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March 27, 1989

SET-BACKS FOR IBM, DEC SPELL MISERY FOR THEIR WEAKER BRETHREN IN THE INDUSTRY

By CBR Staff Writer

Last week’s double whammy of bad news, first from IBM and then from DEC may cause a few downcast faces at Armonk and Maynard, but there are other towns that will be sunk in deepest gloom. IBM and DEC – and a few other traditional computer manufacturers like Hewlett-Packard Co and NCR Corp are strong enough to take emphatic down-turns in the market in their strides. But the last five years of patchy growth left several industry stalwarts gravely weakened, and times are hard and look like getting much harder in Minneapolis, Lowell and Marlborough where Control Data Corp, Wang Laboratories and Data General Corp have their domiciles. Because if those companies were finding profits hard to come by when the market as a whole was relatively healthy, the outlook for them in a downturn is grim indeed. Equally threatened is Prime Computer Inc, now expected to report a first quarter loss that, coupled with an industry recession will make it much harder for the company to defend itself against the ludicrous hostile bid from MAI Basic Four Inc. Unisys Corp is among the ranks of the stronger second line companies, but is likely to be hit hard by an industry recession that would likely leave it with another year of zero, if not negative, growth – DEC at least is going to grow this year, albeit at a slower rate than over the last two or three years. The outlook would be grim too for what used to be Honeywell Information Systems were it not now a distant branch of the French government, which will live with whatever losses the company turns in. With ICL now battening the hatches, all the signs are, as we suggested two weeks back, that the European market that has pulled so many of IBM’s chestnuts out of the fire in recent years, has now gone decidedly soggy, and the impact on IBM at the top end is likely to be disproportionate if others follow National Westminster Bank’s example and put price-performance at the top of their list of requirements and go for Amdahl Corp’s 5990 market leader in the performance stakes (CI No 1,142). As for DEC, the company is thought to have been suffering slow sales of its high-end VAXes users are impatiently waiting for the delayed new line-topper, and DEC needs it too, to improve margins. Customers are also said to be confused by the different price curves on which DEC has put its Ultrix Unix machines and its VMS machines – the former face such fierce price competition from Sun Microsystems Inc, which is likely to come through any slow-down relatively unscathed, although a fall in growth and profits will no doubt trigger apocalyptic banner headlines, that DEC has priced them much more keenly than the VMS machines, which it still tends to treat as a captive market. DEC finally came out and admitted that turnover for the third quarter would be $100m to $125m lower than had been expected, leading analysts to trim their sales growth forecast for the third quarter to 10% from 13%. There’s some controversy over the way the information came out through analysts and not direct from the company, and gung-ho shareholders are no doubt already sharpening their lawyers. DEC’s defence is that it has consistently been more bearish than analysts about its outlook in the US, and that it can’t be held responsible if analysts don’t listen to what it says. The share price finally closed $10.625 down at $96.375 on Wednesday.

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