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Chipping Away At Intel


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CHIPPING AWAY AT INTEL

The personal-computer business has been good to IBM this year. Sales have soared, and the IBM PC Co. has taken back lost market share. But no matter how well IBM does in PCs, it's still tough to make money. Intel Corp. and Microsoft Corp. profit handsomely from near-monopolies in basic PC technology, but PC makers have seen net margins plunge from 8.1% to 3.9% since 1987, according to McKinsey & Co. "The truth is that we've become little more than assemblers," says IBM exec Nobou Mii.

Mii aims to change all that. The 62-year-old veteran of IBM Japan is now president of IBM's newly created Power Personal Systems Div., formed to make and sell machines that Mii hopes will redefine the PC. He started showing off prototypes in November, and they're not your father's Oldsmobile. One PowerPC system, due out in the second half of 1994, has a slick black case and a flat-panel screen that seems to float in space. It responds to voice commands, takes dictation, and reads handwriting. A computer-generated talking head on the screen announces incoming E-mail, offers helpful hints, and keeps track of appointments--all for about $3,500.

At least that's what the prototype does. Mii ordered up all those bells and whistles to showcase the talents of the PowerPC chip, which IBM developed in conjunction with Apple Computer Inc. and Motorola Inc.--and to convince other PC makers that they too should switch to an all-new PC standard. Granted, the clonemakers would be trading in one devil, Intel, for another, but IBM is hoping they'll be willing to do so to evade the Intel monopoly.

FEW TAKERS. The PowerPC troika already is laying heavy bets on the new technology. Apple, the No.2 PC maker, will start shipping PowerPC-based Macintoshes next March and plans to have an all-PowerPC lineup by 1995. Motorola has launched a huge marketing push and has $1 billion worth of factory space under construction to build the chips. And IBM, still the world's top computer maker, says it will build everything from palmtops to supercomputers with the PowerPC chip (although the IBM PC Co. will continue to sell Intel-based PCs).

So how goes the campaign to bust Intel's monopoly? So far, no other major PC maker has bitten. But that could change with the November news that Microsoft is helping create a version of its Windows NT operating system for the PowerPC chip. That would, in theory, make it possible to run some existing PC software on PowerPC computers. Industry rumors now have Japan's Toshiba Corp. and Canon Inc. considering the chip. And a Taiwanese PC consortium has announced plans to collaborate on a design that uses the PowerPC. But that may not be as big as it seems: None of the members plans to devote more than $50,000 to the project. "The big companies want an alternative but don't want to jeopardize their relationship with Intel," confides one member.

Even backers of the new system are cautious. "Intel is geared up to make 40 million chips a year, and they're going to price those chips to sell," says Microsoft Chairman William H. Gates III. "Intel is going to be in the lead position for the foreseeable future."

Intel's hold is software--the 50,000 or so applications that run on the IBM-standard PC. So far, the only software that runs on the PowerPC are programs written for AIX, a version of Unix used in IBM workstations, and for OS/2, IBM's PC operating system. Until developers create PowerPC versions of today's popular applications, few clonemakers are likely to jump in. "The processor looks good, and the system prototypes look good, but the hype is way overdone," says G. Glenn Henry, chief technology officer for Dell Computer Corp. "It all comes down to software, software, software."

BIG ACCOUNTS. IBM has a grandiose plan to break the logjam. In addition to Windows NT and Sun Microsystems Inc.'s Solaris, IBM is working on Workplace OS, software that, IBM claims, will allow the PowerPC system to run multiple operating systems, including Windows and MS-DOS. But Workplace OS is a massive, convoluted piece of software. "They're going to have to do some master engineering to pull it off," says George Weiss, an analyst with consultants Gartner Group Inc.

In the meantime, Mii's division is focusing on large corporate accounts that are used to writing their own software. One early adopter is Citibank, which will equip hundreds of account reps with PowerPC systems that can listen in on customer phone calls, pick out key words, and then prompt the rep to address the callers' concerns. IBM hopes that if enough of these big customers sign on, the PowerPC will attract the elusive software developers. "It's a big desert out there, and we don't quite know where the water is yet," says Mii. "But I'm going to open up everything I can to find out."

Mii's track record for "finding the water" bodes well for IBM. In his long career, he has built a reputation for adroitly breaking from the Big Blue playbook to get the job done. He convinced IBM to move laptop development to Japan. The result: IBM's best-selling ThinkPad notebooks. Mii arrived in the U.S. in December, 1991, to head Entry Systems Technology, a development group, as a close ally of James A. Cannavino the onetime PC chief. Cannavino was recently named head of overall strategy for IBM. That should give Mii strong headquarters support.

MANDATE. Mii took charge of the 300-employee Power Systems Div. in July, and has since moved the operation from IBM's PC development site in Boca Raton, Fla., to Austin, Tex., home to the workstation group. Like the team that created the original PC, Power Systems is a freestanding entity with a mandate to sell as much as it can, in any way it sees fit.

To keep costs down, some 70% of the PowerPC's components will be off-the-shelf PC fare. Mii also hopes to sell through dealers and mail order. That will pit PowerPC models against those of the IBM PC Co., Mii concedes. But he plays down the potential for intramural conflict, saying he expects the PowerPC to take over 10% of the market at most in the next few years.

More important than the potential conflict within IBM is the murky signal that the market is getting. PC customers have seen Mii's prototype and the lavish efforts by IBM and its allies to get other PC makers to gamble on their alternative to today's PC standard. But they've seen that there are no takers. Without the clones and the software they will attract, Mii's brainchild could wind up just another PC wannabe.THE POWER PC PLAY

To help make its new PCs a standard, the Power Personal Systems plans to:

-- Back Microsoft's Windows NT and several other non-IBM software standards

-- Stay lean by sharing IBM PC components, factories, and distribution

But the new operation still must:

-- Perfect new features such as Workplace OS, an all-purpose operating system

-- Woo software developers

-- Compete for customers against IBM's PC and workstation groups

Peter Burrows in Dallas, with bureau reports


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