Don't Count Mainframe Computers Out Yet

COMPUTER mainframes used to be the darlings of the industry. Today they're the pariahs.

The pejoratives mount: "behemoths," "dinosaurs," "big iron." Companies that build them are pooh-poohed. On occasion, they take a drubbing in the stock market. Such is the case with the world's largest builder of mainframe computers: International Business Machines Corporation.

Wall Street has pushed the price of IBM shares from $100 to around $50 in less than a year. Analysts point to the sorry state of the world's mainframe market. Doubts creep in. Is the mainframe - and perhaps IBM with it - headed for history's junk heap?

Computer analysts and corporate technology officials don't think so. They see a long life ahead for big iron and Big Blue. What will change is their role within the computer industry.

"Even though it's not what it used to be, it's still a good business," says Martin Ressinger, technology analyst for Duff & Phelps Inc.

"I would bet you that we'll be running our large mainframes well into the 2000," adds Robert Anderson, manager of information systems at Northern Illinois Gas. The company, based in Naperville, Ill., just replaced its old Unisys mainframe with a new one. Mr. Anderson ticks off his reasons. The machine is speedy enough to churn through the huge amounts of data the utility needs for daily operations. It's reliable and provides the security of a centralized data base, he says. Slowly, the company plans to h ave networks of personal computers take over several functions now carried out by the mainframe. Over time Anderson envisions the big machine becoming a data repository and a "superserver" at the center of a network of smaller computers.

Mainframes will play a continuing, though less important role, in corporate computing. This shift is already taking place. The market share for mainframes fell last year from 24.9 percent to 21.6 percent of total computer systems revenue worldwide, according to estimates from Dataquest. The technology market research firm said the decline marked the first time that midrange computers outsold mainframes.

Neither class of machine could match personal computer sales, which totaled 44.5 percent of the world market, Dataquest estimates.

The chief reason companies are shifting away from mainframes is cost. Personal and midrange computers are cheaper to operate. By one estimate, a Hewlett-Packard midrange computer costs about $12,000 for every 1 million instructions per second, or MIPS, it can handle. A traditional IBM mainframe costs $100,000 per MIPS.

As smaller computers become more powerful, they will make up an increasing portion of the market, analysts say. Midrange or minicomputers already pack the power of mainframes from just a few years ago. Cheaper personal computers can be linked together into local-area networks, or LANs, that also provide some of the functions that used to be claimed by mainframes.

"I don't think anybody would install a mainframe today if they were starting from scratch," Mr. Ressinger says. "But nobody's starting from scratch." Only slowly will big companies rewrite tried-and-true mainframe software to work on a local network.

Networks often create more problems than they solve. "Most of the networks we've hooked up and tried to hook up have many more problems" than meet the eye, Mr. Anderson says.

Taken together, these factors suggest continued though unexciting business potential for IBM's mainframe unit. The company is by far the biggest mainframe maker in the world, with 52.2 percent of the market - down from 55.8 percent in 1991, according to Dataquest. The No. 2 player, Fujitsu, has only 9.4 percent of the market.

To better compete against its rivals, IBM is cutting costs and revamping its technology.

On Tuesday, the company announced 18 new models of its ES/9000 line of mainframes. The new machines are up to 60 to 70 percent more powerful than the current line.

The company also announced it was abandoning list prices (which it was deeply discounting anyway) and would leave prices open to negotiations with potential buyers.

The company also plans to unveil later this year a mainframe computer using parallel processing. This technology has allowed NCR Corporation and smaller companies to jump into the mainframe business. Instead of relying on fast, custom-designed chips, these new rivals string together off-the-shelf microprocessors common in smaller computers known as workstations. IBM is now moving rapidly on its own parallel-processing mainframe using the same microprocessor-based technology.