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

. (page 16 of 140)
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 16 of 140)
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+ Products (including services) are computer related and
are elements of other EDP industry segments;



+ Products are designed to meet the needs of one specific
industry or application;

+ Products assist in the input or output of transactions
to or from a data base, or perform the entire function;



5017



+ Products are intended to be marketed to more than one
customer .

A more complete definition is contained in the Definition section.

Table 132 presents a Review and Forecast of major segments of
the Autotransaction Industry.

TABLE 132

AUTOTRANSACTION INDUSTRY — A REVIEW AND FORECAST

(Worldwide Revenues, in $ Millions, of U.S. Suppliers)

1972 1973 1974 1975 1976 1977 1978



Batch Transaction $ 285 $ 360 $ 440 $ 515 $ 595 $ 685 $ 790

Remote/Inquiry Services 270 410 605 860 1185 1580 2065

Information Appliances 150 340 640 1090 1740 2700 4050

Turnkey Systems 40 80 150 265 450 725 1085

Miscellaneous 105 145 205 285 390 515 660

TOTAL REVENUES $ 850 $1335 $2040 $3015 $4360 $6205 $8650



The advent of autotransaction will have a two-sided effect on
the computer industry. First, the demand for autotransaction products
and services will keep the computer industry running at a steady pace
for years to come despite the maturity of the industry. Second, auto-
transaction will bring about changes in the total computer industry's
life style . . . especially in the way the industry looks at itself
and its users.

The impact of autotransaction will be felt most heavily in four
areas of the traditional computer marketplace: minicomputers, terminals,
services, and software. It also will affect the market for data entry
equipment, though to a lesser extent.

These traditional mainstays of EDPdom have already developed
strong autotransaction subsegments that keep their growth ahead of
the rest of the industry. The effect of autotransaction on the "life-
style" in these computer sectors promises to be as profound as its
effect on the growth curve . . . because the expansion will be due in
large measure to the introduction of whole new categories of offerings,
such as:

+ "Information appliances" transforming the terminal market-
place. A good example of an information appliance is the
familiar point-of-sale cash register terminal. Like a
household appliance, it is a sophisticated tool and a
"work-saver" that hides its sophistication. The information



5018



appliance has already turned the terminal market around . . .
IBM is offering its store terminals on an unprecedented
purchase-only basis, for instance ... and more surprises
should be expected from further growth.

+ "Turnkey systems" injecting life into the minicomputer
market. Like the information appliance, the turnkey
system is primarily designed to be transparent to its
users while solving a particular problem. The minicomputer
manufacturers, as they seek to diversify operations, are
turning to the turnkey marketplace ... where they find a
distinctly new and different environment ... an atmosphere
more oriented to the user than to mass production. But
they, just like their OEM customers, are determined to
switch to autotransaction products.

+ Autotransaction services continuing a winning autotrans-
action formula. The services dominate the autotransaction
industry because service long ago abandoned the hardware
orientation of the computer industry as a whole. The
style of the services market . . . with the accent on applica-
tions and "doing their thing" better than anyone else ...
will be the fashion in autotransaction.

Autotransaction will create a ripple effect in the computer industry
as it remakes the style of marketing and production. Some of the
global considerations:

+ A computer industry with its ear to the ground for poten-
tial user needs. It will undoubtedly unearth undreamed-
of demands for new computer applications.

+ A market for computer products dominated by a "purchase
only" philosophy. It will be easier for companies to
thrive on autotransaction without digging in for a long
haul ... or looking for rental-base funding in times of
low Wall Street interest.

+ The barriers between products and services in the indus-
try will be demolished. Already turnkey system manu-
facturers see services as their biggest competitors. As
autotransaction develops, the implications of this potential
trade-off will be exploited by both sides of the competitive
equation.

All of this is pretty philosophical, but that's all-the-more reason
why autotransaction deserves notice; the transformation has already
begun.



5019



EMPLOYMENT



If Statistics on the computer industry in general are less than
readily available, data about employment — by product and service
supplier as well as by users of "computer product" — is little
more than an educated guess.

The American Federation of Information Processing Societies
has begun to collect such data. In fact, IDC understands that AFIPS
is about to publish an extensive study — based on U.S. Census
data and Bureau of Labor statistics among other things — that will
show that employment by manufacturers of computer equipment and
suppliers of computer services in the United States was at approxi-
mately the 350,000 level for 1973. In addition, the AFIPS report
is expected to indicate that employment by users — the data process-
ing managers, systems analysts, programmers, and key entry/keypunch
operators — is somewhat under one million. And historical data,
according to AFIPS, is "lousy," although the biggest growth came
in the 1964-1968 time period, with stable, relatively minor growth
following the recession of the early 1970s.

AFIPS points out, additionally, that to the one and one-fourth
million jobs thus created by the demand for computers must be added
the unknown and growing number of people who use computers on a
less-than-f ull time basis. This includes such people as scientists
and stock brokers who use timesharing services, corporate planning
and operations personnel who have responsibility for many areas of
their company's activities but who don't show up in computer employ-
ment statistics. In the future, this category might include such
people as bank tellers and department store clerks.

IDC collects sample data on spending for employees, and these
figures are presented in the section on user spending. Another
way IDC has begun to review each of the major computer system manu-
facturers is to calculate and analyze their net sales per employee.
Unfortunately, detailed data for a company's "computer-related"
activities is not readily available — and historical data has not
been analyzed. Published material indicates the following employ-
ment growth for the seven major computer system manufacturers, all
of which derive a considerable portion of their revenue from the
provision of computer hardware and services. (Note that historical
figures for GE and RCA — whose conputer operations have been taken
over by HIS and Sperry Univac respectively — are not included.):



5020



TABLE 133

EMPLOYMENT BY MAJOR SYSTEMS MANUFACTURERS

(000 omitted)



1963



1968



1973



IBM — U.S.

World Trade
Total

Honeywell — HIS

All Other
Total

Sperry Rand

NCR

Burroughs

Control Data

Digital Equipment Corp.



89.0






151.0


49.0






123.1


138.0


241.0


274.1








47.0 (e)








51.1


48.6




74.5


98.1


90.0


(e)


101.0


91.3


65.0




103.0


81.0


33.0


(e)


45.0


47.3


4.0


(e)


23.4


36.5 (e)






4.0 (e)


12.9



TOTALS



378.6



591.9



641.2



For the 1972-1973 time period, IDC has used the above and comparable
data to calculate net sales, or productivity, per employee. Major
observations are:



+ IBM: Employs over a quarter million people worldwide
and enjoys the highest yield per employee — $40,100
as opposed an average of $31,100 for the sum of the
seven companies under review (or $24,300 excluding
IBM). Productivity for its World Trade organization
is higher ($41,800) than in the U.S. ($38,700). In
1973, IBM increased sales by 15% with only a 5%
increase in employment.

+ Honeywell: Employs just under 100,000 people — just
under half of which are in Honeywell Information
Systems (HIS). Productivity for HIS is $25,000 per
person.



5021



+ Sperry Rand: Raised its index from $21,300 in 1972
to $24,400 in 1973.

+ NCR: Showed the highest rate of gain (29%) by

decreasing employment 10% during 1973 (as it phased
out production of mechanical cash registers) and
increased sales 17%. Its index of $22,400, how-
ever, is still one of the lowest.

+ Burroughs: Has the third highest index ($27,200).

+ CDC: Employment figures are estimated to exclude
its Commercial Credit operation but do include the
largest service operation of any mainframer. The
index of $26,000 is above the non-IBM average.

+ DEC: This was the only company to decrease its
index in 1973 as employment increased early in
the year. IDC estimates that in the company's
fiscal year ended in June 1974 that DEC will have
shown a reversal, with the index increasing from
$20,500 to near the 1973 average.



40-927 O - pt. 7-13



5022



INTERNATIONAL COMPUTER MARICETPLACE



Most of this submission has dealt with U.S. computers and how
they are used in the U.S. marketplace. As Chart 131 vividly demon-
strates, U.S. -based manufacturers not only supply the complete needs
of U.S. users (who account for 55% of all computers used in the non-
communist marketplace); they supply just over three-fourths the rest
of this market, thus accounting for 90% of these computers.

But there is great pressure throughout the world to take ad-
vantage of the computer, as well as much nationalistic pressure to
support a local computer manufacturer. As a result, growth rates
of installed base outside the U.S. are expected to be about 16% a
year — some three or four points higher than here — until 1978.



Japanese
Mfgrs.



European
Mfgrs



OUTSID
THE U.S
(45?^




I.S.

.CUSTOMERS
(55%)



U.S. -BASED

lAWFACTURERS
(90%)



CHART 134 : DISTRIBUTION OF $50 BILLION OF COMPUTERS
INSTALLED IN THE NON-COMMUNIST MARKETPLACE



5023



To assist people in examining the relative growth potential for
various countries throughout the world, IDC calculates a ratio between
a nation's Gross National Product and the installed value of its com-
puters. Then by comparison of this ratio with that of various other
countries, at least one indication is available.



TABLE 135 : COMPARISON OF GNP TO VALUE OF COMPUTERS





12/73-$M










Inst.


1972-$B


EDP-%




Base


GNP (a)
341


GNP


Japan


4,922


1.44


W. Germany


3,772




292


1.29


United Kingdom


3,231




152


2.13


France


3,012




221


1.36


USSR


2,195




549


0.40


Canada


1,530




103


1.48


Italy


1,329




118


1.13


Australia


643




52.7


1.22


Netherlands


642




50.0


1.28


Switzerland


579




35.6


1.63


Sweden


459




43.7


1.05


Denmark


388




22.7


1.71


Belgium


338




38.8


0.87


Brazil


330




49.8


0.66


Spain


324




50.7


0.64


So. Africa


233




19.1


1.22


Austria


181




22.8


0.79


Mexico


150




39.6


0.38


Norway


143




16.2


0.88


Yugoslavia


135




23.7


0.57


All Other International


1,475


.


942


0.16


Total International


26,011


3


,184


0.82


United States


29,942


1


,155


2.59


Worldwide Total


55,953


4


,339


1.29



(a) U.S. Dept. of State, Bureau of Intelligence & Research



5024

Senator Hart. Our final witness today will be Mr. Robert E. Wal-
lace, division A'ice president of Auerbach Associates.

Mr. Wallace, I apologize that you have been kept waiting so long.
The subcommittee looks forward to hearing your testimony.

STATEMENT OF ROBERT E. WALLACE, VICE PRESIDENT, COM-
MERCIAL INDUSTRIAL DIVISION, AUERBACH ASSOCIATES,
PHILADELPHIA, PA.

Mr. Wallace. Thank you very much, Senator Hart. I didn't mind
waiting at all. As the last speaker, one always finds that many of the
things that he had in his material have already been said, so I hope you
will bear with me while I sift through and find out what pieces of mine
have not already been said.

Senator Hart. Just to protect against oversight, we will order
printed in the record in full your prepared testimony.

Mr. Wallace. Thank you.

[Mr. Wallace's prepared statement appears as exhibit 1 at the end
of his oral testimony.]

Mr. Wallace. ]\iy remarks are addressed primarily to the struc-
ture of the supplier industry and in particular its major segment,
which I will define a little later, to the present competition in that seg-
ment, and expectations for future competition — again, in that major
segment of the market.

I do have a few observations on future industry directions. They
are a little bit diiferent than some of the ones that have been presented.

By the way, I should say that in all of the technical matters that
have been presented today, and in the important features of the market
data, our data are within gunshot of the same observations on both
the technology and the market characteristics that were presented by
the other speakers.

Auerbach Associates has been in the computer business since 1957.
Since that time we have been deeply involved in providing consulting
assistance, both to the manufacturers and to the users of computer
equipment.

At the moment Auerbach supports the computer business by the
publishing of technical reference services and as a consultant to both
manufacturers and users.

We serve the suppliers of equipment as both technical consultants
and as product and market planning specialists, and we serve users
as consultants of all kinds designed to improve the effectiveness of the
use with their computer systems.

These activities keep us pretty closely in touch with the policies,
practices, and products of the various manufacturers on a day-to-day
basis, and keep us in touch with many of the users on an ongoing basis.

If you need any further indication that you are dealing with an
important industry, I think the information provided by the last
speaker should convince you.

By our guess tliere are about 200,000 computers at work in the coun-
try today, counting some that ai-e not counted in the IDC study, in
the military, for example. This yeai-. probably more than $25 billion
will be spent on their use. About a million and a half people are directly
involved, by our estimates, in the computer industry hour by hour.



5025

There is something in it for everyone. If you think about some of the
applications we have talked aboi:t today, the rich man's margm calls
are made by computer, and the poor man's welfare eligibility is calcu-
lated by computer, and all the way in between there are activities

that affect all of us. • ^t. j: 4.

Not dwelt upon as much as I think it might have been is the tact
that in industry and commerce computers have become a necessity,
because they have established a level of control over inventory, costs,
and analysis of sales that has greatly raised the level of sophistication
that is required of managers in those activities in practically every
market for capital and consumer goods. You just must be able to use
this technology in order to compete effectively today.

Senator Hart. Maybe we will be told later, but to what extent do
students in schools have instruction in the use of computers?

Mr. Wallace. There are places where rudimentary computer instruc-
tion is going down to the grade school level. In our local school sys-
tem—I am a resident of suburban Philadelphia— there are computer
concepts courses regularly taught to junior high school students, and
a number of senior high school students who express interest in it are
actually taught. ]My own son took a half-year course in which he was
exposed — and T must call it exposed, because no one could learn it — to
something like five or six different fundamental programing languages
in a matter of half a year.

So, the concepts are being put across at the schoolchild level, and
the students are also involved in the sense that very many of the scoring
and attendance systems are being administered by computers.

Children are being put in touch with computers at a very early age.
The remarks that I have made bear primarily on the economy. In
the society generally, and on our way of life, the impact of the com-
puter has been a little less direct so far, but I would like to mention
just a couple things that haven't been mentioned so far.

First of all, there are a lot less routine clerical jobs in the economy
than there would have been without the computer. I think someone
remarked earlier there are not enough young ladies in the world to
handle the clerical tasks that ai-e being handled regularly by com-
puters today.

Second, the computer seems to have standardized and made less
personal many of the customer-supplier and citizen-government rela-
tionships that previousl}' existed. I think all of us feel frustration
every once in awhile when we are told that the computer did it, or
it is its fault, and we really can't get satisfaction from Sally the
bookkeeper or whoever we would like to talk to.

And, of course, I don't need to mention here that todav so much
information about the daily lives of citizens is in data banks and
computers that it has raised serious questions about the right to
privacy, and many people including our Vice President seem to be
on a very strong course of assuring that privacy exists when these
computer data banks become operative.

Until recently, thouffh, the involvement of ordinary citizens with
the computer has usuallv been secondhand. The arrival of hand-held
calculators, which all of us have seen, that are selling for $29 retail
indicates the impact on everyday life to be expected in the future,
from the very inexpensive computers that are now bex'oming available.



5026

There are devices— and I think you probably saw some of them
today— that are worthy of the name computer that you can buy for
$75 in quantity today. . .

Simple computers are already at work in our automobiles, and it
will be only a short time until they are in use in our homes.

In a paper that Isaac Auerbach, our president, recently presented m
Australia, Mr. Auerbach has compared the development of these low-
cost computers to the development of the fractional horsepower motor,
and predicts that the computer will have as profound an effect on our
society as the ubiquitous fractional horsepower motor has had.

I don't know whether you have ever tried it. Senator, but some day
when you have nothing better to do see if you can count how many
fractional motors you have between one automobile and your home.
You will be surprised ; it comes out to be dozens. They are there, and
we don't even notice them. It is our feeling that that will be the same
with computers in only a few years.

So computers are already an important factor in the economy, but
not said here so far today is that only about 1 percent of all the
business establishments in the United States currently use computer
services, and many of them use them in only very simple ways.

Furthermore, computers have not yet Ijegim to be used in the home.
So the final impact is still way, way ahead of us.

There are a couple of items about where these devices came from
that haven't been mentioned. As a Philadelphian I would be remiss if
I didn't remind everyone here that the first one of these gadgets
that was a real one was probably built at the ]Moore School of the
University of Pennsylvania by Presper Eckert and John Mauchly.
They formed a company comprising their names and built the first
Univac I in Philadelphia in 1951, the Univac I that you have heard
referred to here before.

As a previous speaker said, there were responsible predicators who
said that certainly not more than 50 of these would be useful. But it
was suddenly recognized that the computer was a logical extension to
the punched-card machines that were long marketed by IBM, Reming-
ton Rand, and others.

The computer, then, became a necessary successor product to IBM
and to Remington Rand, but since it Avas an electronic device prac-
tically every major electronic firm in the country plunged into the
business.

There were a number of combinations, acquisitions, internal de-
velopments, and joint ventures that formed the founding elements
of the present competitors by the mid-1950's.

In the late 1950's the transition to transistors was made, and you
have been taken through the evolution from transistors to the present
integrated circuits and all of the improvements that this has pro-
duced in the computer business.

Just a word on where these developments came from. In the elec-
tronics business at that time tliere was a coalescing of a lot of demands.
The space program gets ci'edit in some quarters; certainly the com-
puter business liad something to do with it, the entertainment elec-
tronics business — all of these were contributei-s to the semiconductor
industry — that is, the manufacturers of transistors — which helped



5027

them continue to improve their product, reduce its size, and get to the
point where they can make products of the sort that you saw today.

So, while we are talking about computers I think we should recog-
nize that these developments have not only come from the computer
industry, but have come from several other areas of the electronic in-
dustry as well.

Today the sorts of things that you say are being used to build
devices called microcomputers — at least, that is what we refer to them
as and so do some of their manufacturers. Those are the kinds of
things we should expect to have contribute to the ubiquitous use that
is referred to in Mr. Auerbach's paper, in the future.

I think you have already heard that the computer market is com-
prised of many segments. I want to mention it only to point out that
my comments from here forward are primarily directed to one segment
of the market for computer equipment which is actually acquired by
the user. And by acquired, I don't mean purchased. I mean the use
of which on his premises is paid for in some form by the purchaser.

Since the most pertinent monopoly issues so far have been raised in
the full scale general purpose computer systems market segment, the
balance of my testimony is directed to that segment.

Now, what is the definition of that ?

You have heard all sorts of definitions of market segmentation
today. I will make my own at the moment, and say that I am referring
generally to computers which are put out in the marketplace for gen-
eral use which the user uses to do many different things and which
generally have a purchase price — new — of $100,000 or more.

The supplier industry that serves this segment of the market is
basically the one to which you have been introduced already by IDC,
and our estimates are not very different from theirs, I don't think,
in terms of the market share and the vagaries of measuring both
market share and earnings in this business. We all have the same dif-
ficulty, and we all understand that we have the same difficulty. I am
not going to bother repeating ours here because I think they are well
within gunshot of the observations that IDC made. While Ave are
dwelling on the U.S. computer market, I want to emphasize again,
however, that it is important that we note that the revenues and profits
of these companies are derived only partly from I^.S. operations.

Much of it comes from overseas. IB^SI, for example, last year as a
company obtained more than half its revenue and more than half its
profits from overseas operations.

We would judge that in the aggregate, probably a third of the
revenue of the other U.S. manufacturers of computers in this class
came from overseas sales and leases.

You have already been told, I think, that American firms dominate
the market for machines in the class worldwide, or at lepst in Western
Europe where they have been primarily adopted.

Interestingly enough, IBM's market share is not very different
from that Avhich it is in the Ignited States. In any part of the free
world, where there is reasonably free competition allowed by the po-
litical structure in that nation — and there are some exceptions to that,
and where there are those exceptions IBM's share is less than it is
locally — but practically everywhere that they have been able to com-



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 16 of 140)