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
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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.