(5 of 6)
While many industries were shaking off the recession, the electronics business continued to boom. Americans bought an estimated 4 million videocassette recorders, up 97% from 1982, and 6.7 million personal computers, up 109%. California's legendary Silicon Valley, however, fell under the shadow of a colossus. Invincible IBM grabbed the lead in personal computer sales from Apple Computer, the young Silicon Valley firm that had been the industry's pacesetter. In just five months the price of Apple's shares plunged from $63 to $17. Another former Valley highflyer, Osborne Computer, filed for bankruptcy after its portable machines encountered stiff competition from such firms as Kaypro of Solano Beach, Calif., and Houston-based Compaq. Atari and Mattel suffered huge losses because of sluggish sales and fierce price-cutting as the video-game bubble burst.
No business was more beset by change and uncertainty than the telecommunications industry, which is anxiously awaiting the breakup of A T & T on New Year's Day. Telephone equipment manufacturers were eager to get a crack at selling to the seven new regional Bell companies, while computer firms were wondering if A T & T would be a formidable invader of their turf. Many consumers were bewildered. Fretted Dorothea White, 86, a widow living alone in Los Angeles: "I don't really see why they had to break up A T & T. It was a good system, and it seemed to be working." People questioned whether proposed cuts in long-distance rates would offset expected jumps in the cost of local service.
While preparing to spin off much of the Bell System, A T & T has been moving to expand its business overseas. It is taking part in joint ventures to make and market telecommunications equipment with Philips, the diversified Dutch company, and to manufacture electronic circuits with Gold Star Semiconductor of South Korea. In addition, AT&T announced last week that it was buying a 25% stake in Olivetti, the Italian office-equipment maker, for $260 million. In this new partnership, AT&T will gain a European distribution network for its products, while Olivetti will be able to use some of the technology developed by A T & T's Bell Laboratories.
As the U.S. recovery wound up its first year, some economists were already raising doubts about the upturn's ultimate strength and durability. Among them was Martin Feldstein, the chairman of the President's Council of Economic Advisers, who said that huge budget deficits might push up interest rates and produce a "lopsided recovery that would be slower paced and more fragile than a balanced recovery." He repeatedly warned that taxes might have to be raised.