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

value of computers, are not included.) The chart describes user
demand as interpreted by IDC from several extensive surveys during
the past two years. Allowance is made for IBM's internal assess-
ments prepared about the time System/370 models were first being
delivered. Shipments should increase 6% to the $9 billion level
this year, then remain fairly flat until deliveries of IBM's FS
(Future System, IBM's next family of computers expected to be an-
nounced for 1977 delivery). As retirements hold level of decline
during the next couple of years, about $5 billion of each year's
shipments should be added to the installed base.



4966



In the U.S., only 43% of the computers (by value) are currently
on rent (see page 20 ) , down from 50% last year and 55% the year
before. IDC surveys indicate that more and more users plan to pur-
chase (or would like to arrange a third-party lease) and the extent
to which this trend continues will determine the structure of the
computer industry. One argument is this merely reflects better
management and commitment to long-range plans on the part of users;
IDC's extensive research supports this view. The other possibility
to be considered, of course, is that subtle efforts on the part of
IBM (and other mainf ramers?) are designed to foster this user
attitude so that, for the late 1970s, a truly new generation of
hardware can be shipped in vast quantities. In any event, the main-
frame manufacturers control less equipment (as a percentage) than
at any time in recent history.

The above situation — in addition to the growing sophistica-
tion of computer networks and the commitment of users to incorporate
key aspects of their business under computer management — points
to what is probably the strongest trend in computer acquisition
considerations today. The operating system, or control software,
is becoming more important to users than the actual hardware selected
for use in a particular sized installation.

Some perspective on the past success of each of the major
computer system manufacturers can be gained from Table 111, which
shows the build-up of the U.S. installed base of computers over
the past 15 years. This table, in addition, provides a striking
example of the proliferation of minicomputers. The number of
general-purpose computers grew by a factor of 1.5 — from just
over 40,000 to just over 60,000. During the same five-year period,
however, some 70,000 minicomputers worth about $2 billion were
installed in the U.S. As a result, these small computers now
account for one-third of all the computers installed, and the
trend will continue. By 1978, IDC estimates that general-purpose
computers will account for barely over 20% of the U.S. computer
population. These are and increasingly will be large and expensive
systems, however. The value of general-purpose computers installed —
which dropped from 99+% of the total five years ago to just over
90% today — will still represent 80+% of the value installed in
1978. Tables 112, 113, and 114 give IDC's estimates of past computer
activity by U.S. -based manufacturers and forecasts for the next
five years.



4967



TABLE 110



GENERAL-PURPOSE COMPUTER MARKETPLACE - WORLDWIDE FOR U.S. -BASED MANUFACTURERS
(Estimates and Projections Copyright 1974 by International Data Corporation)



$12 B-



$10 B-



$ 6 B-



$ 4 B-



$ 2 B-



New Build Shipments



lIHIinilMVM*



//






Retirements




Net Add



jT^'*



1966 1968 1970 1972 1974 1976 1978 1980



4968





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4969







TABLE 112












WORLDWIDE COMPUTER


MARKET










(U.S. -BASED MANUFACTURERS)








Number


Cumulative


$ Million


$ Billion




Systems


Number




Value


Value




Shipped


In Use


Shipped


In Use






WORLDWIDE








1966


10,500


44,300


$


3,825


$ 13.7


1967


18,450


55,900




5,420


18.4


1968


17,600


71,400




6,422


23.7


1969


19,100


87,000




6,805


29.3


1970


23,100


105,800




6,715


34.2


1971


27,800


129,200




7,077


38.5


1972


40,900


160,300




8,535


42.5


1973


55,350


204,800


$


9,575


$ 47.9


1974


69,500


266,000




10,385


54.0


1975


89,500


348,500




10,330


60.6


1976


117,000


457,500




11,220


67.3


1977


147,000


595,000




13,130


74.8


1978


170,000


753,000
UNITED STATES




15,670


84.7


1966


7,000


31,100


$


2,690


$ 9.9


1967


12,000


37,000




3,775


13.1


1968


11,000


46,500




4,367


16.6


1969


12,700


56,800




4,430


20.3


1970


14,600


68,300




3,920


23.0


1971


17,600


83,200




4,177


25.1


1972


27,400


104,000




5,395


26.8


1973


38,700


133,250


$


5,945


$ 29.9


1974


47,300


171,500




6,350


33.5


1975


59,500


222,500




5,775


37.2


1976


78,000


290,500




6,120


40.9


1977


100,000


376,000




7,375


45.0


1978


112,000


481 ,000
INTERNATIONAL




8,720


50.4


1966


3,500


13,200


$


1,135


$ 3.8


1967


6,450


18,900




1,645


5.3


1968


6,600


24,900




2,055


7.1


1969


6,400


30,200




2,375


9.0


1970


8,500


37,500




2,795


11.2


1971


10,200


46,000




2,900


. 13.4


1972


13,500


56,300




3,140


15.7


1973


16,650


71,550


$


3,630


$ 18.0


1974


22,200


94,500




4,035


20.5


1975


30,000


126,000




4,555


23.4


1976


39,000


167,000




5,100


26.4


1977


47,000


219,000




5,755


29.8


1978


58,000


272,000




6,950


34.3



4970



TABLE 113

GENERAL PURPOSE COMPUTER MARKET (GROUP A)
(U.S. -BASED MANUFACTURERS)





Number


Cumulative


$ Million


$ Billion




Systems


Number


Value


Value




Shipped


In Use


Shipped


In Use






WORLDWIDE






1966


9,000


39,100


$ 3,700


$ 13.1


1967


15.700


48,000


5,200


17.6


1968


13,000


59,000


6,150


22.6


1969


11.000


66,700


6,450


27.8


1970


12,000


74,800


6,300


32.4


1971


14.300


85,200


6,700


36.3


1972


18,300


94,800


8,035


39.8


1973


21,450


106,800


$ 8,805


$ 44.5


1974


19.500


120,000


9,300


49.5


1975


18.500


133,500


8,900


54.7


1976


21,000


148,500


9,400


59.6


1977


26,000


167,000


10,900


65.1


1978


26,000


183,000
UNITED STATES


13,000


72.5


1966


6,000


27,100


$ 2,600


$ 9.4


1967


10,000


31,000


3,600


12.4


1968


7,400


37,000


4,150


15.7


1969


6,000


40,700


^,150


19.1


1970


5,700


43,800


3,600


21.5


1971


7.500


49,200


3,900


23.3


1972


10,700


54,000


5,035


24.7


1973


14,000


62,250


$ 5,405


$ 27.3


1974


11,300


70,000


5,600


30.1


1975


9.500


77,000


4,800


32.9


1976


11,000


85,000


4,900


35.4


1977


16,000


97,000


5,900


38.2


1978


14,000


106,000

INTERNATIONAL


7,000


42.0


1966


3,000


12,000


$ 1,100


$ 3.7


1967


5,700


17,000


1,600


5.2


1968


5,600


22,000


2,000


6.9


1969


5,000


26,000


2,300


8.7


1970


6,300


31,000


2,700


10.9


1971


6,700


36,000


2.800


13.0


1972


7,600


40,800


3,000


15.1


1973


7,450


44,550


$ 3,400


$ 17.2


1974


8,200


50,000


3.700


19.4


1975


9,000


56,500


4,100


21.8


1976


10,000


63,500


4,500


24.2


1977


10,000


70,000


5,000


26.9


1978


12,000


77,000


6.000


30.5



4971



TABLE 114



DEDICATED APPLICATION COMPUTER MARKET (GROUP B)
(U.S. -BASED MANUFACTURERS)





Number


Cumulative


$ Million


S Million




Systems


Number


Value


Value




Shipped


In Use


Sh


ipped


In Use






WORLDWIDE








1966


1,500


5,200


$


125


$ 587


1967


2,750


7,900




220


807


1968


4,600


12,400




272


1,079


1969


8,100


20,300




355


1,433


1970


11,100


31,000




415


1,845


1971


13,500


44,000




377


2,216


1972


22,600


65,500




500


2,703


1973


33,900


98,000


$


770


$ 3,453


1974


50,000


146,000




1,085


4,503


1975


71 ,000


215,000




1,430


5,878


1976


96,000


309,000




1,820


7,608


1977


121,000


428,000




2,230


9,703


1978


144,000


570,000
UNITED STATES




2,670


12,173


1966


1,000


4,000


$


90


$ 506


1967


2,000


6,000




175


681


1968


3,600


9,500




217


898


1969


6,700


16,100




280


1,177


1970


8,900


24,500




320


1,494


1971


10,000


34,000




277


1,766


1972


16,700


50,000




360


2,116


1973


24,700


71,000


$


540


$ 2,641


1974


36,000


101,500




750


3,366


1975


50,000


145,500




975


4,301


1976


67,000


205,500




1,220


5,456


1977


84,000


279,000




1,475


6,836


1978


98,000


375,000
INTERNATIONAL




1,720


8,421


1966


500


1,200


$


35


$ 81


1967


750


1,900




45


126


1968


1,000


2,900




55


181


1969


1,400


4,200




75


256


1970


2,200


6,500




95


351


1971


3,500


10,000




100


450


1972


5,900


15,500




140


587


1973


9,200


27,000


$


230


$ 812


1974


14,000


44,500




335


1,137


1975


21,000


69,500




455


1,577


1976


29,000


103,500




600


2,152


1977


37,000


149,000




755


2,867


1978


46,000


195,000




950


3,752



4972







4973



CHART 116



CDC
(4.0%



Burroughs

(^.7%



UNIVAC
(7.4%)



HIS (9.6%



Others

including mini 's
(4.3%)



PCM
(4.6%)



Third-Party

Leased
IBM Systems
(14.8%)



Rented from
IBM

(2^.4%;




IBM SYSTEMS



User-Owned

IBM
Systems

19.6%)



U.S. INSTALLED BASE AT YEAR-END 1973
$30 BILLION



40-927 O - pt. 7-10



4974



CHART 117

PRICE CLASS DISTRIBUTION OF GENERAL-PURPOSE COMPUTERS INSTALLED, YEAREND 1973
(U.S. -Based Manufacturers; Copyright 1974 by International Data Corporation)



50% -
40% -
30% -
20% -
10% -

50% -
40% -
30% -
20% -
10% -



International






I



United States






i_J



1



Rental : Below $2,500
Purchase: Below $11 5K



$2,500-10,000
$115K-$450K



$10,000-40,000
$450K-$1.8M



Above $40,000
Above $1.8ri



DISTRIBUTION OF GENERAL-PURPOSE COMPUTERS BY ACQUISITION METHOD
(Installed, Yearend 1973; Copyright 1974 by International Data Corporation]



United States



Number



$ Value



International



Number



$ Value



4975



The general information presented above provides a background
with which to view the status of each of the major manufacturers
of computer systems hardware. Here is a capsule of IDC's analysis
as the computer industry enters a three-year period of relatively
stable shipment levels and net addition to installed base:

IBM — The big question about IBM, and for that matter about
the entire EDP industry, is in the courts and for that matter the
Halls of Congress. The Telex verdict is being appealed (with a
decision from Denver expected any day now) ; the Justice Department
case is still set for trial in October; this Subcommittee's efforts
may lead to a new set of ground rules under which the computer
industry will have to operate. But none of these outside factors
has had much effect in the computer marketplace to date, and IDC
for this submission simply recognizes the monumental importance
of whatever happens.

The foreseeable business future looks bright for IBM. Produc-
tion of 370 will probably peak during 1974, and a new entry-level
machine below the System/3 likely will be announced. Probably
of more significance this year or next will be the introduction
of "Q" — the new operating system (from IBM) that is supposed
to meet "all" functional requirements for at least the next ten
years. It will obviously be designed to smooth the movement from
370 to FS, and likely will offer users much more flexibility with
teleprocessing/large data base networks.

Internationally, IBM is probably better equipped than the
other mainframers — than any other U.S. corporation, in fact —
to cope with fluctuating currencies, individual economic problems,
the fuel crisis, inflation, and the like. It is so widespread,
so established in major countries of the world, that one of the
major challenges facing IBM is convincing nationalistic-minded
governments that what's good for IBM is good for the individual
country. There is growing pressure for at least the major World
Trade companies to offer some local ownership.

HIS — Honeywell has done an effective job in managing the
merger of GE's computer interests in 1970. The 6000 series, for
example, has proved to be more attractive to customers than even
HIS management could have expected, and has accounted for con-
siderable new business. Its new product line, announced in April,
is based on the extensive software developed with the 6000 and has
been introduced in such a way as to minimize the impact of the
existing HIS installed base. If customer acceptance is as good
as it has been for the philosophy of computing (originally developed
by GE) demonstrated in the 6000, the company should be fairly well
positioned in the marketplace.



4976



Univac - In retrospect, Univac's 1972 acquisition of RCA's
computer base has been much more successful than was expected.
Loyalty from these users is measured by IDC as continuing at the
70%-to-80% level. And at the upper end of its product line, Univac's
1100 series — especially the low-end 1106 — is quite successful
in teleprocessing and data base operations. The small end of the
9000 series is entering obsolescence, so the recent announcement of
the 90/30 should compete with System/3 as well as offer growth poten-
tial for 9200 and 9300 users. It spans a much broader range than most
prior single systems. On other fronts, Univac had broadened its in-
dustry stance via acquisition — with dedicated application computers
from EMR, disk file business from Dataproducts, peripherals from ISS,
shared processors from Pertec.

Burroughs — With perhaps the most complete full-line offering
outside IBM, Burroughs has taken advantage of its established MCP
operating system and continues to meet user needs for teleprocessing
and data base operations. The 1700 is about the only computer making
any inroads on the IBM installed base. Shipments of the 700 series
are estimated to be at about the midpoint of the generation cycle,
so Burroughs seems to be in excellent position for the next year
or two, at least. Its customers remain loyal, putting up with
occasional startup problems because they like the results they
eventually get from Burroughs' offerings.

NCR — Under new management and finally showing a profit in
its computer operations, NCR is succeeding under a strategy that
it used defensively: NCR needs computers ... to support the
business activity it excels at. Its new 299 electronic book-
keeping machine — and the 399 — should appeal widely for sub-
entry-level computer and terminal business. NCR is also moving
strongly in the autotransaction marketplace (page ). On the
computer front, the price/performance improved Century 101 and 251 —
plus the 300 — seem to offer customers adequate upgrade paths
until the joint CPU development program with CDC is announced.

CDC — Recently, the "maker of the world's most powerful
computers" transformed established product designs into integrated
circuits and called it Cyber 170, introduced a Network Operating
System, and completely unbundled software. This should probably
more than supply customer needs until the series being developed
with NCR is ready. For all its clout with big number crunchers,
however, CDC is one of the most diversified suppliers in the infor-
mation processing industry. Following last year's acquisition of
Service Bureau Corp. , services now account for about one-fourth
of CDC's computer- related revenues; also, it is the largest supplier
of IBM plug- compatible peripherals and has a thriving OEM business
in the U.S. but especially abroad. Britain's International Computers
Ltd. should shortly formalize its full partnership in Computer Periph-
erals Inc., the manufacturing company owned jointly by CDC and NCR.



4977



USER ACQUISITION OF COMPUTERS



As mentioned in preceding sections of this submission, users
today have a variety of methods by which they can acquire computers
or their use.

+ Computer systems can be purchased outright from the manu-
facturer, with maintenance contracted for either from the
manufacturer or from an independent vendor. In some cases,
manufacturers offer term-payment plans in connection with
purchases.

+ Equipment can be rented from the manufacturer, usually

with a 90-day cancellation provision in the contract. This
was an extremely popular acquisition method in the early
days of computer use because customers feared they would
be victims of obsolescence. The method is still the most
popular acquisition method — it offers a convenient "pay-
as-you-go" approach — but has been waning in popularity
some as forward planning and vendor confidence has assured
users they will keep equipment for a lengthening number of
years. Most of the manufacturers, in fact, offer term
leases that give users lower monthly rates — but can have
stiff cancellation penalties. Maintenance is provided by
the manufacturer.

+ Computers — or portions of computer systems, for that
matter — can be acquired from a third-party leasing com-
pany. This acquisition "invention" of the late 1960s in-
volves an organization other than the user or the supplier
taking title to a computer (sometimes buying it outright,
sometimes even using the manufacturer's time-payment plan)
and leasing it to the user at rates below those offered by
the supplier. The viability of this approach, naturally,
is based on the lessor's belief that a user will keep the
equipment long enough to pay for it and more, or that a
second (and third) user can be found to eventually pro-
vide a profitable payback for a given computer system.
Maintenance can be acquired from the equipment manufacturer
or an independent.

+ And as will be discussed in another section of this sub-
mission, the user can acquire the computer power he needs —
or provide for "peak load" power — by using a computer
service company or purchasing spare time (usually late at
night) from another user. This is also the provision users
have "in reserve" for the event of catastrophic failure of



4978



some sort. Recently, in fact, users have been searching
out and arranging for just such backup because they are
running applications that must continue with a minimum of
downtime. Most manufacturers can also supply a certain
amount of backup in major metropolitan areas.

The effect of customer decisions about acquisition — illustrated
below for IBM — presents an interesting phenomenon. Although user-
owned or third-party leased systems (some of which, to further confuse
the issue, are equipped with plug-compatible peripherals manufactured
by still another company called a PCM for plug-compatible manufacturer)
were designed and manufactured by one company, they are for the most
part not so much under that manufacturer's "control." Most users
today still rely on the original systems manufacturer to supply soft-
ware improvements, but they are under no obligation to do so. There
is nothing to prevent users from doing whatever they desire with a
system once title passes away from the manufacturer. In any event,
only 43% of computer systems in the U.S. today (by value) are on rent;
the figure for IBM is an even lower 38.6%.

Third-Party Leasing

The concept of third-party leasing was introduced to the computer
industry during the late 1960s, along with the heyday of the IBM
System/360. Initially, it looked as if almost anyone with financial
backing (or a good-sounding prospectus for Wall Streeters) and a book
of order blanks could jump aboard the 360 roller coaster. Not that
the risks weren't clear even then — prospectuses bristled with
warnings to investors that the fate of the leasing business turned on
the whims of IBM — but the potential profits seemed enough to draw
legions of backers. About 20% of IBM's U.S. production of System/360s
was grabbed up:

Today the game is continuing, but with an altered field of players
and a new set of rules. Many 360 lessors beat a retreat when the
higher-priced 370s were introduced. Some were foundering in red ink
and couldn't raise capital to finance new portfolios; some took one
look at the new family and decided it was merely an interim offering
anyway; some decided to try other lines of business. But a few of
the survivors, notably Itel and Leasco, plunged ahead — and quite a
few large financial institutions have entered the field.

Far more conservative accounting, financing and marketing prac-
tices are the hallmarks of the transformed computer leasing industry:

+ Short-term third-party leases are a thing of the past.