THE COLOSSUS THAT WORKS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85-00142R000100210002-8
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 15
• Document Creation Date: December 22, 2016
• Document Release Date: May 17, 2010
• Sequence Number: 2
• Publication Date: July 1, 1983
• Content Type: OPEN SOURCE

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economy & Business
The Colossus That Works
Big Blue uses salesmanship and innovation to bestride the computer world 1
IBM. Three of the most famous letters
in American business. For years the
International Business Machines
Corp. towered over the office-equip-
ment industry. Then in the 1970s, be-
sieged by Government antitrust charges
and challenged by ambitious new rivals,
the giant seemed to be staggering, and
those three famous letters lost a bit of
their luster. Was IBM's dominance in
jeopardy?
Not a chance. Under the direction of
John Opel. 58, who became chief execu-
tive officer in January 1981, the firm has
been acting like its brashest competi-
tors-entering new markets, chasing the
latest technology, trimming organization-
al fat and selling more aggressively than
A proud gallery, clockwise from above: multi-
ple-exposure photo of a robotic device; a
288K memory chip; the firm's new 43-story
Manhattan building; semiconductor wafers
lion on sales of $34.4 billion, making it the
most profitable U.S. industrial company.
Says Stephen McClellan, aui:hor of an up-
coming book on the computer industry:
"In the 1970s, IBM was a battleship in
mothballs. Today it is a fleet of killer
submarines."
Nowhere was the company's lean new
stance more evident than in the way it
plunged into the personal-computer mar-.
ket in August 1981. Tackling the mass
market for computers for the
first time, the company broke
many of the traditions that had
made it so successful in the past.
Yet its new machine, the Per-
sonal Computer, generally
known simply as the PC, has
done nothing less than trans-
form the industry. IBM has already cap.
tured 21% of the $7.5 billion U.S. market
for personal computers, a staggering feat
in so short a time, and is virtually tied
with pacesetter Apple Computer, which
had a four-year head start. i
Big Blue, as IBM is nicknamed for the
corporate color it puts on many products,
is a mighty competitor in a range of prod
ucts from electric typewriters that sell for
$800 to data-processing systems that can
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t;ost more than $100 million. 1._ um-
mands some 40% of the worldwide mar-
ket for computing equipment and pro-
duces some two-thirds of all mainframe
computers, which are big and medium-
size business machines. So great is IBM's
pre-eminence that rivals often seem to be
running in a different race. Digital Equip-
ment, the No. 2 computermaker, has less
than one-fifth of IBM's sales. Says John
Imlay Jr.. chairman of MSA, an Atlanta-
based software company:
"IBM is simply the best-
run corporation in Ameri-
can history."
At a time when Amer-
ican business sometimes
seems to be slipping,
IBM's triumphs have
served as a reminder that
U.S. industrial prowess
and know-how can still be
formidable. Struggling
U.S. steel and automakers
have been severely hurt by
Japanese and European
imports, but Big Blue's
competitiveness is un-
questioned. The company
is the leading computer
firm in virtually every one
of the some 130 countries
"IBM is like your papa,"
says a Swiss computer-
marketing specialist, "be-
cause it's so big and it's al-
ways there." Even in
Chairman John Opel at his stand-up desk; an
instructor during a management training
class; staff members eating lunch outside the
cafeteria at the Armonk headquarters
HANK MORGAN
Japan, which has six major domestic
computermakers and restricts access to its
markets, IBM is easily the dominant pro-
ducer of large computers and is fighting
Fujitsu for the overall title. Last year IBM
sold $1.9 billion worth of equipment in Ja-
pan to Fujitsu's $2.1 billion.
For all of its success, IBM has been
rethinking some of the ways it does busi-
ness. In a dramatic departure from its tra-
ditional practices, IBM built the PC
largely from parts bought from outside
suppliers and is selling it through retail
Outlets like Sears and ComputerLand, a1.-f founder of Amdahl Corp. (1982 sales:
well as its own sales network. The compa-
ny has begun offering discount prices and
introducing new products at an acceler-
ated rate. Last December IBM spent $250
million to acquire 12%, of Intel, it leading
computer-chip maker based in Santa
Clara, Calif. In June IBM paid $228 mil-
lion for a 15% stake in Rolm, also of
Santa Clara, a major producer of telecom-
munications equipment. I BM plans to use
Rolm to help create the
so-called electronic office.
Says Ulric Weil, a top
computer analyst for
Morgan Stanley & Co.:
"We're watching a total
transformation of the
corporation."
In June IBM Chair-
man Opel announced that
1983 results were outstrip-
ping last year's. That
helped push up the price
of IBM stock, a leader in
the eleven-month-old
Wall Street bull rally. Af-
ter years of hardly mov-
ing, IBM shares have
nearly doubled in price
since the rally started,
climbing from 62% last August to close
last week at 121.
Traditionally, IBM has been so deep
in talent that its alumni have gone on to
staff laboratories and executive suites
throughout the computer industry. "Al-
most everybody in the business seems to
be a former IBMer," observes William
Easterbrook, an ex-IBM manager in Co-
penhagen who now watches the computer
industry for Kidder, Peabody, a Wall
Street securities firm. Illustrious former
employees include Gene Amdahl,
$462 million), which makes large comput-
ers; Joe M. Henson, president of Prinie
Computer (1982 sales: $436 million), it
major producer of minicomputers; and
David Martin, president of National Ad-
vanced Systems, the computer unit of Na-
tional Semiconductor. Former employees
usually speak highly of Big Blue. Says Fla-
vil Van Dyke, president of Genigraphicst,
a computer-graphics firm: "I still look
back fondly at IBM and try to run my
company by IBM standards."
Customers of IBM often speak with
that same kind of devotion. Some
have been known to refuse to see
salesmen from rival firms. Say's
James Marston, vice president for data
processing with American Airlines: "You
can take any specific piece of hardware or
software and perhaps do better than IBM,
but across the board IBM offers an un!
beatable system." IBM buyers range from
Government agencies like the National
Aeronautics and Space Administration,
which directs space-shuttle missions with,
Big Blue equipment, to firms as diverse as!
Bank of America and Coca-Cola.
Longtime industry observers view the)
loyalty of some customers as a natural'
outgrowth of the attitudes that IBM drills)
into its workers from the day they arrive.!
"IBM creates an environment that isl
unique because of its strong set of beliefs)
and principles," says Martin. "It is almost
overwhelming how it affects employees
and rubs off on customers."
IBM's strong corporate culture is
the lengthened shadow of Thomas Wat-
son Sr., a charismatic executive who
joined the Computing-Tabulating-Re- I
cording Corp. in 1914, renamed it Inter-
national Business Machines in 1924, and
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Economy & Bi sines ,
ran it until a month before his death in
1956. Watson was a visionary who be-
lieved above all in his company.
Under Watson, IBM had rules for
practically everything. Employees were
told what to wear (dark business suits,
white shirts and striped ties) and what to
drink (no alcohol, even when off the job),
and were urged in signs posted every-
where to THINK. Aspiring executives
usually started out in sales and marketing
and were transferred so frequently that
they took to joking that IBM stood for
"I've Been Moved." Observes Gideon
Gartner, chairman of the Gartner Group,
a computer-research firm: "If you under-
stand the Marines, you can understand
IBM."
Many of the Watson-instilled codes
remain in effect today, though in a soft-
ened form. All IBMers are subject to a 32-
page code of business ethics. Sample
warning from the blue-covered rulebook:
"If IBM is about to build a new facility,
you must not invest in land or business
near the new site."
IBM salesmen can now drink at
lunch, but if they t;j they are warned not
to make further business calls that day.
Male IBMers, who make up 80% of the
8,500-member U.S. sales force, must wear
suits and ties when meeting prospective
customers, although their shirts no longer
must be white. Still, a neat and conserva-
tive appearance remains the IBM style. "I
don't think I've ever seen an IBMer in a
pink shirt or an outlandish tie," says Jo-
seph Levy, a vice president for Interna-
tional Data, a Massachusetts-based com-
puter market-research firm. The THINK
signs have largely vanished, but the old
admonition remains the title of the com-
pany's employee magazine.
IBM has combined Watson's stern
codes with a deep and genuine concern
for the welfare of employees, who number
215,000 in the U.S. with an additional
150,000 abroad. The company has often
fired workers, but it has never laid anyone
off to cut costs; instead it retrains and re-
assigns them. The company's salaries and
perks are widely regarded as among the
most attractive in the industry. New em-
ployees are expected to spend their work-
ing lives with the firm, and regularly go
through intensive training programs to
upgrade their skills. "We hire with a ca-
reer in mind," says Edward Krieg, direc-
tor of management development. Al-
though some overseas IBM plants are
Technicians track silicon-wafer production
In vestments in the 70s led to current growth.
unionized, the firm has never had a uniop
vote in any U.S. facility. I
The generous fringe benefits extend to
recreation. The company provides mem-
berships for less than $5 a year in IBM
country clubs in Poughkeepsie and Endi-
cott, N.Y. There, employees can play golf,
swim and participate in numerous other
sports.
Watson was especially adept at moti-
vating workers and inspiring loyalty. He
personally commissioned a ' company
songbook and led employee gatherings in
numbers like Ever Onward.* The song
was belted out with gusto during get-to-
gethers of the IBM 100% Club, made uj~
of members who have met 100% of their
sales goals for the previous year.
Watson was succeeded by his son
Thomas Watson Jr., who served as chief
executive officer from 1956 to 1971. A
powerful executive in his own right, the
younger Watson had helped persuade his
father to steer IBM into the computer age.
After retirement, Thomas Watson Jr. was
U.S. Ambassador to the Soviet Union un-
der President Carter.
More than anything else, it was
IBM's awesome sales skills that
enabled the company to cap-
ture the computer market. Al-
though it now seems hard to believe, IBM
did not introduce the first commercial
computer. Remington Rand did that in
1951 with a computer called Univae.
which became the name of the firm's
computer division. But Big Blue knew fai
more about winning customers than did
Univac. IBM, whose major products at
the time included calculators and tabula-
tors, recognized that potential buyers
might be frightened by the cost and com-
plexity of computers. When the company
entered the market in 1952. it set a high
priority on dispelling customer fears. Buy-
ers were promised that IBM service engi-
neers would keep a close watch over the
machines and quickly fix any glitches.
The salesmen were so knowledgeable and
thoroughly trained that their very prey
ence inspired confidence. Univac repre
sentatives, by contrast, were seen to dwell
on technical details that customers could
barely follow.
The race was over by 1956. IBM had
won a staggering 85% of the U.S. comput;
er market, even though its machines were
*Sample lyric: "Our products are known/ In every,
zone/ Our reputation sparkles like a gem/ We've
fought our way through/ And new fields were surf
to conquer too/ For the ever-onward IBM." I
TIME. JULY 11, I'x3
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considered to be technically inferi'i
Univac's. Years later a Univac execi.,,.ve
would lament, "It doesn't do much good
to build a better mousetrap if the other
guy selling mousetraps has five times as
many salesmen."
The Univac episode helped give rise
to the belief that IBM's real strength is in
selling while its technical prowess often
lags. Says Kenneth Leavitt, president of
CGX Corp., a Massachusetts-based mak-
er of high-performance display terminals:
"IBM tends to be a step behind in tech-
nology but very good at marketing. There
are all sorts of new technologies that IBM
doesn't have the expertise to get."
Such claims naturally make IBMers
bristle. "This is a shibboleth cultivated by
certain Wall Streeters," declares Paul
Low, manager of the IBM plant in East
Fishkill, N.Y. "Nobody who peeks inside
any of our 29 laboratories could fall for
that nonsense." Company spokesmen like
to point out that IBM spent $3 billion on
research, development and engineering
last year, an amount that exceeds the total
revenues of many of its rivals. The firm
has also taken the offensive in a new ad-
almost anybody." says Jo-
Levy of International
seph
Data, which analyzes com-
puter-market trends. "It is
one of our best customers."
market-research service
and has a worldwide intelli-
gence-gathering network The heart of a new machine
that includes economists
and market analysts.
The company takes equal pains in
keeping the skills of its personnel up to
date. Last year, for example, IBM invest-
ed more than $500 million on employee
education and training. Most new I BMers
spend much of their first six weeks in
company-run classes, and managers are
required to take at least 40 hours of addi-
tional instruction a year. The classwork
often focuses on actual business case stud-
ies, in the manner of the Harvard Busi-
ness School.
The IBM management formula
worked so well that the company in the
1960s came to be known as Snow White
while its competitors were derisively
dubbed the Seven Dwarfs. The dwarfs
(Burroughs, Univac, NCR, Control Data,
Honeywell, General Electric and RCA)
dwindled to five when GE and RCA quit
the computer business in the 1970s, and
the others are now collectively referred to
by their first initials as the BUNCII.
I BM's very success, however, almost
backfired against the company. The
Johnson Administration on its final
working day in office, Jan. 17, 1969,
opened a massive antitrust case, accusing
the company of monopolistic and anti-
competitive practices. The federal suit
dragged on endlessly-at a cost to IBM
of several hundred million dollars in legal
fees-until the Justice Department
abruptly dropped it in January 1982, de-
claring that the case was "without merit."
vertising campaign that boasts of the
more than 11,000 patents IBM inventors
have acquired over the past 25 years.
Actually, IBM is skilled at blending
both marketing and technical consider-
ations. That goes a long way toward ex-
plaining how so huge a company has kept
its edge in an industry where key break-
throughs are often made by blue-jeaned
engineers working out of their garages.
What IBM seeks, above all, is prod-
ucts that sell. "They have tried to under-
stand what the customer wants," says
Stuart Madnick, a professor of manage-
ment-information systems at M.I.T.'s
Sloan School. "Often the customer didn't
need or want the more advanced technol-
ogy that others have produced. In many
companies the technology has grown fast-
er than the market can absorb."
IBM evaluates buyers' needs in fine
Recalls Former I13M Chair-
man Frank Cary, Opel's
predecessor: "The suit was
a tremendous cloud that
was over the company for
13 years. It couldn't help in-
fluencing us in a whole vari-
ety of ways. Ending it lifted
a huge burden from man-
agement's shoulders." Jef-
frey Zuckerman, special as-
sistant to Antitrust Division
Chief William Baxter, concurs: "We be-
lieve IBM must have been deterred from
competing as aggressively as it otherwise
would have."
Whatever the reason, IBM's momen-
tum slowed markedly in the 1970s, a peri-
od Cary called "a t'me of planning and
consolidation." The company entered the
decade with a 60% share of the computer
market and emerged with a still impres-
sive but slimmed-down 40%.
Though IBM was growing at a re-
spectable annual rate of 13%, the comput-
er industry was expanding even faster.
One challenge came from the' Route 128
area around Boston, where Digital Equip-
ment and other firms launched the mini-
computer. Such machines were smaller
and cheaper than the large ones IBM of-
fered, but still performed a wide range of
data-processing functions. Revenues of
Digital Equipment, the leading maker of
minis, have climbed from $265 million to
about $4 billion over the past ten years.
Another challenge came from Cali-
fornia's Silicon Valley, where the micro-
processor, or computer-on-a-chip, was de-
veloped. The tiny devices packed
thousands of circuits onto a postage-
stamp-size silicon chip and gave rise to
the microcomputer. Apple recognized the
potentially vast appeal of personal com-
puting, and its sales jumped from less than
$1 million to $582 million between 1977
and 1982.
By the start of the 1980s, however,
IBM had begun to move in new direc-
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tions, and the dismissal of the lawsuit
helped to accelerate the process. The most
notable example was in the personal-
computer field. Although IBM had been
monitoring the market for years, it re-
fused to jump in until it began seeing per-
sonal computers appear in offices and be-
came convinced that there was enough
demand to make their entry pay off.
"There's no particular challenge to build-
ing a personal computer other than to
build one that someone wants," says Cary.
The task of overseeing the creation of
the PC fell' to a twelve-member group in
Boca Raton, Fla., led by Philip Estridge, a
division vice president. The team was first
assembled in July 1980 and told to develop
a competitive and easy-to-use machine
within a year. "Twelve-hour days and
six- or 6% -day weeks were commonplace,"
recalls Estridge. The members made some
key moves along the way that help account
for the PC's enormous popularity. The
planners decided, for example, to build the
PC around a 16-bit microprocessor rather
than an 8-bit one, which was at that time
the industry standard. This move permit-
ted the PC to run faster and handle more
complex programs. Says Estridge: "We
chose to up the power of the machine so
that it could be used without too many
changes for the next decade or so."
The group broke with tradition by set-
ting up a so-called open-architecture
scheme that makes the PC's technical
Economy & Busines,
specifications available to other firms.
The idea was to permit outside companies
and individuals to write software or build
peripheral equipment for the PC and
The project, however, did not always
unfold smoothly and without flaws. Early
users discovered that the machine mis-
placed decimals in certain calculations,
but the problem was quickly solved. Also,
board had been poorly designed.
b sales. "Within just a few months,"
says Morgan Stanley's Ulric Well,
"the I RM PC was the standard for
I
assembled personal computer in 19717.
profess not to be worried. They even
greeted the PC the day after it was an-
nounced with ads that read "Welcome
IBM. Seriously. Welcome to the most ex-
citing and important marketplace since
the computer revolution began 35 years
ago." Whatever the intent of the message,
some IBMers found it condescending.
Apple Chairman Steven Jobs claims
that IBM has expanded the personal-
computer market and that his company's
share of it has gone on growing at the ex-
pense of weaker rivals like Tandy, which
owns Radio Shack. Says he: "Apple hasi a
higher market share than IBM. and we
intend to keep it." Indicative of how seri-
ous Apple considered the challenge wlas
its decision to hire Pepsi-Cola President
John Sculley, a marketing expert, to serve
as Apple's president and chief executi'.e.
"This is not a bruising fight for market
share between Apple and IBM," says
Sculley. "It's a sorting out of who the m~ -
jor participants will be."
Some observers are far less confideht
about Apple's prospects. Gene Amdahl
knows IBM from the perspective of a rival
and a former 13-year employee. Says he:
"IBM waits until some brash young com-
panies develop a market to the point
where it's interesting, and then they take
it over. In Apple's case the shooting isn't
over yet, but I think it's clear how the w?tr
will come out."
for the machine, which has a starting
price, with standard accessories, of about
months to get one. Last year IBM sold an
estimated 200,000 PCs, and this year sales
of 800,000 or more are projected. In June,
PCs, to be delivered over the next two
years. New companies with names like
have sprung up making machines that are
The explosive growth of the IBM en-
based company, which introduced a fully
Plain Vanilla, but Very Good
W hen he was growing up in the 1930s in Jefferson City,
Mo., then home to 23.000 neonle. his schoolmates called
ny's father "Gump" ran a local hardware store.
business, a reporter for the local newspaper
went out to see Gump and asked whether he was
"I always knew Johnny was a good boy."
"but good plain vanilla." Says a middle-level ex-
headquarters in Armonk, N.Y., the only mildly
in addition to a standard one. He receives visi-
tors with a correctness that is so smooth it can be
tion in the Ford Administration and now a Washington law-
yer, says Opel is noted more for his strength than for his
when you're rubbing him the wrong way or when you've stayed
beyond your time."
lows the old one. His shirts are white oxford cloth and as but-
toned down as the man. His ties are impeccable and subdued,
his shoes standard-issue corporate cordovans:
no buckles, tassels or other frills.
John Opel achieved the top post by molding
himself to be just what the company wanted, be-
cause that is exactly what he too wanted. Opel
sees himself as something of an interchangeable
part of the firm. "I'm a product of the culture of
I IIM, of the way we do things," he says.
Starting with the firm straight out of the
University of Chicago School of Business in
1949 as a salesman in Jefferson City, Opel was
soon being shifted around with dizzying fre-
quency: he has held 19 different jobs. His career
picked up fast in 1959, when he was chosen to be
an administrative assistant to Thomas Watson
Jr.. then president, for one year. Following that,
Opel began serving in a wide variety of posts.
ranging from manufacturing to press relations.
Opel today gives visitors and colleagues) a
sense of self-containment. but he admits to ha~-
ing had a wicked temper. Once when he could
not get a flat tire off his Chrysler because he was
turning a lug the wrong way, he became so eh-
raged that he bashed in the side of the car. I'1
don't get angry the way I used to." Opel says.
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Division Vice President Estridge, leader of the group that developed the Personal Computer
the tradition-breaking product has done' nothing less than transform the industry.
In fact, IBM's aggressive new posture
poses a threat to virtually the entire
computer industry. "IBM is creating a
dangerous situation for competitors in the
marketplace." says computer-industry
observer Gideon Gartner. Among those
most at risk are makers of so-called plug-
compatible computers that run IBM soft-
ware but sell for less. Such firms thrived
during the 1970s, when IBM was slow in
delivering equipment. Now, however, a
burst of IBM price cuts and new models
could badly hurt them.
That has already happened to Mag-
nuson Computer Systems (1982 sales:
$18.4 million). The San Jose-based maker
of medium-size computers prospered in
the late 1970s when IBM failed to ship a
rival system on time. But IBM fought
back in 1981 by slashing prices and
introducing a new model. Then, last Octo-
ber, IBM announced two additional com-
puter models and cut prices again. "There
was no question. That was the fatal blow,"
declares Magnuson President Charles
Strauch. The company, which has
chopped its work force from more than
640 employees to about 100 over the past
months, filed bankruptcy papers in
lviarch.
Other firms have also been hit hard.
Like Magnuson, Storage Technology en-
joyed a big jump in business in 1981 when
IBM ran into technical difficulties intro-
ducing a new memory device. The Colo-
rado-based company, which makes high-
performance memory equipment, gained
some 300 customers because of IBM's
troubles. However, when Big Blue
brought out an improved new line last
year, Storage Technology's profits
dropped to $64.7 million, from $84.2 mil-
lion in 1981. Says Jesse Aweida, who co-
founded Storage Technology after 13
years with Big Blue: "IBM used to be ac-
tive in only certain areas of the computer
business. Now it wants to be active in the
whole business."
One big reason for IBM's clout is the
major investments it began making in the
late 1970s to upgrade manufacturing fa-
cilities. IBM executives point to that drive
to cut production costs, launched under
Cary, as a foundation of the company's
current strength, because it has made the
firm extremely cost-competitive. IBM has
pumped some $10 billion into capital im-
provements since 1977. The Boca Raton
line that turns out the PC is so highly
automated that a personal computer can
be assembled in ten minutes of worker
time.
The plants use some of IBM's most
advanced technology. An engineer in the
firm's La Gaude, France, laboratory can
But the old intensity, just barely noticeable beneath the perfect
manners, can still be useful. "People know that I mean what I
say and that I don't suffer fools," he says.
John Opel is a lot more than just a corporate man, but he
guards his privacy as closely as his company protects its secrets.
He bridles at revealing much about his background or family.
plainly believing that such matters are his own business. He
fought with the U.S. Army on Okinawa in World War I I and
was wounded in the foot by a piece
of shrapnel. He and his wife Carole
have three daughters and two sons.
He drives himself to work in a six-
year-old car whose make he will
not divulge and lives in a house he
will not describe beyond noting that
it is "big enough to accommodate
five children."
Opel spends much of his non-
IBM time with his wife. Three
mornings a week they are up at 5:30
and drive 20 miles to do aerobic and
exercise-machine workouts "at a
place where they don't know me."
The Opels fish together, go to the
opera together and watch birds to-
gether. They also work together to
protect their privacy. On the rare
ered for chief executive. They were concerned that he would
have trouble handling relations with the board and the public
and within the company. Says one board member, former
Pennsylvania Governor William Scranton: "He is very possibly
the brightest chief executive I've ever dealt with. But he did
have some difficulty expressing himself." Yet former Du Pont
Chairman Irving Shapiro, another board member, says that
this has not turned out to he a problem. Says he: "The beautiful
thing is that Opel has come out of
his shell."
During his years of rising
through the corporate ranks, Opel
was often frustrated by IBM's cen-
tralized management. "No matter
what I had in my jurisdiction, I
typically felt I was more competent
to deal with it than anyone else.
And that wasn't conceit, it was just
simple laws of nature," says Opel.
That experience left him with a de-
sire for decentralized decision mak-
ing. He now tries to force corporate
policymaking down and out, retain-
ing at headquarters only what is
necessary for overall planning and
control. "You have to have people
free to act, or they become depen-
occasion when a reporter calls him at home, Carole Opel an-
swers politely and promises to bring her husband to the phone.
But then she sets down the receiver without ever telling him.
Callers get the message.
Some IBM board members were worried about this almost
obsessive penchant for privacy when Opel was being consid-
dent," he says. "They don't have to be told; they have to
be allowed." In pursuit of that goal, Opel established
seven Independent Business Units, which operate much like
small companies within IBM. One of the first products created
by Opel's brainchildren: that bountiful beauty, the IBM
Personal Computer. -By John F. Stacks
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 Approved For Release 2010/05/17: CIA-RDP85-00142R000100210002-8
The Watsons, father and son: Thomas Sr. in August 1947 addressing a company convention; Thomas Jr. In 1957 with one of the early machines
Rules, principles and intelligent management have built an overwhelming corporate culture that often begins to affect customers as well.
transmit his computerized design infor-
mation for a new chip via satellite to the
IBM facility in East Fishkill, where the
chip is actually manufactured. The chip
will be floated through tubing on air from
one manufacturing station to another and
then tested by robotically controlled
equipment.
IBM is also the world's largest pro-
ducer of logic and 64K RAM memory
chips, and installs its entire output in its
own machines. The company, moreover,
can produce at the same plant far denser
256K RAM chips, which Japanese firms
are also developing. IBM could start mak-
ing the chips ahead of the Japanese, per-
haps by early next year.
In line with its new aggressiveness,
IBM has been cracking down hard on
those who would steal its secrets. It coop-
erated with the FBI last year in a sting op-
eration that nabbed employees of Hitachi
and Mitsubishi Electric. two Japanese
competitors, for trying to buy confidential
IBM information. IBM then brought a
separate civil suit against Hitachi, which
pleaded guilty to conspiracy charges last
February and was fined 510,000. The
criminal case against Mitsubishi is still
pending.
I BMers claim to be unruffled by Japa-
nese competition. "I think I'll be physical-
ly ill if I hear one more time that the Japa-
nese are coming," says, Paul Low, man-
ager of the East Fishkill plant. "That's not
to say that they're not formidable rivals,
because they are, but we're ahead." All six
of the major Japanese makers of large
computers together have less than 2% of
the U.S. market for business computers.
Many outsiders believe that IBM is
more concerned about the Japanese than
it professes. Says Magnuson Computer's
Strauch: "I'm sure IBM's basic concern is
the Japanese. It is almost certain that
what happened to us was a message to the
Japanese that if they have any thought of
entering the market with a low-to-medi
um-range mainframe. they had better be
prepared to compete at an extremely low
cost." Apple's Jobs believes that IBM's
investments in Intel and Rolm are at
least partially intended to strengthen
IBM's ability to compete with Japan.
The struggle between IBM and its
Japanese competitors is most intense inl
Japan, where IBM lost its No. I position;
to Fujitsu in 1979. IBM Japan, the compa!I
ny's wholly owned subsidiary, is fighting
back. "They are becoming surprisingly
aggressive," says Yuji Ogino, managing
director of IDC Japan, a unit of Interns
tional Data. IBM Japan, which employs'
13,000 Japanese workers, has been slash-
ing prices and launching new marketing 1
drives in a bid to win back its overall lead.)
Admits a spokesman for a rival Japanese1
firm: "IBM is an enormous competitor."
A t the same time that it has been!
fighting vigorously for market)
share, IBM has been forming co-!
operative agreements with the!
Japanese. In one, IBM and Matsushital
Electric Industrial teamed up to produce)
a personal computer that converts Japa-I
nese phonetic symbols into Chinese char-
acters or Kanji. Typewriters have not
been widely used in Japan. partly be-!
cause, with so many different characters.1
a typical machine must he packed wilhl
aural 3,000 Kenji. The new machine,I
which ranges in price from $4,100 toy
$12,700, has a keyboard of only 45 pho
11x11 o uIIIIILs pill: Illy I tllln IIIphIlla; I
More than 15.000 of the machines have
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it ,,th ~~!lil li,l ~I,?I1\,?I\
11 DI AL InL ~iu~ilul lll.m ~.~i.l 1.. 1... ,I
link 11-1i it
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 Approved For Release 2010/05/17: CIA-RDP85-00142R000100210002-8
LCUmmy & uu suiess"
IIiRI :n 1.1 I;rl ,nruwr, uurlaurL.n ou. r. ,r.n ur
la hurl Itiri Will, l!ua Ill'' Ill. 1.l.I I.u toms.:
Japiuicsc husiuess techniques. I'or cxant-
ple, I BM developed "clualily circles" some
It) yeuIs ago. I'lic circles. small Icitnlt; of
workers that get together to discuss ways
to improve output and solve production
problems. have been widely adopted in
Japan and are often cited as a reason Iilr
productivity gains there. Both IBM and
Japanese executives stress harmonious
employee relations, and both place a high
priority on becoming the most modern,
cost-efficient manufacturer of the prod-
ucts they turn out.
Foreign operations are vital to IBM.
Overseas business accounted for 45% of
IBM's gross income in 1982 and 37%
of the company's profits. IBM hires
mainly local employees at its internation-
al locations. There are only 125 Ameri-
cans among some 1,000 managerial and
technical employees in the Paris head-
quarters of IBM's European, Middle
Eastern and African operations. Says
Hans-Olaf Henkel, a vice president in
the Paris office: "Europeans like IBM
not because it is American, but because
it is IBM. It promotes from the inside,
and the majority of senior positions
BIG BLUE'S MARKET SHARE
Percent of units installed
^ Mainframe Computers
^ Small Business-Computers
0 Personat-Computers
Minicomputers
r.. I,,.I,I I.?, .r ui..u.r l? ..I II" ? ?nu.l.
its wide-langing successes, the irunlrally
has its weaknesses and has made sonic
nrgol nu:,takc:, ow I the ycill:. I k..l.Ilr II
creased ctlirrts to recruit women and mi-
norities, there are still few of either in
lnanapcnnenl rinks. ()niy 1.049 of I ISM's
more thati 29,000 manages ;Ire wommen.
.IBM policies, moreover, can seem high-
handed, especially toward women. In
December 1981, a California jury award-
ed $300,000 to an IBM marketing manag-
er who quit after the company objected to
her romantic relationship with a former
employee who had joined a rival firm. She
resigned when her boss, fearing a conflict
of interest, tried to transfer her to an-
other division. IBM is appealing the jury
verdict.
Some employees find the firm slow
to capitalize on opportunities in
spite of steps to decentralize deci-
sion making. "IBM has more com-
mittees than the U.S. Government," com-
plains one insider. To increase its
flexibility, IBM has set up 15 small ven-
tures within the company since 1981.
These explore new business opportunities
in such fields as robotics, specialized med-
ical equipment and analytical instru-
ments. The new units are independently
run, but they can draw on IBM resources.
This seems to provide IBM with the bene-
fits of both a large company and a small
one. Says Robert Burgelman, an assistant
professor of management at Stanford
University's Graduate School of Business:
"If IBM can integrate these new ventures
into its culture, the company is going
to be an enormously dangerous competi-
tor in most of the emerging areas of high
technology."
IBM stumbled badly when it set out to
produce an office copier in the 1970s. Ex-
ecutives first turned down a chance to buy
a process that Xerox later used with great
success, and then introduced a balky
model. Admits Cary: "If you're asking
was it a mistake to ship so many copiers
before they were really reliable to sell, yes
it was a mistake." The company was
forced to suspend deliveries until the
problems were solved.
IBM, in addition, has not broken into
the market for so-called supercomputers,
which are used mainly for scientific re-
search. The company launched super-
computer projects in the 1950s and 1960s,
but could not produce a design that execu-
tives believed would be profitable. IBM
has since abandoned the specialized field
to Control Data and Cray Research.
Opel is bullish about the future of
IBM, and he is very optimistic about the
outlook for the whole industry. He notes
that while people have limited demands
for commodities like shoes and automo-
biles, they seem to have an insatiable ap-
petite for information. Says he: "I have
yet to hear somebody say they could not
use more information. Hence the demand
L.r Inl.nnr?rllnrr I.r......,.eilrp IIIIIIIf111 I!r't
torte:,rr'.l lulurll, I:,I'n. II It uA
What will be coluing next out of the
IBM laboratories to satisfy that demand?
( )pct is clear ly nil ready Io sit hack and
relax despite his company's achieve-
ments. Says he: "We've got an enormously
successful operation. Thcrelorc you could
be coin paace nt; you could play it safe and
not change. All the natural forces in the
business pressure you in that direction."
But one sign that the pace of the past two
years will continue will be the arrival of a
home computer, which IBM originally
code-named "peanut." This will sell for
about $700 and could reach stores in late
fall. The machine, fully compatible with
the PC, will come with a built-in disc
drive and cartridge slot for software. "It
will offer the best performance on the
market for its price," asserts Clive Smith,
a computer watcher with the Yankee
Group, a Cambridge, Mass., research
firm.
IBM is also developing a raft of exotic
technologies. These include Josephson
Junction and quiteron switching devices
that operate in trillionths of a second at
temperatures that approach absolute zero
(-459.67? F). Says one IBMer: "There's
SOURCE OF INCOME
^ Mainframe and.
8%
Personal Computers
^ Printers, Copiers, etc.
^ Office Systems and Typewriters
^ Maintenance ^ Other
^ Federal Contracts Software
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Economy & ?Busine'
nothing, literally nothing, noteworthy in
the field that IBM doesn't have its fingers
into."
The biggest future payoff for IBM is
likely to come in the field of office auto-
mation. The key to the so-called paperless
office will be computerized networks that
shuttle messages between computer ter-
minals, telephones and other office equip-
ment. All can then be consolidated into a
"work station" atop a desk. "The world of
the future is centered on powerful work
stations," says Lewis Branscomb, IBM's
chief scientist.
Last month IBM showed that it was
determined to become a leader in devel-
oping the automated office by agreeing to
acquire 15% of Rolm. That company's
advanced PBX system, a type of comput-
erized switchboard, can be used to direct
the flow of voice and data traffic between
work stations. The investment will enable
the two firms to work out ways to link
IBM computers with the Rolm PBX,
In fact, IBM has long been deeply
involved in telecommunications. In 1975,
the company bought a one-third interest
in Satellite Business Systems, which
transmits voice and computer data. IBM
is seeking partners for communications
ventures in Europe. In March 1982, it
won an $18 million contract to upgrade
the British telephone system, and it
is installing a computer-driven tele-
phone information service in West
Germany.
IBM's moves into telecommunica-
tions will put it squarely in competition
with American Telephone & Telegraph,
now the world's biggest company. An ex-
tended battle between the two giants
seems inevitable in the area where com-
puters and communications overlap to
create the Information Age. Once the sep-
aration of A T & T from its regulated tele-
phone units goes into effect next January,
the company will be able to use its Bell
Laboratories and Western Electric facili-
ties to develop products to compete direct-
ly with IBM. AT&T through the ntw
American Bell is expected to introduce
computers next year, and it already has
the capability of offering a wide range;of
data-processing services similar to those
IBM provides.
n that upcoming clash of the titans
and the continuing fight for the world
computer market, IBM will be tough
Ito beat. Its resources-human, tech-
nological and financial-are enormous.
Its ability to combine salesmanship and
service with research and innovation i is
unmatched in the U.S., perhaps any-
where. At a time when the rallying cry
"Small is beautiful" can be heard even 'in
business circles and when some critics
charge that large corporations are inher-
ently inflexible. IBM has shown how to be
a successful colossus. -By John Greenwald.
Reported by Bruce van Voorst/New York, with
other bureaus
Softening a Starchy Image
A mustachioed little clown with an undersize jacket
and oversize trousers to symbolize IBM's first computer
aimed at the mass market? That hardly fits IBM's stuffy old
image, but when the company needed an advertising cam-
paign for its new personal computer 2% years ago, it turned
to one of the 20th century's most enduring and endearing
characters: Charlie Chaplin's Tramp. Says Charles Panke-
nier, director of communications for the PC: "We were deal-
ing with a whole new audience that never thought of IBM as
a part of their lives." Industry insiders estimate that the firm
has spent $36 million in one of the larg-
est ad campaigns ever mounted for a
personal computer.
Manufacturers of personal comput-
ers have been using readily recogniz-
able people for some time to make the
slightly intimidating machines seem
warmer and more empathetic. Apple
has Dick Cavett for its commercials,
Texas Instruments recruited Bill
Cosby, Commodore has William
Shatner, and Atari just hired Alan
Alda. None of these living celebrities,
however, has had the impact of the
Tramp. The character has starred in
three widely seen television commer-
cials, plus more than 20 print ads. He
has won numerous advertising-industry
awards.
Chaplin once explained that he cre-
ated the character in 1915, after an ac-
cidental meeting with a hobo in San
Francisco. The Tramp's resurrection
was only slightly less serendipitous.
IBM's advertising agency, the Madison
Avenue firm Lord, Geller. Federico,
Einstein, was looking for someone, or
something, that would al tack the proh-
lem of computer fright head on. "The
agency was talking about using the;
MuplreI H or Murccl Mnrccttu, the
mince, when, according to Creative Director Thomas Mab-
Some officials at both the company and the agency were
afraid that the floppy character was not in keeping with
IBM's starched white-collar image. The question of whether
the Tramp represented antitechnology sentiment, as epito-
mized in the most famous scene from one of Chaplin's best-
known movies, Modern Times, was also raised. In the scene,
Chaplin gets caught in the giant gears of a factory. But both
the agency and IBM eventually concluded that the charac-
ter, in Pankenier's words, "stands fear of technology on its
head and would help the PC open up a new technological
world for the non-technician."
Chaplin's undo, Ing, fruduarlug 1'r:nnp
The company obtained rights from
Bubbles, the Chaplin family company
that licenses use of the actor's image, to
use the Tramp. To cast the part, the
agency interviewed some 40 candidates
in New York City and 20 on the West
Coast. The winner was 5-ft. 6-in. Billy
Scudder, 43, who has been doing Tramp
impersonations since 1971. Says he:
"Nobody tires of the little Tramp. He
creates instant sympathy."
The commercials are elaborate
Madison Avenue extravaganzas. In one
60-second spot, which symbolizes the
problems of inventory control in a
small business, the Tramp stands at the
intersection of two assembly lines in a
bakery. He comes a cropper when the
fast-moving line spews cakes onto the
floor after he tries to jam a giant-size
one into an economy-size box. Taping
the sequence required 30 takes-and
150 layer cakes.
The Tramp campaign has been so
successful that it has created a new im-
age for IBM. The firm has always been
seen its efficient and reliable, but it has
also been regarded as somewhat cold
and aloof. The Tramp, with his ever
preen, "0(1 rose,, 11104 AiV011 IllM it
Ittunan face.
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U
BUSINESS
The Giant Takes Command
IBM begins an offensive to capture world markets in the coming information age
T he meeting was a closely guarded se-
cret. In July 1980 a research team from
IBM's Boca Raton, Fla., operations flew to
Seattle to meet with Bill Gates, the head of a
tiny, $8 million-a-year software company in
Bellevue, Wash. After Gates signed a strict
nondisclosure pact, the I13M team made a
startling proposal: the company was about
to develop a small personal computer to
challenge Apple and Radio Shack head-
on-and IBM wanted Gates, who was then
only 24, to write the vital operating-system
software for the new machine, code-named
"Chess." The offer was unprecedented:
never before had the giant $26 billion corpo-
ration deigned to let an outsider play such
a critical role in designing one of its
computers.
The gamble paid off. In the next 10
months, Gates's Microsoft Corp. designed
the entire operating system and key lan-
guage programs for IBM's Personal Com-
puter, and influenced the choice of other
vital features. The machine debuted in Au-
gust 1981 and has taken the computer mar-
ket by storm. Sales are expected to top
600,000 this year and more than a million in
1984. The success of the PC has also created
a vast new market for independent software
firms and smaller hardware companies;
they are racing to turn out new products for
the PC and a host of "IBM compatible
computers." Meanwhile Apple and Radio
Shack, which two years ago cornmanded the
lion's share of the personal-computer mar-
ket, are rapidly losing ground (chart).
Attack: IBM's roaring success in personal
computers is only one thrust in its aggres-
sive attack on the global marketplace. Over
the past two years, IBM has reorganized its
gigantic sales and marketing force and over-
hauled its production, research and pricing
strategies for a head-on battle with Ameri-
can, Japanese and European competitors
in nearly every computer-related market.
Since 1976,114M has poured $25 billion into
new plant and equipment, upgrading its
facilities and, as one IBM executive puts it,
"roofing over America with new factories
and warehouses." Says IBM chairman John
R. Opel, "The reorganization has the same
goals as the extensive capital investments
I13M has been making over the past several
years-to put IBM in a position to take
advantage of the tremendous growth op-
portunities in our business."
The evidence is already :in: IBM's world-
wide gross income jumped to a record $34
A BONANZA IN PERSONAL COMPUTERS
In the exploding market for personal
computers, the IBM PC is taking
the competition by storm. The
company's success has also
created a vast new market
for independent software
designers.
Sept. Mar. Oct. Mar. Oct. May
80 81 81 82 82 83
'Does not include packages for home computers.
Source: P C Clearinghouse, Inc.
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W
billion last year, profits surged 20 percent-
and analysts expect a similar 20 percen
profit growth this year and next. "In tin
past year or so," says analyst Frank Gens o;
Boston's Yankee Group, "the industry hay
seen the birth of a new IBM, and the comp(
tition is kicking and screaming." But ther
are few complaints on Wall Street. IBN
stock closed at 121 t/a last week. During th
past 11 months, the tremendous surge i
IBM stock-up 60 points from 621/2 la.,
August-has helped power the Dow Jone
industrial average to record levels, account
ing for 10 percent of its total rise. "No pthe,
stock has had anywhere near that effetct of
the Dow," says Jane Staunton, vice presi
dent at Salomon Brothers.
Much of IBM's aggressive new strateg.
stems from January 1982, when the Justice
2,000
t tt
adlo Shack
pple
IgItal Equipment Corp.
Source: Yankee Group
l:lirlSlirlrli lllrirrii l~I~ IJr w.wr~.
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Of chairman John Opel, a Personal Computer demonstration in New York: A big gamble turned out to be a roaring success
?partment dropped a massive 13-year-
?ig antitrust suit against the computer
ant. "The antitrust suit had a huge im-
+ct on IBM," says analyst Ulric Weil, of
!organ Stanley. "The very life of the com-
my was at stake." Under the threat of
court-ordered dismemberment, IBM
wed cautiously, and profits slipped in
Y. But once the threat was lifted, the
npany began an unabashed drive to
mil the world IBM blue. "IBM was giv-
some price discounts before the Jan. 8
vision, but they were secretive. The sys-
ri was word-of-mouth," says Weil. "The
;sressive pricing strategy erupted in its
.1 splendor after the antitrust victory."
he price-cutting strategy was a stinging
ow to competitors. Last year Amdahl
orp., a manufacturer of IBM-compatible
ainframe computers, reported an operat-
,g loss; Magnuson Computer Systems
ent bankrupt, and National Advanced
/stems turned to the Japanese, agreeing
sell Hitachi computers rather than com-
,te directly with IBM.
Relentless: Along with the more aggres-
ve pricing strategy, there has been a sea
tinge in some of IBM's cherished ways of
ing business. IBM had always prided it-
If on developing, building and marketing
own products. Yet the IBM PC is built
most entirely of components made by oth-
manufacturers. Like the PC, the brain of
IM's Displaywriter word processor is a
.icroprocessor from Intel Corp., a leading
;miconductor firm. And IBM's Instru-
;,:nts Computer Systems uses a Motorola
?rp. 68000 microprocessor, the same chip
sed in Apple's new Lisa computer. "IBM
as made a psychological jump," says ana-
/st Peter Wright of the Gartner Group. "If
the markets are moving fast, IBM is going to
move fast even if it needs a little help." And
IBM is going even further: recently it has
announced three joint ventures with Japa-
nese companies and a marketing venture
with Artificial Intelligence Corp. of Wal-
tham, Mass. IBM bought a 12 percent inter-
est in Intel and 15 percent of Rolm Corp., a
top manufacturer of advanced telephone-
switching networks.
Most analysts expect IBM to keep driving
relentlessly into new markets. "IBM 'wants
to be the leading force in every communica-
tions and data-processing-related market,"
says Gens of the Yankee Group. The com-
pany has demonstrated the PC as a factory
automation tool for controlling robots; it is
readying a new, less expensive personal
computer (code-named "Peanut") aimed at
the educational and home markets. It is
gearing up for an assault on scientific and
engineering markets, and IBM is certain to
be a major force in the looming telecom-
munications war, battling for newly deregu-
lated markets against AT&T. The company
is pushing development of a broad array of
new technologies, including plasma-display
screeens that may replace cathode-ray tubes
(CRT's), and an important advance in pack-
aging circuits for mainframes-the "ther-
mal conduction module." Industry sources
say IBM has also quietly formed a team of 25
scientists to plan a counterattack against
Japan's Fifth Generation computer project
(NEWSWEEK, July 4).
Even before the antitrust victory, IBM
was beginning to make profound changes in
order to adapt to faster-moving markets.
When IBM decided to develop a personal
computer in July 1980, the company set up
what it calls an Independent Business Unit
(IBU) to handle the project. The group was
given unusual freedom to bypass IBM's
corporate bureaucracy; the PC team had its
own independent sales, marketing and de-
velopment staff. The IBU, says retired
chairman Frank T. Cary, is "IBM's answer
to the question, 'How do you make an ele-
phant tap-dance?"'
The PC development team in Boca Raton
studied Apple's success (in fact, it used Ap-
ple II computers during the project) and
decided to emulate Apple's strategy of en-
couraging independent software companies
to boost the success of its personal comput-
er. "They've seen that it is to their advantage
not to get in the way of a healthy, creative
software market," says Mitch Kapor, presi-
dent of Lotus Development Corp. of Cam-
bridge, Mass., developer of the Lotus 1, 2, 3
financial-analysis program, which runs on
IBM's PC. "They let us go our own way."
Brown Suit': That may be true, but IBM's
blue-suited legions have had a marked im-
pact on the freewheeling entrepreneurs who
are chasing the $300 million software mar-
ket for IBM PC software: "Whenever we
talk to IBM we get dressed up in colors that
we know will please them," says George
Lechter of Alpha Software in Burlington,
Mass. "I once saw an IBM executive in a
brown suit-but it was a classy brown suit."
IBM's influence extends well beyond the
sartorial. "Working with IBM has changed
us," says Lechter. "They've taught us to
have more of a commitment to our business,
to tie up more money in our future." At Mi-
crosoft, Gates has instituted IBM-style re-
views of performance. "We've changed how
we measure quality, how we schedule proj-
ects, our security requirements and a lot of
other things," says Gates, whose link with
41:WSWEEK/JULY 11, 1983 57
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BUSINESS
Bernard Gotlryd-Nnwswn K
IBM's Poughkeepsie, N. Y., plant: `The competition is kicking and screaming'
IBM has proved lucrative: Microsoft has
grown from 35 to 350 employees, and
this year sales should reach $64 million.
MS DOS, the operating system he designed
for the IBM PC, is now a standard operating
system on more than 60 computers.
While the independent companies writ-
ing software for IBM's PC are cashing in
on the exploding market, IBM's competi-
tors in hardware are feeling the heat. "If
the world were fair," says Charles 1. Ped-
dle, the founder and president of Victor
Technologies, Inc., of Scotts Valley, Calif.,
"IBM would give me about one-third of
their money, let me steal a few more of
their salesmen and let me borrow their
name every three days. Then we could
have a more even game." Even so, Victor's
sales are growing rapidly-from $65 mil-
lion last year to $55 million for the first
quarter of this year. IBM is unable to keep
up with demand for the PC, and its august
presence in the personal-computer field
has given the entire industry a new respect-
ability. Apple's sales are running at a rec-
ord $1 billion-a-year pace. Tandy, Hew-
lett-Packard and DEC are surging. For the
time being, at least, it's the latecomers who
may face the most trouble: "I would hate
to be the 170th microcomputer company
right now," says E. Floyd Kvamme, exec-
utive vice president of sales at Apple.
"There are a lot of them out there."
Trojan Horse': For IBM, the PC's success
may soon lead to even grealer rewards.
"They're following the Trojan-horse strate-
gy," says Gens of the Yankee Group. By
selling large ntuuhrrN of Ilr iklop 1'r1;sonnl
Computers to big corporations, IBM is, in
effect, crenliiig it new nulrkel. "The crrcn-
live- tills 11n w11 at Ilk',.?tl . 11ntf,I,, ?11 1'1 " , 1,111
In 1:119 hit. -$I 111:111.. I.t .r, 11.. u....It, 11. 1.1u? Ina.
the colnpally'1 iii infraulc. Suddenly .IINI
executives want to tie into the mainframe-
and the corporation has to buy more main-
frame capacity," says Gens.
Although Apple hopes to carve out a
market of its own with the introduction of
its Lisa computer (NEWSWEEK, Jan. 31), it
recognizes that IBM's strength is simply too
great to ignore. In April, Apple announced
a joint program with Cullinet Corp. of
Westwood, Mass., that will enable Apple
computers to link up, using Cullinet soft-
ware, to large IBM mainframes. Apple has
also announced two local-area networks
that will tie office computers together, al-
lowing them to exchange information and
communicate with mainframes. "In the
large office where we are competing heavily
with IBM, what we are saying is,'We under-
stand networking and data communica-
Gates of Microsoft: A helpful outsider
tions'," says Kvamme. "Our products hav.
that capability today."
Some competitors, however, are greetin;
IBM's growing strength in the personal
computer market with undisguised alarm
"IBM wants everything. It's their policy
wait until a market gets big enough so th,-can deal with it in their own modus oper
andi," says Gene M. Amdahl, one of IBM'
top computer designers who left the com
pany in 1970 to start Amdahl Corp. ant
more recently Trilogy Systems Corp. "Noy,
they are helping themselves to the fruit that
Apple grew."
But as both companies realize, the rule:
of the game have changed dramaticali:
from the days when Apple was starting ou
in a Palo Alto garage. IBM and Apple art
now producing personal computers or
streamlined, highly automated assembl,
lines. Keeping the cost of production dowr
is essential, a strategy IBM is pursuin?
throughout its worldwide operations. "Wr
are aggressive in the pursuit of the goals w,
have established for ourselves, especiall
our goal of being the low-cost producers,
says Allen J. Krowe, IBM senior vier
president for finance and planning staffs
Following the same logic, IBM has stream
lined its sales and marketing staff, so tha"
corporate customers need only deal with
single IBM sales team instead of having t
contend with competing fiefdoms withi,
the company.
Forays: The success of the PC has been st
great that IBM is now attempting to appl,
the strategy to other explosive markets. Ii
has set up new Independent Business Units
to handle IBM's forays into biomedical
systems, analytical instruments, factor}
automation, educational materials, a nev.
computer time-sharing service and telecom.
munications products. And the company
has increased its spending on research and
development to $2.6 billion last year.
The need for huge outlays is clear: tc
sustain a growth rate of 20 percent a year
in profits, IBM will have to become even
more aggressive and diversified. And as
product cycles grow shorter and the pace
of technology accelerates, the company
will have to continue introducing new
technologies and products at a rapid rate.
IBM is expected to introduce an interoffice.
computer-communications network in th
next few months, and it will undoubtedl
work with Rolm in bringing out a sophist
cated new telephone and computer-dat:
exchange, a move that will put IBM direct-
ly in competition with AT&T.
In the next decade IBM's global drive for
supremacy in the Information Age will he n
formidable challenge to AT&T, Japan 111c.
and thousands of competitors large and
small. "It's difficult to stop a charging elr-
Itluull," says Puler Wrlghl (II, the (Iltlttwu
Group. Perhaps even more difficult than
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 Approved For Release 2010/05/17: CIA-RDP85-00142R000100210002-8
Inside the Supercomputer
In the last 35 years, as computers have grown immensely more
powerful, the basic scheme of their operation-their "architec-
ture," as engineers call it-has never changed. In the late 1940s,
John von Neumann, a Hungarian-born mathematician, con-
ceived what was first called the stored-program computer: a
central-processing unit-the brain of the computer-that execut-
ed its calculations one step at a time, storing each result in its
memory before moving on to the next calculation. The primitive
vacuum-tube models worked that way, as did the next generation
of transistorized computers. With its almost unimaginable speed,
the Cray-1 supercomputer still depends on serial processing, its
signals shuttling back and forth through the dense mass of
350,000 silicon chips. Even as computer designers use faster and
faster microelectronic circuits in the quest to build ever-faster
machines, however, the von Neumann architecture has become
the "von Neumann bottleneck," a traffic jam that limits the speeds
after another, in the order the
program tells the computer to
follow. In dataflow machines,
on the other hand, the process-
ing units don't have to go look-
ing for data in memory; they
simply do whatever calculation
is necessary when a "data pack-
et" arrives (chart). Dennis is
now planning to build a data-
flow computer with 256 proc-
essors and memories, and sci-
entists at the University of
Manchester in England are
working on a similar machine.
Tree Leaves: There is another
way to break the von Neumann
bottleneck, one that doesn't de-
pend on dataflow concepts. At
the University of North Caroli-.
na at Chapel Hill, a team' of
scientists led by Gyula Mago
has designed a "binary tree"
computer, multiple processors
arranged like leaves on a tree
with the branches carrying in-
formation to and from the
processors. IBM scientist John
Backus, who invented Fortran,
the most widely used program-
ming language on mainframe
lb Ohtsson-NEWSWEEK computers, is now working on
"function-level programming" languages that can run on com-
puters like Mago's machine. One advantage ofBackus's is that the
programming instructions and the data are intermingled, making
programming easier and providing the mathematical tools that
will enable the program to run more quickly.
Before computer manufacturers abandon von Neumann archi-
tecture in favor of these more radical designs, however, many
problems will have to be solved. Designers must prove that the
prototype machines will indeed outperform conventional com-
puters. "People are now dazzled by the prospect that they can
have 1,000 chips, 10,000 chips or 1 million chips," says IBM
scientist Herbert Schorr. "But the question of how to organize 1.
million chips to do anything effectively is still very open." Despite
the promise of the radical designs, von Neumann's imprint on the
computer world has yet to be erased.
WILLIAM 1). MARBACFI with WILLIAM J. COOK in Washington and
JENNET R. CONANT in New York
market has two processors and the Cray-2 due in late 1984 will
have four processors. The next machine, the Cray-3, will probably
have 16 processors; Seymour Cray, the master designer of super-
computers, is working out final designs for it now. One machine
already in use, the HEP supercomputer built by Denelcor, Inc. of
Aurora, Colo., uses four processors to reach speeds up to 40
million instructions per second.
Road Map: The more radical solutions to the von Neumann
bottleneck involve networks of many more processors and their
liberation from the tyranny of a central memory. At the Universi-
ty of Texas at Austin, James Browne has built a small prototype of
a parallel-processing machine. The Texas Reconfigurable Array
Computer (TRAC), as it is called, has four processors and nine
memories and works more like a telephone network than a
traditional von Neumann computer. "Instead of processing in a
straight line, it looks like a road map where the cities are proces-
sors and the roads are the communications links between them,"
existing computers can attain.
In the race to build the next
generation of supercomput-
ers, scientists are experiment-
ing with a variety of designs
that will break the von Neu-
mann bottleneck between the
processor and memory. These
"non-von Neumann architec-
tures" range from machines
that will have two or more pro-
cessors and shared memories
to extensive parallel architec-
tures with hundreds of local
memories and processors, all
executing instructions simulta-
neously. "Given the state of the
art today and the way the phys-
ics are formulated, we think
parallel processing is clearly
the wave of the future," says
John A. Rollwagen, chairman
of Cray Research of Minneap-
olis, one of the world's lead-
ing supercomputer manufac-
turers. "We and Control Data
and everyone else who wants to
play the game will have to have
a completely different architec-
ture." Where the Cray-1 had
only one processor, the Cray
X-MP now coming onto the
says Browne. "If one processor wants to talk to a
certain memory, it can, in effect, dial it up." The
scheme allows for much faster speeds, just as the phone
network could handle more traffic when direct dial replaced
hurnan operators. The trick is to organize and synchronize the
communications between the processors and memories.
For their Fifth Generation Computer project, the Japanese are
considering a radical departure from the von Neumann architec-
ture, the so-called "dataflow" computer championed for the past
15 ;years by Jack Dennis at MIT. (Dennis and MIT Professor
Arvind spent two days lecturing on dataflow computers to an
audience of 200 scientists in Japan in 1980.) Dataflow computers
will have huge numbers of processors, each with its own memory,
and, as in simpler parallel schemes, the computer will have a
routing network so that the processors and memories can commu-
nicate with each other.
But the dataflow computer will go even further: "The rules
about when instructions are executed are different," says Dennis.
Conventional computers process a stream of instructions, one
? G,i" t f..' fir ..
MON
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No
aim
v r.
is=
TESJHNOLOGY
also put up the money to fund MCC's re-
search, in return for the rights to use the
results. Whether the scheme will work is an
open question. The 12 companies in MCC
are competitors in fast-moving, high-tech-
nology markets, and ordinarily they jeal-
ously guard any technological edge they
gain. In fact, many top U.S. firms-Cray
Research, Texas Instruments, Intel and
others-chose to stay out of MCC. "That's
not our style," says John A. Rollwagen,
chairman of Cray Research, an 11-year-old
company proud of its entrepreneurial creed.
"We don't want to participate." The biggest
market force of all-IBM-reportedly
stayed out of MCC because it feared anti-
trust action against it if it joined.
So far, however, the creation of MCC has
not provoked any such suits. In January San
Francisco antitrust lawyer Joseph M.
Alioto did write to the chief executives of
the companies that were about to form
MCC: "In my opinion, your contemplated
conduct is an unequivocal combination in
violation of the antitrust laws of the United
States." But the threat did not deter MCC's
co-owners and, for the time being at least,
the Justice Department has allowed the
MCC plan to stand.
T o run the new corporation, MCC's di-
rectors chose retired Adm. Bobby Ray
Inman, former director of the National Se-
curity Agency and former deputy director
of the CIA. Inman is widely respected for
his managerial abilities and is an adept poli-
tician besides (page 63). "The day they
picked Bob Inman to head MCC," says
George W. Keyworth II, Ronald Reagan's
top science adviser, "any concern about its
success diminished in my mind."
Over the past five months, Inman orches-
trated a competition among 57 cities for the
MCC headquarters; the winner was Austin,
Texas, after private donors, the state and
universities put together a generous'pack-
age of incentives.
The consortium will have a budget of
about $75 million a year and a staff of 250.
Its first projects include programs in semi-
conductor packaging and interconnect
technology, advanced software engineering
and computer-aided design and manufac-
turing (CAD/CAM) for the electronics and
computer industries. Most ambitious is a
10-year program aimed at breakthroughs in
computer architecture (page 60), software
and artificial intelligence. MCC will own
the licenses and patents to the technologies;
the manufacturing and marketing will be
left to the companies that sponsor the proj-
ects. MCC will give them a competitive
edge on the market-they will have exclu-
sive rights for three years before the re-
search is published and other firms are al-
lowed to buy licenses.
^ The Semiconductor Research Corp. Over
the past three years Japan has captured a
vital segment of the world semiconductor
;WSVlhpR#%3L3LY 4, 1983 0 61
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