Big Blue Disk 1/bbd01.zip/IBM-MKT.TXT

Text File | 1986-09-24 | 4KB | 52 lines

                        IBM AND THE STATE OF THE MARKET

IBM's 1986 second quarter left a lot to be desired by the dominant company in
the computer industry.  This quarter's profits were down 7.7% to $1.3 billion
from the same period last year, even though revenues increased by nearly a
billion dollars.  IBM's position has worsened over the past several quarters as
the computer giant has failed to improve its productivity.  While IBM president
and CEO John Akers blames "Sluggish capital spending in North America and
uncertainties about U.S. tax reform legislation," he made no mention of the
increased competition in all product lines.  Another of IBM's unmentioned
problems is the ever-increasing number of articles covering shortcomings in
several of their products.  Headlines such as "Early 3480 Cartridges Prove to
be Defective," August 4 Information Week; and "IBM 3090 Reliability Figures are
less than Impressive," July 28th Information Week were unheard of just a couple
years ago.  Whether this type of press will have any effect on IBM is debatable
at this point, but if like articles start appearing in places like "Business
Week" and the "Wall Street Journal" they would certainly affect IBM's sales and
stock prices.

In response to the added pressure, IBM is lowering prices, especially on their
PC Lines.  They took one round of price reductions this summer, and are
expected to take another in October. So far the majority of the cuts have been
on the original PCs -- 256K with a single floppy drive like the Apple /// --
rather than the more advanced ATs and XTs.  Another area of interest to IBM is
that of gaining patent protection for its micro products. They have patents
pending on their AT keyboard and computer case.  Since there is little original
technology in the PC line, IBM is trying to keep clone makers from looking like
IBMs even if they cannot keep them from functioning like IBMs.

Other computer makers reported mixed results for the past three-month period.
Digital did well with a 17% increase as did Zenith and Texas Instruments.  Best
of all was the king of the clone makers, Compaq, with a 70% gain in earnings.
Because of poor earnings, IBM led this summer's correction in the Dow Jones
Industrial averages by declining nearly 30 points.  For comparison, Digital
increased nearly that amount during the same period.  The day before this was
written, the Dow had a 28 point rally with IBM trailing the market with a 1%
increase. (28 points translates to a Dow increase of 1.5% of value).  On the
other hand, Apple led the Over-the-Counter market in volume with a 4% increase
compared to a 1% general market gain.

It is evident that IBM has a number of problems.  They will be forced to
respond to their growing inefficiency in the marketplace and in their
production facilities.  The introduction of the 80386 workstation next year may
not be enough to revitalize their slumping sales.  Even if it becomes the new
"standard" for business, it will take time to establish itself.  In addition it
will mean the obsoleting of IBM's current line of PCs and forcing businesses to
invest in new machines and much new software, a tall order in times of slow
economic growth.  If the 80386 workstation fails, IBM will have to regroup
quickly to avoid the possibility of becoming the Chrysler of the 1990's (where
internal inefficiencies and products poorly suited for their market become a
cancer eating away at the strength of the company).