Ibm's Major Triumph In Minis

In the past few years, the minicomputer has shot to the top of the computer industry's endangered species list, the victim mainly of personal computers and engineering workstations. By the mid-1980s, the list of viable minicomputer makers had dropped to about a dozen, from more than 100 in the 1970s, and it continues to shrink. Even Digital Equipment Corp., long the dominant force in the market, has beenbecalmed.

Somehow, though, reports of the mini's demise never reached IBM. Defying conventional wisdom and industry trends, Big Blue has built a $14 billion business in minicomputers, which is still growing and still earning hefty profits--with gross margins of about 56%. More important, at a time when IBM sorely needs winners, the AS/400 fills the bill nicely: Since the first AS/400 shipped in 1988, replacing two older mini lines, IBM has boosted its market share from 17% to 28%. Says John M. Thompson, general manager of the IBM Applications Business Systems Div., which designs, builds, and sells AS/400s: "We out-DEC'd DEC."

CLONING SUCCESS. Even better, the AS/400's success shows that in at least one large division, IBM can remake itself on the run. Located in Rochester, Minn., more than 1,000 miles from IBM headquarters in Armonk, N.Y., Thompson's division has rewritten many IBM procedures to respond quickly to market demands. Early on, for instance, it signed up hundreds of partners to program, sell, and install AS/400s. Along the way, it even copped a Malcolm Baldrige National Quality Award. Chairman John F. Akers hopes to clone that success as he carves Big Blue into a "federation" of independent companies.

Now the managers of those companies are getting to see their role model meet its severest test yet. The AS/400's easiest sales--upgrades from older IBM minis--are largely over. That and the recession crimped growth to about 4% to 6% last year, estimates Steve Josselyn, a market analyst at International Data Corp. That's still better than the 3% for all mini makers, but down from the 10% to 12% rate of the previous three years. At the same time, the AS/400, like all minis, has been feeling more heat from machines based on reduced instruction-set computing (RISC) technology. They're now attracting the type of business software--packages to run a medical group office, say--that has been the AS/400's biggest attractions. IBM says there are 9,000 such programs for its machine.

IBM met the RISC challenge in February with 13 new AS/400 models. They replace a line unveiled just 10 months earlier and, for the dollar, deliver 30% more power. IBM execs, meanwhile, hint that IBM's own RISC chips will one day power AS/400s.

Meanwhile, IBM is modernizing the AS/400's software. To make it more user-friendly, Apple Computer Inc. and software supplier Object Technology International Inc. have been enlisted to get Macintosh and PS/2 desktops to work intimately with the system and display graphical "objects" to represent AS/400 data. Most AS/400s still use old-fashioned numbers-and-text terminals.

At the same time, IBM is making the AS/400 more mainframe-like. That should appeal to customers that are "downsizing"--moving work from costly old mainframes to cheaper machines. "IBM's trying to provide a path of least resistance" for those who are determined to stop investing in Big Blue's cash-cow mainframes, says Josselyn. This way, at least they stay with IBM.

FAST ACTION. That pragmatic attitude--free of headquarters dos and don'ts--has kept Rochester quite popular with customers. They appreciate that the division shares product plans with them--and acts promptly on their requests. "There's no development plan locked away for the next three years," says Michael A. Goff, vice-president for advanced technology at DST, a financial services subsidiary of Kansas City Southern Industries Inc. that uses 20 AS/400s. "They can respond to us in a very short time relative to other IBM divisions."

The AS/400 group is trying new marketing approaches and distribution channels, too. Big Blue is testing sales of smaller AS/400 models in computer superstores, including the Dallas-based BizMart Inc. chain. And it has persuaded Wang Laboratories Inc., which still makes its own VS minis, to sell AS/400s, too. Who knows? At this rate, Big Blue one day may be known as the AS/400 company, not the one that makes mainframes and PCs.

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