Big Blue is making the right moves IBM is aggressively making new partnerships to regain its top role.

July 10, 1991|By New York Times

As profitability in the personal computer field has plummeted, there has been a growing realization at IBM that the money and growth in that business will increasingly be found principally at the very bottom of the computer business and at the very top.

That means chips at the bottom and operating system software at the top.

"We want to be able to control our own destiny," said Jack D. Kuehler, IBM's president. "There are two fundamental forces and opportunities to be corralled in the PC marketplace: One is the incredible advances of semiconductor technology. The other is the latest developments in system software. We're really working very hard to reconcile these two forces."

IBM has long been a company willing to go it alone, to be largely self-sufficient. But in an unusual departure from that principle a decade ago, it chose to rely on chips and software made by others.

By rushing the original IBM PC to market to capitalize on what it saw as an opportunity, IBM chose to rely on smaller companies such as Intel Corp. and Microsoft Corp. to provide critical components. But those companies have gained dominance over crucial segments of the personal computer business, leaving IBM to fret over its loss of control and potential profits.

Now it is again looking for partnerships to help it regain a leadership role. This time, trying to avoid the pitfalls that once led to trouble in its relationships with independent companies, it will share control in the joint venture it agreed to last week with Apple Computer Inc.

That was not the only step IBM took. In having seemingly awakened from its slumber, it has begun moving aggressively on several fronts to recapture lost territory.

Besides the Apple agreement, it forged a series of pacts with software publishers, computer companies and chip makers in which these companies will develop software and hardware to take advantage of the systems that Apple and IBM will develop together and to win clients from competitors.

All of these moves are likely to change the ground rules for competing in the industry by forcing the redefinition of the personal computer. IBM hopes that in forcing a reshuffling of the deck, it will come away with the winning hand.

The central result of the emerging new world of desktop computers is the end of IBM's Microsoft alliance. That partnership broke down because the Redmond, Wash., software publisher refused to remain

committed to IBM's OS/2 strategy and instead embarked on a competing attempt to convince the industry to adopt its Windows program.

This time, IBM is determined to avoid a situation where it loses control of desktop software. It will own half of the new software company it is creating with Apple.

And despite appearances that it is significantly trailing Microsoft in desktop software, IBM has begun to show some progress in its attempt to revitalize its OS/2 operating system. A range of partnerships, a new pricing strategy and a strong showing at a recent industry computer show -- from which Microsoft was conspicuously absent -- all indicated IBM has not yet lost that game.

As the outlines of IBM's response grow clearer, some industry experts say the prospects are brightening both for IBM to re-establish itself as a personal computer software leader and for it to stall Microsoft's momentum.

"This will keep Windows and Microsoft from taking over the world," said Esther Dyson, publisher of Release 1.0, a computer industry newsletter. "It tells people, 'Don't follow everything Microsoft tells you; IBM hasn't given up.' "

Moreover, while much of the attention given to the Apple-IBM deal has focused on the design of an advanced software system in the next four or five years, the immediate issue for IBM is its effort to establish a new personal computer chip standard.

The deal also serves IBM's goals of trying to insure a healthy American electronics industry in the face of tough competition from Japan.

In recent years, Apple in particular has shown signs of increasing dependence on its principal Japanese suppliers, and Motorola Inc. has been in danger of falling behind the leading edge of semiconductor manufacturing.

The IBM deal means Apple, which already buys most of its parts from Japanese suppliers, will have a bigger American counterweight through its IBM relationship. And it helps Motorola, which will manufacture the IBM-designed chips for Apple.

"This can only be good for American technology," said Charles H. Ferguson, an MIT researcher and independent consultant. "Clearly, a couple of Japanese companies would love to get their hooks into Apple."

IBM's alliance with Apple also insures against an Apple victory in a lawsuit charging that Microsoft copied too much from Apple in creating the popular Windows program.

"Now IBM is free to put Mac-like features into its next version of OS/2," said Will Zachmann, president of Canopus Research, a computer industry consulting firm. "This is possibly the major hidden agenda in this deal."

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