Computers Will See Lots Of Downtime

For years, conventional wisdom has held that computer makers do relatively well during recessions because their products help customers cut costs by making workers more productive. This year may be an exception, if only because there are so few easy tasks left to automate.

Even before the economic clouds began to darken, U. S. computer makers were struggling with flat sales at home. Prices seemed to be falling faster than buyers could consume new machines, each more powerful than the last. In 1991, suggests a survey of 400 large U. S. companies by consultants Index Group Inc., data processing budgets will be up only 5.3%, vs. 1990's 6.9% rise. And now, the European market, a major source of business for most U. S. producers, has turned weak, too. Sales there of computer hardware, software, and services rose 17% in 1989, but the increase slowed to 10% in 1990 and may level off at 11% in 1991, figures market researcher International Data Corp.

DAZED. What it all means is a mediocre year. Gartner Group Inc., a Stamford (Conn.) market researcher, figures that U. S. computer and software makers can expect their 1991 world sales to rise just 6.5% over 1990's--down considerably from the previous year's 8.4% growth.

Besides being cautious over the economy, says Gartner Senior Vice-President Rick Smith, many large customers are puzzled over which strategic direction to take their computing operations. After a decade of installing millions of cheap, high-powered microcomputers--personal computers, workstations, and so-called servers--it's now time to harness them into companywide networks for sharing information. But which networking scheme to use, and which software? Suppliers have congregated around several industry standards, including AT&T's Unix and Microsoft's MS-DOS and Windows software, Smith says. But still, "everyone's trying to figure out what's going on."

Oddly enough, customers will be buying more mainframes this year. They remain best for storing master copies of corporate files and anchoring large networks. In 1990, mainframe dollar sales rose only 2.9%, Gartner says. But sales should rise about 10% in 1991, fueled by shipments of new systems from IBM, Amdahl, Fujitsu, and Hitachi. By contrast, Digital Equipment Corp. has not been as successful as analysts hoped with its VAX 9000 series mainframes, introduced in early 1990. Joseph Payne of Alex. Brown & Sons Inc. figures that DEC will sell $500 million worth of the systems in its current fiscal year, not the $1 billion-plus once thought possible. And DEC has had to replace faulty components in all the 9000s it has shipped.

DEC will also suffer from the basically flat market for minicomputers, whose U. S. sales will be up just 1.8% in 1991, reckons International Data. Like DEC, Hewlett-Packard and Data General hope for continued profits from their proprietary minis. But many customers are opting for networks of lower-margin, standards-based desktop machines.

That helps explain why PC sales will stay healthy, though the industry faces continued turmoil. Market watchers estimate 1991 growth in unit shipments at about 8%, down from 13% in 1990. But the average selling price of these machines, which rose 11% in 1989, may increase only 3% from 1990 to 1992, according to Dataquest. This reflects increased price competition from second-tier clonemakers such as Dell Computer Corp. and AST Research Inc., which are gaining the confidence of corporate buyers. One result: premier clonemaker Compaq Computer Corp.'s U. S. unit sales rose 20% in the 1990 third quarter, but its revenues rose just 5%. Laptop computers will be the fastest-growing segment of the PC business, but watch out for a price war there, too.

As all the price-war talk implies, PC retailing is in for tough times. The Businessland Inc. and Computer Factory Inc. chains have suffered major losses because of competition from specialized dealers and discount "superstores." A consolidation is under way, as seen in CompuCom Systems Inc.'s recent $39 million purchase of Computer Factory.

PC software promises to sell well in 1991, largely on the basis of Microsoft's Windows 3.0 package, introduced in mid-1990. It makes IBM PCs and clones easier to use and will help boost sales of spreadsheet programs and word processing packages. Total PC software sales should be up 16% this year, Dataquest predicts, compared with a 10% gain in 1990.

Easily the brightest spot in the hardware market will be workstations, where unit growth may hit 50% in 1991, about the same as 1990, according to Dataquest. It says 695,000 workstations may be shipped, up from 465,000 last year. But market leader Sun Microsystems Inc. will face increased competition from DEC and IBM, which are gaining market share with aggressively priced products. In fact, IBM is widely expected in 1991 to grab the No. 3 spot in workstations from Hewlett-Packard Co., which is still struggling to capitalize on its acquisition of Apollo Computer Inc. in 1989.

BIG BLUE BLUES. If there's one sure prediction for 1991, it's that U. S. computer makers will continue their payroll-shrinking act. It takes fewer people to build computers as more circuitry gets crammed onto fewer microchips. DEC, for example, says it wants to cut its 124,000-person payroll by 6% by July, prompted by a reorganization of the company into 20 autonomous marketing units. It is expected to increase that goal to 10% in January. And last fall, France's Groupe Bull disclosed plans to cut its global payroll by 5,000 people, or about 10%, including 1,700 stateside. Speculation abounds that IBM will continue trimming its U. S. work force. Analysts hope it will shed an additional 4%, or 10,000 jobs, adding perhaps $1 per share, or 10%, to net earnings.

In short, the year ahead may see a weeding out of weaker computer makers. But that process, as Charles Darwin might say, should lead to a fitter, more competitive industry overall.

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