Tackling IBM

Four years ago, Minneapolis-based Control Data Corp. brought out its model 6600 computer, the largest machine of its type in the world. Pride soon turned to problems as debugging took longer than expected, and the company began losing money. To make matters worse, Thomas Watson's IBM an nounced that it would bring out its own supercomputer, the 360/91. As a result, many potential purchasers held off buying the multimillion-dollar 6600 machine, and Control Data lost as many as 50 sales. When IBM was slow in producing the 360/91, and then turned out only a few before discontinuing it, Control Data's crusty chairman, William C. Norris, felt that he had been had. "IBM has been out to get us," he said.

Two weeks ago, Norris introduced a still more capacious computer, the 7600, billed once more as the world's biggest. It is a 10 ft. by 10 ft. fortress. Beneath the glass and walnut exterior are 1.8 mil lion transistors, 2.2 million resistors, about 30,000 male and 30,000 female connectors and millions of other parts. The machine works five times as swift ly as the older 6600 and sells for up to $15 million; Control Data already has five sales orders from U.S. Government agencies. Not surprisingly, the company did not want to run the risk that IBM might again try some oneupmanship. So Control Data last week accused IBM of monopolistic practices and asked the Government to enforce antitrust laws or, as a last resort, to dissolve the company. IBM accounts for almost three-quarters of the sales in one of the nation's fastest-growing major industries.

Coercing, Exploiting. In a civil antitrust suit filed at the U.S. District Court in St. Paul, Control Data said that IBM's "manipulations" had caused it "substantial and irreparable" losses and demanded treble damages. The complaint charges IBM with 37 violations of the Sherman Act, accuses the company of "coercing," "interfering," "intimidating" and "exploiting." Among other things, Control Data asserts that IBM sold or leased some models at a loss to hinder competition, that it interfered in its customers' negotiations with competitors, and that it was guilty of "misrepresenting the status and performance" of its own prematurely announced models--a clear reference to the 360/91.

Other companies in the field have long been tempted to challenge IBM in the courts, but they have lacked the resources. They also feared that IBM--which controls many of the industry's patents, and licenses its competitors to use them--might not take too kindly to any outfit that brought it to court. IBM's gentlemanly salesmen, some of whom make $40,000 a year or more, can indeed be rugged competitors. Even so, the company's top management is known to take a somewhat protective attitude toward competition. IBM makes such profits (last year it earned $651 million after taxes on revenues of $5.3 billion) that it could trim prices and still do well. But IBM knows only too well that a general computer price cut might drive some smaller competitors to the wall. IBM is also sensitive about its size, and about the fact that the Justice Department has long had it under examination. Beginning in January, Tom Watson's new general counsel and vice president will be Nicholas Katzenbach, former U.S. Attorney General. Another vice president is Burke Marshall, former U.S. Assistant Attorney General.

Control Data filed suit partly because it became convinced that the Justice Department would not act against IBM. As expected, IBM vowed to "vigorously defend" itself against the charges brought by what it called its "spectacularly successful competitor." It said that the industry, far from being noncompetitive, includes some of the country's most powerful companies.* Then too, the history of Control Data, which was started by Norris only eleven years ago, demonstrates that IBM competitors can succeed. In about a decade, IBM noted, Control Data's assets have grown from less than $1,000,000 to $465 million; its revenues have increased to $387 million in fiscal 1968.

In his mellower moments, Norris seemed content to let Watson's IBM hold the overwhelming lead: "I want Control Data to be the Ford of the com puter industry." Though few people expect that IBM will be broken up, Control Data's suit may force the giant to back up a step or two. At the very least, it may prevent premature announcements of computers that are not quite ready to live up to expectations.

* Including Sperry Rand (Univac) with 5.8% of the $5.91 million computer market in 1967, Honeywell with 5.4%, General Electric with 4.1%, RCA with 3%, NCR with 2.4% and Burroughs with 1.8%. Control Data was in fifth place with 3.4%, while IBM held an overwhelming lead with 72.9%.

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