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For four decades, the mainframe was the queen bee of office computing. The gigantic machines often served as host for an army of white-collar workers, who were linked together in a single network of as many as 10,000 "dumb" ( desktop terminals. The market for these behemoths regularly grew 15% a year, but sales have slowed to 4% since 1990 as customers have turned to less expensive but powerful personal computers and linked workstations. Many manufacturers of large systems have already fallen victim to this irreversible change. In August, Wang Laboratories was forced to file for bankruptcy. Unisys, the by-product of the merger of Burroughs and Sperry, nearly went under after it suffered $2.5 billion in losses in 1989 through 1991. Huge losses also nearly claimed Digital Equipment, whose board ousted founder and president Kenneth Olsen earlier this year.
For years, IBM stubbornly attempted to ignore the trend away from big mainframes. Instead of adapting, it tried to protect its base: the computing dinosaurs account for 42% of IBM's revenues and about 60% of its profits. Margins on large systems were as high as 70%, although recent price competition has reduced margins to about 50%. But with sales slowing and price pressure mounting, IBM has finally faced up to the trend. Last week Akers signaled IBM's intention to shift away from its mainframe business, which is down 10% this year. Most of the $1 billion reduction in R. and D. will occur in mainframe development. IBM, he said, will rely more on workstations to serve as the central host for PC networks. "The computer industry is in a time of fundamental transition," said Akers. "Customers more and more prefer smaller computers."
IBM, however, is seeking to gain strength in a market where it is at its weakest. Personal computers accounted for 20% of IBM sales of $63 billion last year and are expected to make up 40% by the year 2000. But IBM's growth in PCs lags far behind that of the rest of the industry. IBM is the only one of the top 10 PC vendors whose market share has declined this year. In fact, IBM's PC business is in the red.
By contrast, Apple Computer -- which has surpassed IBM as the leading PC maker for the first time ever -- is having a spectacular year, largely on the success of its laptop PowerBook. Apple and Compaq are reaping the benefits of huge demand sparked by aggressive price cutting. Workstation manufacturers, such as Sun Microsystems and Hewlett-Packard, are also enjoying strong demand for their machines. IBM is still catching up in workstations. Although it developed superb technology years ago, the company sat on it out of fear that it would cannibalize IBM's bread-and-butter mainframe business.