Look Who's Helping Defend Fortress EuropeJonathan B. Levine
For many years, IBM was Europe's b ete noire. Embittered rivals, daunted by its dominance in mainframes, hauled the company before the European Commission on antitrust charges. They even tried to blacklist it from European research and development programs. None was more implacable than Groupe Bull of France where, for decades, the government aimed Bull-only purchasing policies squarely at the U.S. giant.
Today, it's the Japanese that are the big threat to Europe's computer makers--or so IBM would have them believe. With supreme irony, IBM is sounding that alarm in a bid to become the Continent's first line of defense. Already, Britain's International Computers and Finland's Nokia Data have sold out to Fujitsu, and British PC maker Apricot went to Mitsubishi Electric. Warning that the same fate could befall Europe's beleaguered computer makers--Bull, Italy's Olivetti, Germany's Siemens-Nixdorf, and others--IBM is trying to persuade them to team up with it.
The logic has won over some tough skeptics. On Jan. 28, Bull itself, in which Japan's NEC holds a 4.7% stake, agreed to a wide-ranging partnership with IBM. State-owned Bull will base future computers on IBM's RS/6000 microprocessor and sell 5.7% of its equity to Big Blue for $100 million. That breathes new life into the perennially money-losing Bull.
But like IBM's other moves, it's also aimed at bolstering the company's sagging position in the world's largest computer market. "To win against Japan in Europe, IBM can either control the territory, which is too expensive and risks antitrust action, or it can blunt the attack by defending the status quo," says Bull Chairman Francis Lorentz.
The Bull deal caps a slew of IBM moves in Europe. In the last two years, it has paid more than $100 million for equity stakes in some 200 software and computer-services companies. In 1990, it began collaborating with Siemens to develop and produce 16- and 64-megabit dynamic random-access memory (DRAM) chips. The companies will split the $1 billion cost of a DRAM plant, and share chip design duties with each other. "We'll bring the first 64-megabit technology to Europe," says J urgen Knorr, head of Siemens' semiconductor unit. And that should reduce the European computer industry's reliance on Japanese suppliers.
In another sign of IBM's newfound acceptance, Europe's JESSI semiconductor development program admitted IBM as a member last year. At the same time, some members were objecting to International Computer Ltd. because of its tie-up with Fujitsu. Now, IBM is digging even deeper: As a concession to the French government for its approval of the deal with state-owned Bull, IBM agreed to transfer chipmaking technology to SGS-Thomson Microelectronics and boost its purchases from that Franco-Italian chipmaker.
ERODING SHARE. IBM's interest in Europe's chip business is hardly altruistic. IBM has begun a massive push to sell computer components such as chips and disk drives, as well as complete systems, to computer makers around the world. So far, it has signed 130 such deals in Europe. The goal is to grab 3% of Europe's $30 billion computer components market by 1993, says Jack Hockley, who heads the effort for IBM Europe. IBM figures that Japanese components account for about 40% of the value in European-made machines. And unless IBM preempts Japan with European technology or its own, Japan "will only move in deeper," Hockley says.
An even more pragmatic goal for IBM in Europe is to stem its own slide. In 1991, its European revenues sank 6%, to $25.6 billion, continuing the erosion of IBM's share from 32% in 1985 to 22.6% of the $113 billion European market. Still, IBM's sales there surpassed those in the U.S. for the first time last year. Alliances could restart IBM's European growth. One motive behind the Bull deal is to expand the market for IBM's RS/6000 computer design, which is facing stiff competition from Hewlett-Packard Co. and others. HP vied with IBM for the Bull alliance right up to the last minute.
Now, Europe's computer industry is watching Olivetti and Siemens-Nixdorf to see if they will team up with IBM. Both now rely on a microprocessor from MIPS Computer Systems Inc., which has foundered lately, and could become converts to the RS/6000. Olivetti Chairman Carlo DeBenedetti has negotiated with IBM for a tie-in similar to Bull's twice--once last October and once last month. Both times he balked at sacrificing Olivetti's independence. But with Bull in its camp now, says IBM Europe products general manager Bob E. Dies, IBM "has to look substantially more interesting to Olivetti and Siemens-Nixdorf." Neither company seems inclined to make the Big Blue move now. But nobody expected Bull to wind up sleeping with the enemy, either.