Industry Insider Report - May 1994
By Theo Gantos, CCP
There were lots of unexpected and expected ups and downs the last
two months in the computer industry. Aldus and Adobe (Aldobus?)
announced their intention to merge just before the Apple Power
Macintosh announcement on March 14th. The big question mark is
what will the fate of Aldus Freehand (developed by Altsys but
marketed by Aldus-easy name confusion eh?). In fact, Altsys filed
suit against the new desktop publishing giant over the very same
issue relating to their contract with Aldus. Many graphic artists
would be upset to see Freehand dumped for the less intuitive but
more powerful Adobe Illustrator. The challenge would be to merge
the best features of both into a new Illustrator, but that's precisely
what the Altsys suit is aimed at preventing. Who cares about users
when the lawyers can get rich?
Microsoft/Intel Monopoly Brings in the Bacon
Microsoft and Intel's nearly monopolistic control over the desktop
computing market boosted their revenues for the first Quarter
of 1994. Microsoft reported that it earned $256 million while
Intel earned $617 million. Microsoft is planning a 2-for-1 stock
split on May 6. Even though they will both probably continue to
rake in the dough throughout 1994, Bill and Andy must know that
their market share has peaking and they need to store nuts for
the winter.
Intel Faces Challenges
Intel faces serious competition for the first time at the high
end from Power PC and Alpha; with AMD and Cyrix clone x86 chips
biting off their low end market. That leaves them the low-margin
midrange arena, where IBM Blue-Lightning and other high end 486
chips will slow Pentium momentum. Intel will have to milk its
profitable 486 line for all the revenue it can while it lasts.
Threatening to build motherboards doesn't endear them to system
builders, either. Rumor has it that they will spend $150 million
to promote Pentium sales, which are much slower than Intel hoped.
While they're at it someone should tell their ad agency not to
waste any more money on two page color spreads in MacWeek and
MacWorld. There was much speculation amid reports that the famed
"flying Pentium" TV spots were rendered on either a Macintosh
Quadra 840AV or an SGI Iris workstation (take your pick). It sure
couldn't have been done on a PC inside of a month (or at least
by deadline). Intel has even more cause for concern as many large
corporations seem to be stalling on 486 or Pentium upgrades of
older machines until they can evaluate the impact of the Power
PC, whose advantage seems to be that it will be multi-operating
system capable. Given a choice in a free market economy, informed
buyers will make the best decision for their organization's benefit.
The key evaluators are just too savvy to be swayed by multi-million
dollar advertising campaigns. (With apologies to my advertising
clients)
Microsoft at a Crossroads
Ditto for Microsoft which is dumping loads of R&D; money into projects Chicago (Windows without DOS) and Cairo (brave
"new" interface-object oriented system) in an attempt to prevent
wholesale defections from Windows in mid `94 to early `95. Bill's
biggest weakness is still that Microsoft doesn't own a hardware
platform and if Big Brother has anything to say about it he won't
anytime soon, either. The FTC is still investigating allegations
that Microsoft wrote intentional bugs into Windows 3.1 beta code
that would frighten developers running Novell's DRDOS by displaying
erroneous error messages. If these are true then I think Bill
should share a cell with the unfortunate custom program developer
recently convicted of putting a time bomb in one of his programs
to ensure payment from a deadbeat client.
Digital Bleeds Red Ink
Digital Equipment posted another huge loss, seemingly accelerating
their fall into the red. The company lost more than $183 million
for their third quarter, ending April 2. For the quarter, the
firm reported total operating revenues of $3.26 billion, down
six percent from $3.45 billion for the same quarter a year ago.
Industry watchers see DEC's slide as indicative that CEO Robert
Palmer has done little to develop and articulate a clear vision
of where future success lies for the company. Many did not expect
DEC's revenues to fall, but I personally attribute it to the failure
of their Alpha line to make significant inroads beyond their VAX
installed base. With Alpha, unlike the MicroVAX of old, DEC seems
to be gaining sales momentum only at the expense of their existing
VAX systems. Looks like they've been a day late and a dollar short
on several counts. DEC has a propensity for over-engineering and
under-selling & supporting. They have certainly cut into the bone
with staff reductions in those areas lately. First, having failed
to win support for the OSF/Motif UNIX variant, they forged ahead
nonetheless with a proprietary approach in an open systems world.
OSI is a non-issue, DEC should have embraced UNIX and TCP/IP integration
into DECnet 3 years ago. If DEC had it's act together companies
like Tricord with their Novell "superservers" would be dead meat.
DEC's been delivering reliable multi-processor fault-tolerant
computing for years. But you need to sell it and support it, too!
And run industry standards like Novell Netware, AppleShare, TCP/IP,
X400/500, SMTP mail, and NFS; not DECnet, All-in-One, and Pathworks.
Now they're losing money and playing catch up, and hardly anyone's
shedding any tears, least of all the customers who've been asking
for UNIX/TCP commitment for the last ten years. At least Ken Olsen
listened to his customers (when they yelled loud enough).
IBM Rises from the Ashes
IBM was the biggest surprise for Q1 `94. They earned $392 million,
64 cents per share, almost as much as they lost in the same period
a year ago. Total revenues were $13.4 billion. Many believe that
IBM just has too much potential to be counted out even though
they are hedging too much for my taste on Power PC technology.
This insider snickered when he heard that IBM head Gerstner referred
to the new (Workplace OS) OS/2 as "MVS for the desktop". I for
one sure hope MVS stays dead and buried and doesn't come back
to eat our brains like some B movie plot. I'm glad I forgot all
the JCL commands I ever learned when I dumped out those old card
decks fifteen years ago.
Gateway reported lower than expected earnings in the first quarter,
blaming consumer reluctance to buy off-brand systems amidst aggressive
price cutting by Compaq, AST, IBM, DEC, and Dell. Their sales
increased 46% compared with last year at this time. Compared to
the other major systems vendors, this may portend that Gateway
is seen as a second-tier supplier compared to Compaq, et. al.
Similarly, AST reported 60% higher sales but only a 20% increase
in profits.
We Need a Slogan, Lou
IBM signed up Hitachi to make high-end systems with Power PC's
last week in a bold move. They're even buying a pricey $1M seat
on the PowerOpen board. IBM's future must hinge on PowerPC, Gerstner
must realign and evangelize competing divisions with mainframe
and AS/400 platforms to rally around PowerPC and migrate new and
existing OS and network architecture development to one platform.
Maybe Lou should take a cue from legendary IBMer Thomas Watson,
Sr. (a personal hero) and develop a slogan. (Watson's was "Think!")
My personal favorite is "It's the Power PC, stupid!"
Analysts were wrong again when it came to predicting Compaq's
earnings for the first quarter. About 40% wrong. Compaq posted
net income of $213 million, almost twice last year's. Total revenues
went from $1.6 billion to $2.3 billion. Profit increased 3.4%
as well. Major buyers seem to be turning increasingly to the larger
players for systems as many 486 and Pentium garage-based system
builders go down under intense margin pressure. Compaq may be
building Power PC systems finally after all. Compaq executives
reportedly were initially cold to the idea, claiming "It will
never work" and that AIM (Apple/IBM/Motorola) Alliance members
were "smoking dope."
Apple Doesn't Inhale
Apple Computer must have attended the same pot parties as President
Clinton. They sold 145,000 RISC based computers since March 14th.
Whew! That's more than the entire installed bases of all other
RISC computer manufacturers combined! I don't think there are
more than 100,000 Alphas in existence. Apple's profits took a
dive though as many buyers stalled in anticipation of the new
machines, which I fondly refer to as the worst kept secret of
1993. In a tit-for-tat move designed to upstage Intel's 100 Mhz
Pentium announcement (which itself was designed to preempt the
Power Macintosh introduction last month) the Alliance officially
"released" the PowerPC 604 chip reported to offer twice the performance
of the brand new 601 chip. Now, chips are great but where are
the products? Quick...we need a cooling fan to blow away all this
vaporous hot air.
SuperMac Down, Radius on the Rise
Two competing graphic technology companies were also in the news,
SuperMac Technologies and Radius. SuperMac lost $1.5 million,
no doubt in part due to the costs associated with integrating
their product line with their old rival, E Machines. E Machines
was acquired by SuperMac in 1993. Radius Inc. posted earnings
of $1.2 million after losing money last year as they refocused
their efforts. I like Radius' new more focused approach to the
graphics market and expect them to continue to do better this
year.
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