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BusinessWeek: January 11, 1993 |
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Industry Outlook: HIGH TECHNOLOGY
STILL IN TRANSITION, BUT WITH LESS PAIN This transition may be different, however. True, as in 1992, customers will continue to switch to small computers, large systems will be the big losers, and manufacturers will trim work forces. These trends will wreak havoc on older segments of the industry. Witness IBM: The move away from mainframes, which make up 60% of its profits, forced it to cut 40,000 jobs in 1992 and announce a $6 billion write-off that will also cover 25,000 more job cuts this year. Yet the key transition in '93 will be much more positive: In the next 12 months, innovative technologies will either debut or gain wide acceptance, setting the stage for an era that could be as momentous as that ushered in by the first PCs a decade ago. The harbinger of good times is Intel Corp.'s next-generation microprocessor. The Pentium, due out in March, is more than just a faster version of the two-year-old 80486, now the top of the line. "The Pentium represents the first major upgrade in processor technology since the 386" in 1986, says Bruce Stephens, an IDC analyst. MAJOR SHIFT. Pentium-based computers probably won't start to reach a wide market until yearend. But once they do, the machines are expected to solidify a major shift in the way PCs are used. The new wave is multimedia, a combination of video, audio, and computing that lets aficionados add moving images, sound, and graphics to whatever they're tapping into their desktop machines. Industry visionaries, led by Apple Computer Inc. Chairman John Sculley, have been trumpeting multimedia for five years. But this year, the price and capabilities may finally lure everyday customers. Apple's Mac has audio capabilities now, and the feature is increasingly standard on 486-based PCs. And if the hardware doesn't come with audio, Microsoft Corp.'s year-old Windows 3.1 software provides it. The software lets a PC store and forward voice messages or add sound to documents. Coming next for PCs is the ability to do the same with TV-quality video. The Pentium is expected to have video capabilities built in, and software companies are already working on video-based programs, which should make PCs more useful and more fun. Imagine recording a video message, storing it, and sending it to co-workers at a set time. And think about the new dimension video could give computer games. "The significance of multimedia is twofold," says James G. Turner, director of IBM's Premium brand PCs. "You have much more exciting applications, and you attract a much broader base of users." Analysts see video as the key to those millions of customers who have yet to use a PC. Certainly the Macintosh's multimedia abilities helped Apple to become the No.1 PC company in 1992, surpassing IBM. Macs, which use a Motorola chip, are just 10% of the market, however. Once the other 90%--the Intel-based PCs--have the same capabilities, analysts expect multimedia's broad appeal to keep all PC sales buzzing. Price cuts, meanwhile, should be a little more orderly in 1993--more like 30% to 40% on older models, vs. last year's 50%. "This is a key transition year to the Pentium and multimedia and at the same time should be a very strong year for sales," says Tim Bajarin, a consultant with Creative Strategies Research International. "You can buy more bang for the buck than we've ever had." IDC predicts that PC unit shipments will rise about 7% in 1993. Chipmakers say those numbers are way too low, based on their microprocessor sales, which some forecasters expect to rise 26% in 1993. 'A BLOCKBUSTER.' The software industry also will see a lot of action this year, thanks to a new operating system, Microsoft's Windows NT. NT is the successor to DOS, the Microsoft basic software that runs Intel-powered PCs. Thus NT should find a wide following when it's introduced, probably in June. Even a possible Federal Trade Commission effort to limit Microsoft's market power isn't expected to hurt NT sales, nor do analysts expect a serious threat from IBM's rival OS/2 system. "The most significant product of 1993 will be Windows NT," declares William Y. Tauscher, president of the Computerland Corp. chain of dealers. "It will be a blockbuster." NT will help drive worldwide software revenues up by 15.4% next year, to $65 billion, IDC predicts. Mainframes, sadly, won't have it so good: Sales in 1992 were worse than expected, demand remains soft, and heavy discounting continues. IDC expects worldwide mainframe sales to show virtually no growth in 1993. They may equal last year's estimated $27.9 billion, which was off 3.1% from 1991. The outlook for midrange systems--those costing $50,000 to $1 million, such as IBM's AS/400 and Digital Equipment Corp.'s VAX series--isn't much better. IDC thinks those sales will increase only 2%. So the transition continues to ever cheaper, more powerful PCs. Which means that, despite expected growth this year, the industry is more excited by 1994's prospects. That's when a Pentium-inspired boom could bring back the days of double-digit growth. | |
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