IBM sells computer chips to rivals - which helps IBM
When International Business Machines chairman John Akers turns out the light at night, the odds are pretty good that he's thinking about Digital Equipment Corporation - and how to beat it out. So why - considering the intense rivalry between Big Blue and the nation's No. 2 computermaker - is IBM selling advanced computer chips to Digital?
``They are testing their products under fire, the fires of competitive battle,'' says Ulric Weil, an industry consultant and analyst. ``If you only play intramural football, you never know whether your varsity measures up to the other schools.''
IBM made it official Friday in an interview with a New York Times writer. Jack D. Kuehler, IBM's vice-chairman and the company's top engineer, confirmed what had been suspected for a few weeks now - IBM has been selling advanced silicon memory chips to its competitors.
Mr. Kuehler was quoted as saying that IBM has been seeking ``to sharpen our own competitiveness'' by selling its chips to computermakers that could easily buy Japanese memory chips if they wished.
IBM has its own silicon memory chip foundries, and makes its products for its own computers. But following the intense multi-year battle with the Japanese that resulted in all but two United States semiconductor manufacturers being swept from the market, some US government officials had hoped IBM might bolster the American computer industry by becoming a memory chip supplier.
This notion was reinforced last month by a book titled ``Trading Places: How We Allowed Japan to Take the Lead,'' by Clyde Prestowitz, a former Commerce Department chief trade negotiator. Mr. Prestowitz claimed in the book that IBM had supplied chips to DEC. Kuehler reportedly denied that IBM's motivation was to reinforce the US industry.
And other analysts say there is more to the IBM sales of chips to Digital than meets the eye.
``Increased volume [on IBM's chip production facilities] would lower their own internal costs,'' says Donald Bellamy, a senior consultant at International Data Corporation, a Framingham, Mass., market research firm. ``If you're not giving away the crown jewels, why not gain the incremental volume at little competitive disadvantage?''
Mr. Bellamy concedes, however, that it would be easy to take the ``Machiavellian'' view that IBM has sought to bolster US computermakers.
``It's a pretty safe bet they are not selling the keys to the kingdom,'' says Bellamy, who, like other analysts, does not believe the company is selling any highly proprietary chips. ``Whether or not they claim it is their motive, there is the perception of a major industry giant protecting the US computer industry against Japanese invaders.''
If that is the perception, it may not be bad politics inside the Washington Beltway, says Mr. Weil. ``It might help them in Congress,'' he says. ``Helping other American companies in a highly protectionist environment would show IBM wants to help as far as it can to withstand the Japanese onslaught.''
Other analysts don't see altruism or politics working into the equation. Building up volume on the production line to lower costs, improve quality, then checking their competitive edge on the open market was a natural move, they say.
``The ability to produce chips at a lower cost is a competitive advantage,'' says Stephen Cohen, an analyst with Gartner Securities. ``If they can increase volume by selling some portion to the outside market, the cost per chip is that much lower.''
Mr. Cohen argues that IBM has always measured its products against the best chips on the market and has been doing it internally for years. It does not necessarily need to sell them. ``You can do that analysis in a lot of stages, you don't have to go out into the market.''
Still, Cohen concedes that IBM ``for selfish reasons'' needs access to US semiconductor manufacturing equipment. If US semiconductor manufacturers go out of business, so do US suppliers of sophisticated machinery, called steppers, that use light to etch patterns on silicon. If the US semiconductor industry failed, IBM might have to go to the Japanese for such equipment - an uncomfortable thought.
``They need a US-based test equipment industry,'' Cohen says. ``If there were no US industry, where would IBM get the steppers and testers - Fujitsu and Hitachi?''