Once a year in Pamplona, Spain, a mob of idiots tries to outrun a herd of bulls. A crowd, openly cheering for the runners and secretly hoping the bulls gore a couple, lines the dusty streets. This kicks off the local bullfight season, gives the local doctors a chance to perfect their embroidery techniques, and inspires drunk and paunchy rewrite men buried in news bureaus around the world to lament how little they resemble bull fight aficionado, journalist and novelist Ernest Hemingway. Also once a year, this time on Thursday, March 23, a group of IBM’s nattier suits tries to outrun a herd of securities analysts. A crowd, openly cheering for their in-vestors’ success and secretly hoping for a chance to churn a few million dollars in other peoples’ stock portfolios, fills the meeting room. Equity aficionado This is supposed to kick off a rally in the Blue Chips, give the buy side types a chance to prove they know how to run away from risky deals, and inspire drunk and paunchy financial spin doctors buried in the public relations bureaus of corporate America to contemplate how lit-tle they resemble equity aficionado, crook and fink Ivan Boesky. This year’s meeting was a bit different. For starters, instead of being held at an IBM plant in a nice suburb, as it often is, the shindig took place in Boston on a dock. Nobody actually knows the name of the place, but it’s one of those piers renovated in Modern Corporate Tomb style by some real estate developers. To get there, you have to tell a sociopathic cabbie you want to go where they hold the annual DEC show. The site wasn’t the only unusual thing about IBM’s annual share tout. Just 10 days before, IBM had confessed that its 3090S production schedule had fallen apart because it couldn’t make enough working chips. The mys-erious problem had been solved, the company added, but it would take months for it to make up for delayed shipments of its most profitable products. The first quarter, with results yet undisclosed, would be below analysts’ profit expectations, said IBM. So, sadly, would the whole year. Wall Street took this shocking news with its usual aplomb. It killed IBM’s stock and then went on to smash most high tech equities, pummelling corporate bonds along the way. But a few days later, over the usual mediocre lunch, IBM persuaded the guardians of America’s widows and orphans that things weren’t quite as bad as they had thought. Demand is there, said one of the second-tier honchos IBM puts before a trusting public on such occasions. This was supposed to mean that IBM’s dismal earnings outlook, the concurrent revelation that DEC was heading for a disappointing year, the fiscal fumbling reported by Apple, the various problems aired by Microsoft, the caution expressed by Unisys, the published warnings to owners of Computer Associates stock, the spate of bankruptcies among small micro makers, the continuing headaches of the computer leasing trade, the widespread forecasts of inflation despite rising interest rates, the collapse of Nippon Telegraph & Telephone stock and the general fear of some economists that capital spending might go down the drain don’t form a pattern at all. Hey! Compaq’s doing just fine! The business can’t be headed for recession. By Hesh Wiener We interviewed a few computer lessors, who clearly do not resemble a scientific sample because they don’t make a living renting Compaqs. They all refused to contradict IBM’s optimism, although every one of them said that business stinks. Apparently, demand is there. It’s just laying low, the third parties opined, until the prices are right, or budgets grow, or attitudes change or the economy looks a lot better than it now does. But, they reiterated, it’s there all right… lurking somewhere. In the meantime, IBM hiked its list prices, and immediately told the users it found that still had some money in their pockets that it was only kidding. That price hike stuff is apparently just for the benefit of the investing public; the real customers are get-ting more opportunities to chisel than ever. Despite the sev
ere shortage of Spandex reported by the New York Times on March 28, the computer market, in IBM’s view, may still be elastic. How this has eluded the money mavens meeting in Boston remains a mystery, but so, too, is the state of the AS/400 market. IBM failed to even hint that it might be having some problems peddling its little database engines. Instead, every official pronouncement from the company since the machines first hit the market has been as sunny as the pre-greenhouse Sahara. How odd, say traders in the S/3X market, because brand new AS/400s are readily available in the gray market at 8, 10 and sometimes 12 points off list. Of course, these special deals are for only a fraction of the potential users: those who want only one machine. Larger discounts are available to shops in need of a lot more iron – for instance, two machines. This situation, if we take the broadest interpretation of IBM’s declaration, is by no means a signal that demand isn’t there. Nor should the seller’s market in used large System/36 processors be taken as an indication that IBM’s AS/400 push is encountering resistance. However, when IBM said demand was there, it might have more accurately pointed out that there in many instances was the office of a used equipment dealer. Perhaps the analysts who listened so uncritically to IBM’s presentation had been gladdened by events outside the world of multi-user machines. There had been stories lately, reportedly originating among the more astute computer retailers, that IBM was unable to make enough 80386based PS/2 model 70s to keep up with the demand Big Blue asserted was there. It was only after the analysts’ meeting that the press reported that a run of defective circuit boards, not a run of eager customers, was the reason some shelves were emp-ty at Gizmoland. IBM’s situation is likely to get worse before it gets better. With the exception of the AS/400, IBM’s multi-user systems are well into their product cycles and are therefore harder to sell. Also, users have learned to ride the upgrade cycle. They can – and do – defer purchases of additional processing power, memory and other features. MIPS as a commodity Then they play IBM against the third parties, treating MIPS as a commodity. This occurred during late 1988 and was reflected in the booming prices paid for used 3084s. That game appears to be over now, but another, similar one is underway in the used 3090 market. The resultant upturn is weaker, and we believe it foreshadows a general softening in the mainframe market. Customers need time to digest new computers and software. They try to buy gear months ahead of an anticipated upturn in business. Similarly, they are likely to defer their information systems expansion plans when they an-ticipate a slowdown in business, not after it has hit. And that’s why we can’t disagree with IBM. Demand is there all right. Unfortunately, it appears to be heading for the exit. Copyright (C) 1989 Technology News of America Co Inc.
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