IBM PCs squeeze `compatible' competitors
Denver — Big Blue is giving much of the high-technology industry just that: a big case of the blues. IBM has succeeded in so dominating its markets that many analysts expect a shakeout, already under way among its competitors, to gain momentum in the months ahead. As IBM has reshaped both its technology and marketing, companies that prospered by selling IBM-compatible personal computers for less than the IBM PC now find IBM is underselling them. Others that sold IBM-compatible large and medium-size computers -- companies such as Magnuson, IPL Systems, and Amdahl -- either struggled through a difficult 1984 or have filed for bankruptcy.
In the Denver-Boulder area, for instance, Storage Technology Corporation (STC), which grew from an entrepreneurial venture in 1969 to a company with $1 billion in sales in 1983 by manufacturing storage devices that worked on IBM mainframe computers, filed for bankruptcy late last year. So did Otrona, a company that made a highly regarded IBM-compatible portable computer.
Analysts say a combination of poor business decisions by STC and more aggressive marketing by IBM threw STC on the ropes. STC has restructured its finances, laid off some 6,000 employees, and brought in a new chief executive officer in hopes of turning the company around.
Among the IBM PC clones, ``the industry is shaking out, becoming so much more competitive,'' an industry spokesman says. ``It's much more difficult to compete, especially for the little guy, than it was five years ago.'' What that means, observers suspect, is that the day of the computer company operating out of the owner's garage is over. Not only are small and start-up technology companies unable to secure financing, they are unable to compete.
``There's room for the little guy in software but not hardware,'' says Patricia Seybold of Boston, who follows office automation in the Seybold Report. ``There's a real question as to how much room there is for anyone other than IBM, Apple, and Compaq [which makes an IBM-compatible portable computer]. Is there a way that companies can compete? I don't think so.''
Even the larger companies acknowledge the Big Blue shadow. ``What they have all done is decide that IBM has set standards in the office, and they will have to be compatible,'' says Michael Murphy, publisher of the California Stock Technology Newsletter in San Francisco. ``Wang wants to come in and offer a big computer that all IBM PCs can plug into. Apples can talk to an IBM mainframe . . . and the company is coming up with a card that will let an IBM PC talk to an Apple network, which in turn can talk to an IBM mainframe.''
``Like every industry, this one has reached a level of maturation,'' explains the marketing vice-president of a PC-compatible company.
``IBM is now making so many personal computers that [high] volume production drives their costs down. So they cut prices. To match them we have to reduce profit margins to the point where we make no money. We used to compete with price; now we have to compete on some other level.''
Mr. Murphy expects even more price cutting by IBM in coming months as the company and dealers try to clear the shelves before the so-called PC-II is introduced.
Some compatible companies try to dodge the price competition by offering higher resolution on their monitors; some bundle software into the price; some have gone after the portable notebook computer market -- as yet untouched by IBM. Some claim their machines are faster, friendlier, or more easily serviced.
All except the largest, such as Apple, AT&T, Texas Instruments (which pulled out of the home computer market in 1983), Hewlett-Packard, and Digital Equipment Corporation, must try to sell to customers who wonder how long the manufacturer will stick it out.
The Big Blue shadow, however, does not necessarily cover the rest of the high-tech industry.
``There are some pieces of high-tech that are undergoing some structural changes,'' comments Lucy Black Creighton, vice-president and economist at First Interstate Bank of Denver.
``Those that are competing against IBM are having real trouble. But that doesn't mean the whole high-tech industry in Colorado is in trouble.'' There are currently 180,000 manufacturing employees in the state, most of them in high-tech. ``STC is a very small part of that,'' she says.
Burroughs, Hewlett-Packard, and IBM all have plants in the state, and none have experienced visible problems. Sperry recently announced plans to build a large plant in Pueblo, Colo.
On a smaller scale, one of the more prosperous high-tech companies in the business is Boulder-based NBI Inc.
The company, which makes high-performance word processors, was a start-up financed by venture capital in the 1970s, and it plans to make the Fortune 500 next year. Sales last year were $400 million.
With its latest quarterly earnings up a hefty 44 percent over the same period the year before and with some $32 million in cash, NBI has taken advantage of the high-tech slump to expand. It recently bought Integrated Solutions Inc., a California computer company, and merged with Computer Consoles Inc., a New York computer technology company.
Ms. Seybold expects such acquisitions and mergers to continue within the industry.
``A number of companies are in the position of being able to buy a software company more cheaply than they can develop the software themselves,'' she says.