BUSINESS

CHIPPING AWAY

UPSTART RIVALS ARE BEATING IBM AND APPLE TO MARKET WITH REVOLUTIONARY NEW COMPUTERS

PATRICIA CHISHOLM November 11 1991
BUSINESS

CHIPPING AWAY

UPSTART RIVALS ARE BEATING IBM AND APPLE TO MARKET WITH REVOLUTIONARY NEW COMPUTERS

PATRICIA CHISHOLM November 11 1991

CHIPPING AWAY

BUSINESS

UPSTART RIVALS ARE BEATING IBM AND APPLE TO MARKET WITH REVOLUTIONARY NEW COMPUTERS

Travelling light has been little more than a dream for management consultant David Gouthro. Said the businessman: “It sounds weird, but I often take tennis balls, blindfolds and modelling clay to help me in the seminars I give on management techniques.” That equipment leaves little room in Gouthro’s briefcase for other items, and until recently he had to do without a computer on his frequent business trips. His favorite computer maker, California-based Apple Computer Inc., did not offer a convenient, lightweight model, and Gouthro is uncomfortable with the operating systems of other manufacturers’ computers. But last month, Apple finally introduced a new, lightweight so-called notebook computer that weighs only 5.1 lb. and fits into a briefcase. Gouthro has already tried a test model of the PowerBook and says that he plans to buy one, priced at about $2,595, as soon as possible. The busy Toronto executive added that the new product was long overdue. Said Gouthro: “I wish I had had it years ago.”

Apple, which Steven Jobs founded in 1976 at the age of 21, quickly developed a reputation as one of the most creative and innovative companies in the industry. But it has been uncharacteristically late in introducing a notebook model. Meanwhile, competitors, including Toshiba America Information Systems Inc. of Irvine, Calif., gained a strong foothold in the market for the superlight computers. And Apple is not the only giant fighting to keep pace in an increasingly fragmented marketplace. From International Business Machine Corp. of Armonk, N.Y., once the undisputed leader among computer companies, to more recent success stories, which include Microsoft Corp. of Redmond, Wash., the entire computer industry is in turmoil. For the quarter ended Sept. 30, 1991, the industry as a whole posted an overall profit decline for the first time in its history.

Declared Andrew Toller, an industry analyst for Montreal-based DMR Group Inc.: “Even the future of a giant like IBM is unknowable. The past 18 months have been shocking.”

Such established giants as IBM and Apple are struggling to keep up with the accelerating pace of technological change. Because of the increasing use of standardized components, the large computer companies have been forced to abandon their strategy of creating unique proprietary equipment and accept open systems

common to many different manufacturers. That, in turn, has allowed small computer makers to quickly copy and improve on the giants’ designs. It has also led to ruthless pricecutting. As well, the industry’s sales have suffered as corporations and individuals have cut their spending following last year’s recession. The computer makers, however, still have to invest huge sums in product development in order to keep up with the new waves of technological wizardry. Indeed, some companies have now moved beyond notebooks and are introducing pen-based systems, which use an electronic stylus instead of a keyboard, and even smaller units that can be held in one hand.

But for the moment, the stakes are highest and the competition the most brutal in the multibillion-dollar market for personal computers. Last year, 46 per cent of worldwide computer industry revenues, which amount to approximately $200 billion, arose from sales of PCs. Analysts predict that that share will grow to 56 per cent or more by 1996. Sales of

notebook computers, in turn, already represent about 10 per cent of total PC sales.

That explosive growth, barely dreamed of in 1981 when IBM introduced the first tabletop PC, is fuelled by stunning new technological strides. No longer just squat boxes confined to a desktop, with limited memory and slow responses, new PCs are smaller and much more powerful than the original IBM model. Indeed, many corporations now rely on PCs linked together in high-speed networks that mimic the functions of huge mainframes, but cost much less. And for users who insist on portabil-

ity, there is now a wide selection of notebook computers, the latest incarnation of so-called laptop computers. These new, battery-run models use conventional-size keyboards and often include high-quality screens. One new IBM notebook to be introduced soon is PCradio, which uses radio signals or a cellular telephone to transmit data from remote locations to a central network. It is designed primarily for such workers as police officers or service technicians, who must send data from distant locations back to their headquarters.

At the same time, manufacturers are racing to enhance a radical new style of computer that uses an electronic stylus to transmit commands directly onto a computer screen, instead of keying information from a keyboard. Currently, such computers have only limited recognition of handwriting. But the newest models, such as those sold by GRiD Computer Corp. of Freemont, Calif., are designed for employees who must fill out large numbers of forms or collect other standardized types of information.

The spectacular rate of change has already begun to take its toll on some of the industry’s most venerable companies. Apple, for one, cut the prices of its tabletop models by 30 per cent last year after suffering from competition from high-quality, low-cost models made by upstarts including Dell Computer Corp. of Austin, Texas, and Zeos International Ltd. of St. Paul, Minn. The result: Apple’s sales soared but its profit margins shrank, and the company posted a loss in the second quarter of 1991— its first quarterly loss in six g years. Said Randy Brophy, a ia product manager with the I Gartner Group Inc., a Stanley ford, Conn.-based computer g consulting firm: “Any kind of g innovative technology will be s profitable for a while, but basic personal computers are too much of a commodity now. Anybody can build a highquality, low-priced model.”

Overall, Brophy says that IBM’s share of worldwide personal-computer sales has declined dramatically to 31.6 per cent from 49.6 per cent in 1986. Apple’s share has also fallen—to 16.1 per cent from 22.6 per cent. Over the same period, Compaq Computer Corp. of Houston has doubled its market share to 11.9 per cent, and Sun Microsystems Inc. of Mountain View, Calif., which specializes in designing work stations used by engineers, has quadrupled its share to 11.5 per cent.

But even companies that have led the way in the past are having trouble keeping up with the needs of increasingly demanding computer buyers. Compaq, for one, started operations in 1982 and quickly developed a reputation for high-quality tableand laptop models. But last week, the company’s board of directors dismissed Compaq’s co-founder, Joseph R. Canion, as president and chief executive. Canion’s downfall occurred two days after the company reported its first ever quarterly loss: $78.7 million on revenues of $794.5 million.

Dismissals have not been confined to the executive suite. At the same time as it announced Canion’s dismissal, Compaq also said that this year it will cut 1,400 jobs, or 12 per cent of its workforce. IBM, in turn, plans to reduce its worldwide workforce of 373,800 by 20,000 this year. And Apple, which highly qualified profes-

sionals once considered a recession-proof employer, has slashed 1,200 employees from its workforce of 12,000 in the past year.

Despite the vast sums they spend on research, the established giants are falling behind their smaller rivals in many areas. IBM alone will spend about $6.5 billion on research and development this year. But it has yet to introduce a notebook computer in North America,

even though sales of those computers are the fastest-growing sector of the PC market. Stan Didzbalis, a spokesman for IBM Canada, said that IBM’s huge size and wide range of products have hampered its ability to respond as quickly as some of its more specialized competitors.

Still, IBM remains by far the world’s largest computer maker. And with profits of $904 million so far this year, Didzbalis said, the

company is aggressively attempting to regain its once overwhelming lead in the PC market. Indeed, last month, IBM cut prices on its entire range of PCs by between 10 per cent and 38 per cent. But even for small, aggressive newcomers, price-cutting remains key. Dell Computer, another small, fastgrowing PC manufacturer, announced in September that it will cut prices on its desktop and laptop computers by as much as 33 per cent.

At the same time, other upstarts are developing even more advanced new technologies. In addition to penbased computers, some companies plan to introduce multimedia computers, which will integrate sound and video impulses with standard textbased information. Keeping up with those new developments is bound to cause difficulties for IBM, Apple and the other established manufacturers. But such trends are welcomed by users like consultant Gouthro, who

says that he would be most comfortable with a computer that mimics one of the world’s oldest methods of communication: pen and paper. For him, as for millions of others, the ultimate computer may be one that does not look, sound or feel like a computer at all.

PATRICIA CHISHOLM

BARBARA WICKENS