United States. Congress. Senate. Committee on the.

The Industrial reorganization act. Hearings, Ninety-third Congress, first session [-Ninety-fourth Congress, first session], on S. 1167 (Volume pt. 7) online

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of users for quite some time — there are questions that lie ahead.

The next round of applications that many computers are planning
require real-time involvement of their business operations.

Users will be able to put up with slowdowns, but not with failures.
They will be extremely concerned by security. They will have so much
money invested in software — programs or instructions for their ma-
chines—that they may not want to rock the boat. The language of
computers in a few years may or it may not be conducive to shifting
main-frame manufacturers, or to shifting even from one service sup-
plier to another.

Today it often isn't conducive to this, and I don't really know
whether it is actually possible on an easy basis.

I fully understand the task facing you gentlemen if you elect to
take any action concerning the computer industry.

I would hate to count up the hours I have "spent in conversations
as to what might be done to the industry if something were to he
done.

I often come to the conclusion that if we leave the status quo alone
and give a still growing industry a chance to settle down, that the
situation will rectifv any inequities out there in the marketplace, as-
suming, of course, that proper rules are laid down and followed.

Others argue that this is impossible, that a single force has become
too large to be upset by natural means. I truly don't know whether
this is true or not.

I do know that it would be very dangerous for our country, if not
for the world, for anyone to act without proper insight and under-
standing about this industry.

So if nothing else. I would like to urge vou to try to appreciate
the many forces at work in the computer industrv. Often the answer
offered by one group would work to the detriment of other industry
participants if it were implemented.

During the many hours of thinking about what I might say to you
T wondered if I could really offer any answers. Unfortunately, I must
only complicate your task.

But I do want to stress, in closing, that we are dealing with a large
investment by the computer users of this Nation.

This is an investment not so much of money — they are getting value

from their $30 billion worth of computers— but an investment of skills.

The salaries paid programers and systems analvsts over the yeare

have gone to the capturing of business skills, the thinking through of

problems, adapting these for particular computers.

No matter what happens users can't afford to toss out these captured
skills. That means that they must have confidence in the future of their
computer equipment manufacturer, no matter who it is.



4945

Thank you very much.

Senator Hart. Thank you very much, ISIr. Peacock.

That, I think, was a very responsible, self-disciplined kind of analy-
sis. It is not always the case in these hearings that we have a witness
who measures up to that. Tt was very nice to hear.

'Mr. Peacock. Thank you, sir.

Senator Hart. Mr. Brever, did vou have anything you Avould like
to add?

Mr. Breyer. No.

Senator Hart. Mr. Franklin ?

Mr. Franklin. No thank you. Senator.

Mr. Nash. I must apologize for the lack of questions, but the magni-
tude of these statistics are such — and due to the inefficiency of our
postal system, as you know, we just didn't get copies until late this
morning — that we couldn't grapple with the statistical information
which is quite thorough. I am sure it will be useful for the record.

One thing that occurred to me, though, relates to the type, of infor-
mation available in the ])ublic domain. I have ne^■er really seen such
an aggregate of information as you have put together. I have checked
certain Government agencies to see what they have available. I was
wondering whether you might make any observations about the avail-
ability of information on the computer industry?

Mr! Peacock. Well, I think you put your finger on it. There is very
little — as Mr. Breyer stated in his opening comment — there is nothing
available from the manufacturers.

We have made it our business to collect this information. This prob-
ably is the biggest single collection you have seen. We tried to get
information we could share with the committee and put it together.

I don't know that there is that much Government information, if
that is what you want to know.

I don't find it readily available. Tom, do you have any comment on
that?

Mr. Franklin. No.

Mr. Nash. What accounts for the secrecy surrounding the informa-
tion about industry structure that seems to prevail? Do you have
any opinion on that ?

Mr. Peacock. It has to do with the competitiveness, I am sure;
with the fact that it is a rental-based industry, that most of the cus-
tomers are subject to changing systems on momentary notice, and the
built-in reluctance of manufacturers to disclose their information.
This has been true with everv one of them up until just recently.

A few have started breaking out certain things, I think, preparing
for the revised SEC regulations. There is a little bit more broken out,
but this has been tiiie. Records weren't kept.

I mentioned I found this talking with the AFIPS person who put
together personnel figures. There was just nothing existing before
1970. We have been trying to do it and have a good data base to start
\\ith, but somehow, even some manufacturers say they can't even track
down all their equipment in terms of putting together accurate details.
Mr. Breyer. I would just like to add that all our information, as Ave
mentioned before, is coming directly from the user. We get veiy lim-
ited information from the manufacturers themselves.

All our measurements are coming directly from the marketplace,
from the people who use computere or plan to use computers.



4946

"We, ourselves, have great difficulty in obtaining official information
on U.S.-based installations. We have no luck in the international mar-
ket, either.

Mr. Peacock. I would like to add one comment on that also, and
that is that even with available data it is hard to put together. We had
available to us after the Telex versus IBM proceedings a tremendous
amount of data, and yet even within the IBM internal documents that
were disclosed there were incons."stencies, there ^vere definitional things
that we didn't treat, the same way; people don't measure things the
same way.

And as I have tried to show in the presentation here, there are many,
many ways of measuring what is going on, and people start keeping
them one way or the other for their own use. So this is another com-
plicating factor.

Mr. Nash. Thank you very much. No further questions.
Senator Hart. Mr. Chumbris?

Mr. Chumbris. Thank you very much, Mr. Chairman.
I would like to state that you do have quite a document here and,
unfortunately, because of the mailing, it didn't get to us until this
morning.

I discussed it with you gentlemen informally while we were in re-
cess. You do have much statistical data. I noticed one thing we dis-
cussed earlier, that the number of computers will go from 133,000 to
481,000, which is over a 250-percent increase in a 5-year period.

The value is increasing almost less than 2 to 1, which indicates that
your computer will be of a smaller size and, therefore, the difference
in the value.

This is an indication of the growth of computers from the early
1950"s to now, getting smaller and smaller in size as the indication we
had earlier with the exhibit.

Mr. Peacock. That is correct, sir. If you would look on page 32* in
your book, I might point out sometliing else that is happening.

Tliis is a breakdown of computers by size class. We based it on how
much is paid for it on a monthly basis, and as you can see, in the very
small classes, a tremendous number, and in the very large class there is
not many, but there is a tremendous dollar amount.

Now, our studies lead us to conclude that over time we are going
to see increases in both of these pockets, so that the dollare will be
pushed up reasonably fast by these very, very large computers, but not
too many of them, while the numbers grow extremely fast by the very
small computers.

Mr. Chumbris. Yes. And I notice also a chart which would bring me
to a second comment. I notice on the bottom of the chart you
have I^.S. number of units— 62 percent rent, 24 percent own, 16
percent lease. Dollar value of units— 43 percent rent, 36 percent own,
21 percent lease. On international basis number of units— 69 percent
rent, 25 percent own, 6 percent lease DolLar value of units — 64 per-
cent rent, 29 percent own, 7 percent lease.

I think the question of whether it should be rented or bought is an
issue we will probablv hear more of later in the hearings.

Mr. Peacock. I would think so, sir, and I am glad you realize the
difference between the numbers and dollars. That is very important.
Mr. Chumbris. Yes. thank you very much.
Senator Hart. Gentlemen, thank you very much.
[The following was received for the record.]

*See p. 4974.



4947



MATERIAL RELATING TO THE TESTIMONY OF MR. BREYER

Exhibit 1. — Prepared Background Material Submitted by International Data

Corp.



FOREWORD



This document is submitted as background material in connection
with the presentation being made to the Subcommittee on Antitrust and
Monopoly, Committee on the Judiciary, United States Senate.

Representatives of International Data Corporation appearing
before the Subcommittee will be explaining the techniques and concepts
IDC uses to conduct its continuing study of the computer industry and
the industry's many elements. The idea is to establish at least one
intellectual framework within which the industry can be examined on
a consistent basis.

In preparing this document for submission on a very tight time
schedule, IDC has extracted material from many of its research projects.
Because of the exact time at which they were completed, estimates or
projections may have changed slightly. This reflects the very nature
of the industry and the inexactitudes which surround information about
it. The reader of this submission, therefore, is requested to use the
information for the purpose for which it was assembled — as a des-
cription of the many facets of the computer environment, and the
interrelationships involved.



Copyright by

International Data Corporation

60 Austin Street

Newtonville, Massachusetts 02160

July, 1974



4948



IDC QUALIFICATIONS



International Data Corporation provides the technical community —
both vendors and users — with independent, objective, and reliable
information services. As management consultant, analyst, researcher,
and publisher, IDC builds a bridge of knowledge between the infor-
mation-using community and those who market to it.



Management Consulting

IDC provides subscription services to institutional investors and
corporate planners throughout the industry. It sponsors continuing
programs that:

• Forecast overall industry trends;

• Project short-term and long-range sector development;

• Evaluate market potential for specific products and
services.

Its written reports, seminars, private consultations, special studies,
and telephone "hot-line" services attract security analysts and top-
level management from financial houses, manufacturing companies, and
service organizations located here and abroad.

Market Analysis

IDC executes a broad spectrum of custom research and joint-
sponsored market studies for a variety of industry clients — main-
frame and peripheral manufacturers, software-service-and-supply
companies, leasing organizations, government institutions, and
financial houses. Its research staff, composed of full-time pro-
fessionals with years of industry experience, designs and implements
the projects — in consultation with IDC clients — and then presents
the findings in written reports and personal presentations. The
scope of such projects range from extensive overviews, estimates, and
forecasts of total market sectors to in-depth probes of specific
product acceptance, price sensitivity, and technological evaluation.



Information Collection

IDC is the census bureau of the EDP community. Since 1964 it
has monitored the industrial, commercial, financial, services, and
governmental sectors — listing, in computerized form, the site



4949



characteristics of thousands of EDP users in the United States
and 122 countries around the globe. Formatted into proprietary
data files, these listings detail — for each site — the user's
exact equipment, configuration and associated peripherals, operating
systems, languages, and off-line data capture devices. Updated
semiannually, these files constitute a virtual census of United
States and international EDP activity. They form the base for
sample selection, market extrapolation, historical assessment, and
trend projection used in much of IDC's professional analysis and
evaluation. Moreover, they are used — in raw form — by manu-
facturers, service organizations, governments, and even other market
researchers who consider them the most complete directories avail-
able of worldwide computer use.



Publisher

For participants, investors, and customers in the computer
industry, IDC publishes three market-oriented newsletters, EDP
Industry Report , EDP Europa Report and EDP Japan Report , and the
weekly newspaper Computerworld . In 1973 IDC recognized the impor-
tance of new transaction-oriented equipment and service markets
and inaugurated Autotransaction Industry Report . These publica-
tions facilities extend IDC's data gathering operations and ensure
that analyses are optimally up to date. They also provide addi-
tional perspective in relating individual market sectors to overall
trends.

IDC can provide this diversity of information services because
of the expertise of its professional staff. This staff includes
senior people with years of previous experience in the engineering,
marketing, product planning, product development, research, and
service divisions of major industry organizations. Moreover, they
and other IDC personnel are trained specialists in research design,
sample selection, questionnaire construction, interview techniques,
statistical analysis, content analysis, market extrapolation, and
economic forecasting. This combination of professional skill and
market knowledge is one of IDC's major resources.

International Data Corporation is headquartered in Newtonville,
Massachusetts, and has offices in New York, Los Angeles, London,
and Tokyo.



4950













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4951



DEFINITIONS



Various terms used throughout this submission may appear to be
self-explanatory, but have various shades of meaning even when used
by "experts" in the computer industry. Every attempt has been made
to use them consistently in this report, and the following defini-
tions are presented so that the reader will know exactly how these
terms are used.

New-built shipments are expressed in millions of dollars, and
are calculated on the basis of the manufacturer's list purchase
price for the equipment. Since the bulk of computer equipment is
shipped on a rental agreement, this figure does not represent
immediate income to the manufacturer. Figures for new-built ship-
ments represent IDC's best estimate of a manufacturer's factory
production and include complete new systems, peripheral equipment
or "add-on" shipments such as additional memory, and the added
value of equipment that has been recycled through a manufacturing
plant and upgraded. The figure does not include equipment merely
reshipped from one customer to another, nor does it take into
consideration old equipment that may be sent back by a customer.

Some computer manufacturers and industry analysts discuss
new-net shipments. This is the value of computers and add-on
equipment shipped during the year, less the value of equipment
returned by the user and not reshipped by the manufacturer.

Installed value is represented in two different ways. One is
the total value of equipment installed based on the original pur-
chase price. The other is in terms of equivalent monthly rental
value. This is the amount the customer would pay each month if the
equipment were on rent from the manufacturer, and can be converted
to installed value by multiplying it by the specific manufacturer's
purchase-to-rent ratio. These ratios — which represent the number
of months a computer would have to be on rent before monthly pay-
ments equal the purchase price — include charges for maintenance
of the equipment. The ratios vary from manufacturer to manufacturer
and from product to product within a given manufacturer's equipment
line. Based on its analysis of typical system configurations, IDC
uses the following ratios in its calculations:



Burroughs


48


Control Data


43


HIS: Honeywell base


45


GE base


44


IBM


45


NCR


48


RCA


45


Univac


44



4952



In general, the lower a company's purchase-to-rent ratio, the more
oriented it is toward outright sales rather than rental business.

Average system prices, in terms of monthly rental value, are
calculated by IDC annually based on its Computer Installation Data
Files. Since existing computer users often retain some of their
original peripherals when installing a new mainframe, and since
users typically add from 5% to 15% of value each year in add-on
equipment, average system values for a given computer model tend
to grow with time, and usually are not the same as a manufacturer's
stated "typical" system value upon initial introduction.

The bulk of the detailed calculations in this report are based
on what IDC calls general-purpose computers. In general, these
machines are usually byte or character oriented (with the exception
of large-scale scientific word-oriented computers) , are normally
programmed in a higher level language, such as COBOL or FORTRAN,
and are usually used for many applications at each installation.

In estimating the number of these computers installed, IDC has
attempted not to include those used by the computer manufacturers
for sales promotion, program check-out, maintenance training, or
other uses designed to directly support the sales or successful
performance of the computer itself. The figures do include, how-
ever, all computers used for normal managerial, engineering, and
manufacturing functions by the manufacturer, and its related data
processing service bureaus and computer programming schools.

In contrast to general-purpose computers, there are other types
of computers referred to by IDC as dedicated application computers
that, although general purpose in central processor design, are



Online LibraryUnited States. Congress. Senate. Committee on theThe Industrial reorganization act. Hearings, Ninety-third Congress, first session [-Ninety-fourth Congress, first session], on S. 1167 (Volume pt. 7) → online text (page 10 of 140)