A Giant Flexes Its Muscles

By Alexander L. Taylor III.

IBM throws a splashy dealer party to launch new products

When IBM introduced its first personal computer about three years ago, it rented a suite in Manhattan's Waldorf-Astoria for a low-key presentation to a few hundred industry specialists and the press. Since then, nearly 1 million PCs have been sold, and the machine has become the recognized industry standard. So when the computer's third birthday came around last week, IBM took over the 1,620-room Loews Anatole Hotel in Dallas and invited 2,400 dealers, software publishers and industry consultants to show off its new personal computer.

The atmosphere was more Big D than Big Blue. Everyone was given a cowboy hat and bandanna, beer and wine were freely consumed, and country music played. Unusual goings on for a company famous for dark blue suits and white shirts and where liquor is not permitted at official functions. In the words of one independent IBM dealer, the three-day extravaganza was "on the tasteful side of gaudy."

Behind the fun and froth was a hard sell. IBM unveiled a highspeed, high-power desktop model long referred to in the industry as "Popcorn." Officially named the PC AT (for advanced technology), the computer has at least twice the information-storage capacity of any other personal computer on the market. The firm also announced its first PC network, a system that will allow dozens of office workers to hook their computers together so they can use the same business data. In addition, IBM displayed a new program called Topview that lets a user split a computer screen into several sections or windows and work on different tasks at the same time.

IBM already commands 28% of the personal computer market, and industry watchers believe the new products will strengthen its dominance. Says Bruce Nollenberger, first vice president of Sutro & Co., a San Francisco brokerage house: "IBM is flexing its muscles, and the computer world is taking notice."

The enthusiastic response comes at a welcome time for IBM. The aging PC has been slipping in popularity. In June IBM cut PC prices by up to 23% to boost sales. A portable version of the PC, first sold in March, has had just modest success.

Even worse, IBM has been embarrassed by the shortcomings of the PCjr. Introduced last November to much fanfare as a home computer for family use, it received only lukewarm reviews, and sales have been weak. Last month IBM decided to try again and announced a more powerful, improved version. It replaced a much criticized keyboard with a standard typewriter-style one and added more memory so that the PCjr can run business programs like Lotus 1-2-3. The fully equipped PCjr now sells for $999, in contrast to the original $1,269.

The machine IBM showed off last week has important technical advances. "The PC AT represents a leap in technology," says Robert Fertig, president of Enterprise Information Systems, a Connecticut research firm. "This is a real breakthrough." At the computer's heart is a new microprocessor called the 80286, made by Intel and licensed to IBM for manufacture. It handles information two to three times faster than the older design used in the PC and PC XT. The new chip enables the machine to run complicated programs that previously could work only on larger minicomputers. The Intel 80286 also makes it possible for the machine to perform several different tasks at once.

As more and more personal computers have gone into offices, companies have been looking for a way to hook them together so they can share information or use centralized equipment like printers or storage devices. The new IBM office network makes it possible for as many as 72 desktop computers to work together. The system, though, is relatively slow, so more time will be required to perform tasks when many people are using the network at once. IBM promises that a more advanced system will be out in two years.

Priced at $3,995 and $5,795 in its two versions, the PC AT will be going head-to-head in the office market against such established firms as Digital Equipment and Data General, as well as Silicon Valley upstarts like Altos and Fortune. said Phillip White, a senior vice president at Altos, after the announcement: "IBM will be competing against its own products before they cut into our sales." But IBM has shown that it can be a dominating force once it goes after a market.

Two sprightly competitors, Apple and Compaq, may be less affected by the new IBM products. Houston-based Compaq has successfully marketed a portable version of the desktop PC and just introduced a high-speed office model called the DeskPro. Apple meanwhile has been enjoying rapid sales of the updated version of the seven-year-old Apple II called the He, while 90,000 Macintoshes have been shipped since it was introduced seven months ago. As both the Compaq portable and the Apple machines are significantly less expensive than the new IBM computers, they are not expected to feel much direct pressure.

IBM is not taking any chances that the PC AT will be less than a success. To promote the product, it is readying its biggest television advertising campaign ever. The computer is already on store shelves, and as many as 30,000 could be shipped by year's end. That should make IBM dealers happy. They frequently complain about low profit margins and competition from IBM's own sales force. But after being wined and dined in Texas last week, one New Jersey computer dealer observed, "I've got to learn to love these guys because they are going to make me rich." --By Alexander L Taylor III. Reported by Thomas McCarroll/New York and Mark Smith/San Francisco

With reporting by THOMAS McCARROLL, Mark Smith