Big Blue's Blues

January 29, 1993

International Business Machines Corp., the preeminent American success story of the last half-century, is being eaten alive by the very industry it pioneered. Its humiliation and potential breakup is a sad story after so many years as a class act -- a company that seized the lead in electronics technology, ++ dominated the U.S. and European markets, played a major role in Japan, treated its workers well and was the darling of pension fund and mutual fund managers eager to latch on to a no-lose proposition. But now, alas, "Big Blue" (as in blue chip) is awash in red ink.

What is bad for IBM, however, is not necessarily bad for America. Vibrant new companies alive with entrepreneurial spirit and vision have moved into the field to grab world leadership in the myriad niches of an exploding industry. The United States has regained the lead it forfeited to Japan in several key sectors. Microsoft has won the lion's share of the personal computer software market. Intel has leapfrogged two Japanese competitors to become the world's largest manufacturer of microchips.

It would be a big mistake, nevertheless, to write off IBM. It may be posting world-record losses. Its vaunted CEO, John Akers, is heading for the exit door. It is laying off workers (by the thousands) for the first time in his history, closing plants and "federating" its main components into separate, often-competing units appropriately called "Baby Blues." But many of its products remain the best there are. Just as it created the framework for growth industries exploited by the upstarts, so it remains both a source and a customer for what constitutes the very guts of the industry.

What led to IBM's plummet in recent years was its bigness, its maturity and its investment in products overtaken by revolutions in technology every six months. The company failed to exploit its own inventions fast enough. It found itself burdened by the retirement costs and high salaries of a bureaucracy that often engaged in turf battles. It was too cumbersome to be agile, too diversified to focus, too bemused by mainframe computers to see that the future lay in microprocessors, work stations, laptops and software.

At a time when many corporate behemoths are in trouble, IBM may yet confound common wisdom -- this time by being better, not worse, than it seems. It still has some wrenching downsizing ahead, some loss statements it would rather not issue. But productivity leaps ahead so fast (the price of a unit of processing power on a chip has fallen by half roughly every 18 months since the late-Sixties, reports the Wall Street Journal) that after Big Blue's shakeout is over, it may bounce back as spectacularly as it has fallen.

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