facilities. IBM executives point to that drive to cut production costs, launched under Gary, as a foundation of the company's current strength, because it has made the firm extremely cost-competitive. IBM has pumped some $10 billion into capital improvements since 1977. The Boca Raton line that turns out the PC is so highly automated that a personal computer can be assembled in ten minutes of worker time.
The plants use some of IBM's most advanced technology. An engineer in the firm's La Gaude, France, laboratory can transmit his computerized design information for a new chip via satellite to the IBM facility in East Fishkill, where the chip is actually manufactured. The chip will be floated through tubing on air from one manufacturing station to another and then tested by robotically controlled equipment.
IBM is also the world's largest producer of logic and 64K RAM memory chips, and installs its entire output in its own machines. The company, moreover, can produce at the same plant far denser 256K RAM chips, which Japanese firms are also developing. IBM could start making the chips ahead of the Japanese, perhaps by early next year.
In line with its new aggressiveness, IBM has been cracking down hard on those who