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 28 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 28 of 140)
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Registered IBM Confidential

August 12, 1971.
Memorandtun to : Mr. G. B. Beitzel.
Suibject : Quarterly product line assessment

This Quarterly Assessment represents our department's best judgment on the
status of the IBM product line in today's competitive marketplace. The report
in this binder is intended both as a record of our presentation and as a reference
document.

The price/performance charts reflect the recent IBM price changes, but do
not consider price increases announced last week by Honeywell and Univac.
Prices for the Univac 1110, the Honeywell Series 6000, and the depicted models
of the HIS Series 200 should be increased by approximately five percent.

The assessment ratings are based on product versus product comparisons.
In the commentary, we have attempted to reflect those additional values which
we believe will be considered significant by the potential user.

P. J. LaVeiau.

EJnclosure : Distribution List.



Mr. J. H. Aitchison
Mr. F. T. Gary
Mr. T. E. Climis
Mr. F. J. Cummiskey
Mr. B. O. Evans
Mr. R. H. Fentriss
Mr. G. P. Fusco
Mr. W. O. Hume



5111



DISTRIBTmON MST



Mr. G. E. Jones

Mr. J. J. Keil

Mr. J. G. Maisonrouge

Mr. J. P. McDermott

Mr. W. L. Noel

Mr. R. A. Pfeififer, Jr.

Mr. F. G. Rodgers

Mr. C. B. Rogers, Jr.



PRODUCT LINE ASSESSMENT SUMMARY



System/product



Assessment



Competition



Large systems:

- Deficient.

Model 195 do...

Model 165 Equal

Model 155 do...

Intermediate systems:

Model 145 do...

Model 135 Superior..

Model 30... Deficient.



Model 22 do.

Model 25 _ .do.



System/370 advanced function:

Multiprocessing do...

Relocate Equal

Sensor base _. Deficient.

Small commercial systems:

T-55 Superior..

T-54 Equal....

Model 20 Deficient.

System/3 Equal



IBM 6400 Deficient.

Sensoi-based and small scientific systems:

1800 _ ..do...



1130.



.do.



System/7 do.

Storage products:
Tape drives:

2401 series do.



CDC Star— 100.

CDC Cyber 70, mod 76.

Univac 1110.

Burroughs B6700, HIS H6080.

RCA6, HISH6040.
RCA 2, NCR C-200.
Univac 9300/9400, NCR C-200, Burroughs

B250O, HIS H1015.
NCR C-200.
Univac 9200, NCR 3-100 and C-200, Burroughs

B2500, HIS HI 15-2.

Univac 1100 series, Burroughs B67O0/B7700.
RCA 3, RCA 7, Burroughs B6700/B7700.
Control data, digital equipment, Xerox data
systems.

HIS H115/H115-2/H125, UN 9300/9400.

NCR C-100, UN 9200, HIS HllO.

NCR C-50, UN 9200, HIS H115/H115-2.

NCR C-50 and C-100, UN 9200, HIS H105 and

HI 15.
Burroughs L series, Mixdord 800, Philips 350.

General automation 18/30, alternative applica-
tion appioaches, mini-computeis in general.

General Automation 18/30, mini-computers in
general.

Honeywell, DEC, Varian, Hewlett-Packard.



2420 series do

3420 series Equal

Fir do

Birch Superior' (not rated).

Drum and disk drives:

2310 Deficient

2311 do



2314A/2314B do.



2319/IFA Superior

3330 do

2395 do..

Winchester... Equal' (deficient).

Disk packs Deficient

Strip files.. Equal

LCS(2361) Deficient....

Main memory (S/360, S/370) do



Card/paper tape/printer products:

Card I/O Equal....

Paper tape I/O Deficient.

Printers:

1403N1 do...

3211 Superior.

Canopus (MED.-500 LPM). Equal .

5203-3 do



Ampex, Bucode, Texas Instruments, Potter,

Telex.
Potter, Telex, Bucode, S.T.C.

Do.
Ampex, Potter.
No competition.

Memorex; Computer Hardware, Inc.
Memorex, Marshall, Telex, Greyhound,

Talcott.
Telex, Memorex, Calcomp, Marshall, CDC,

Ampex.
Do.
Century Data Systems.
Advanced Memory Svstems (S.S.U.).
Telex, Memorex, CDC, Calcomp, Marshall.
Memorex, Caelus, BASF, CDC.
NCR.

Ampex, Lockheed, Fabri-Tek, Data Products.
Data Recall Corp., Fabri-Tek, Ampex, Cogar,

Weismantel, Standard Computer.

No 80-column plug-to-plug competioton.
Honeywell, GE, Tally, Teletype.

Telex, Potter.

No comparable competitive product.
Data Products, Mohawk Data Sciences.
Potter, Data Products.



See footnote at end of table, p. 5112.



5112

PRODUCT LINE ASSESSMENT SUMMARY— Continued



System/product Assessment Competition

OCR and MICR products:
OCR:

1287 - do NCR; Recognition Equipment, Inc.; CDC 935;

Univac; Honeywell.

1288 Superior COC 915, COC 955.

Shark .-. - - Equal... _ _.. Recognition Equipment, Inc. (lnput-3).

MICR:

Inscriber .- Deficient NCR 482, Burroughs series 100 and 200.

Sorter/reader do Burroughs B9134-1; OCR/MICR.

Data entry products:

029/059 do Univac 1701/1710 (buffered).

5496 Equal DDC 9601 and 9610.

129 ...do Univac 1701/1710 (buffered).

IBM 50 -. Deficient Mohavi(l< Data Sciences, Honeyv^ell, Viatron

Viking 1 Deficient ' (superior) Keypunch-Univac; Clustered Systems-lnforex.

Computer Machinery Corp.; price advantage
as remote.
Data collection products:

357/1030 Deficient CDC, RCA.

2790 Equal Friden Mis, Data Pathing, Inc., Solar, Bur-

' ■ roughs TU 100/900.

Communications products:

Communications controllers:

27C1 . - .. Deficient 1 (equal) ITT, Memorex, Sanders.

2702/2703 Deficient.. Memorex 1270, Burroughs 1800.

27RM _. Equal! (deficient) Comcet 20, 40, 60; Honeywell 16 series;

Varian Mini's; Univac C/SP.

27RL Superior 1 (not rated) Memorex 1270/1271, Interdata.

Operatororiented terminals: 2740, 2741.. Deficient Teletype Corp., Dura, Datel, Anderson-

Jacobson, Memorex 1240.
Low/medium speed batch terminals:

1050 2770 - do TTY ASR, Datel 31, Univac DCT 500/1000, GE

Terminet 300, Memorex 1280.

3735 . . Equal... Burroughs TC series, Compat 88-23, Cogar

System 4, Victor Nixdorf 820.

27AX - Deficient Memorex 180, GE Terminet 300, TTY KSR/4210

High-speed terminals: 2'77d, 2780 do Data 100, Remcom, Univac DCT 2000.

Processor terminals:

System/3 . Equal _. Univac 9200.

1130, S/360-20 Deficient.. - HIS model 5, Data 100 78-2.

Remote display terminals:

2260/2265 -do Univac Uniscope 100, Datapoint 2200, Digivue

"" " 2000.

3270 Equal Univac Uniscope 100, Datapoint 3360.

'Change from previous assessment which is in parentheses.

Attachment No. 7

Civil Action— 69 Civ. 200

UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF

NEW YORK

United States of America, plaintiff

V.

International Business Machines Corporation, defendant
notice of motion

PLEASE TAKE NOTICE that on the grounds set forth in the attached motion
and supporting memorandum, plaintiff will move this Court before Chief Judge
David N. Edelstein, at the United States Courthouse, Foley Square, New York,
New York, at 10:00 a.m. on April 14, 1972, or at such other time or place as
may be set by the Court, for an order requiring defendant to produce documents
delivered by it to a third party, Control Data Corporation, in response to process
of another Federal Ck)urt, as to which IBM seeks to invoke a doctrine of inadvert-
ent waiver.

Dated : April 7. 1972.

Grant G. Moy, Jr.,
Attorney, Department of Justice,

Washington, D.C.



5113

U.S. Government Memorandum — Department of Justice

OcrroBEai 30, 1970.
File : 60-235-38

From Burton R. Thorman, Assistant Chief, Special Litigation Section.
Subject: U.S. v. IBM.

A xerox copy of the following document was found by me on October 29, 1970
in the files of R. A. Pfeiffer, IBM Director of Marketing. A stamp indicated it was
a "CSM Study" not to be reproduced. The initials "HAF" are probably those
of Hillary F. Faw, IBM Director of Business Practices, part of the corporate
staff. Text follows :

HAF 11/21/69.
thoughts for consideration

The liability of IBM's risk lease is dependent on price leadership and price
control.

By means of price leadership, IBM has established the value of data processing
usage.

IBM then maintains or controls that value by various means: (timing of new
technology insertion ; functional pricing ; coordinated management of delivery ;
support services and inventory ; refusal to market surplus used equipment ; re-
fusal to discount for age or for quantity ; strategic location of function in boxes ;
"solution selling" rather than hardware selling ; refusal to support subsequent
use hardware, etc.

Unbundling has created a new threat to IBM's price control.

By eliminating fixed price solution selling of hardware eventually leading
to increased price competition.

Functional pricing already under pressure because of OEM activity. Un-
bundling will increase that pressure.

Equalization of subsequent use adds value to existing third party inventories.

Seriously reduced capability to maintain — ahead of supply.

Legal problems are emerging as a result of certain practices which are key
underpinnings to price control.

Refusal to market used machines and parts. Refusal to sell bills of material.
Maintenance parts prices.

The key underpinnings to our control of price are interrelated and interde-
pendent. One cannot be charged without impacting others.

These interrelationships are not well or widely understood by IBM Manage-
ment. Our price control has been sufficiently absolute to render unnecessary
direct management involvement in the means, [the next five or so lines were
deleted from document]

The D. J. Complaint specifically covers varying profit margins and an inten-
sive investigation of this issue would reveal the extent of our price control
and its supporting practices. Such a revelation would not be helpful to our
monopoly defense.

If IBM's price control is seriously threatened, either from the market or (be-
cause of unbundling) or from legal exposure (because of the supporting prac-
tices) or from the D. J. (because of demands for remedy) it is necessary that
IBM Management fully understand its import in order to decide.

Negotiations' strategy with D. J. good vs. bad practices remedies good vs.
bad structural remedies (or) decision to litigate.

Pricing Approach to New Systems.
Reduction of Legal Risk relating to practices.

RECOMMENDATION

Assemble a small, knowledgeable, secure group to think through these issues,
particularly in their interrelationship — define the emerging environment and the
various new forces which indicate significant new change — and map the rudi-
mentary elements of strategy or alternative strategies for consideration by
Management.

It is to be noted that the deleted portion above probably is based on a claim
of privilege, counsel's usual basis for excluding material.

A xerox copy of the document has been ordered.



5114

Attachment No. 8

This forum is offered for readers who want to express their opinion on any
aspect of information processing. Your contributions are invited.

The Fobum

ibm's operating system monopoly

IBM currently monopolizes the development and support of IBM operating
systems. This monopoly, which started almost 10 years ago, has played continuous
havoc with IBM 360/370 users. Operating systems are almost unanimously viewed
as being the most critical element of any computer system: they permanently
occupy large portions of memory; they are responsible for all i/o queueing,
scheduling, device allocation, and resultant computer throughput; they are
responsible for the support (or non-support) of all peripheral devices; and they
control memory allocation, multiprogramming and, in the case of virtual memory,
page accessing and allocation. Application programs are dependent on the unique
resources of operating systems; when the resources are changed or support is
discontinued, the user is at the mercy of the operating system's developers and
supporters.

In 1970, the operating systems were the one piece of software that IBM chose
not to unbundle. Was it an act of kindness? IBM doesn't charge its customers
for DOS, DOS/VSl, OS/MFT,OS/MVT, OS/VSl, 0S/VS2 or VM/370 and surely
IBM wants to increase its revenue. They charge for compilers, sorts, data manage-

IBM 360/370 OPERATING SYSTEMS
FA.nILt TREE



-^ 1964-19*5




360 Operating SysCen Announcement



TOS DOS



19'58-1969 Support

Ended




?.IALiTY ^19 7 3-1974



OS/:'-fT OS/MVT CP/CMS



DOS/VS OS/VSl 0S/VS2 V«




"g" Operat'lng Sysc



ment packages, and other pieces of system software (all of which have competi-
tion). Why wouldn't IBM want to increase its revenue by charging for operating
systems?

IBM doesn't charge for them simply because it is significantly more profitable
in the long run to lock customers into ineflBcient operating systems and lock out
competition. After being trapped, the computer user "lamb" is strategically led
to the next generation of IBM operating systems. 360 users have no choice but to
move to the 370 line, because new devices are supported only on the 370 operating
systems. 370 DOS and OS users are led to VS operating systems because support
of the current operating systems is discontinued. "Functionally stabilized" is
IBM's way of telling users it will no longer improve on DOS, OS/MFT, and
OS/MVT — a slow death no matter how you look at it.

Competition does not happen spontaneously — especially in the area of operating
systems. Sure, some software companies can "pick up the crumbs" and try to
sell support and enhancements to IBM's "free" operating systems. But the harm



5115

is already done — there is no effective or economical way for a would-be competitor
to break "into the field. New operating systems are being planned and most users
won't stay with current "free" operating systems if they have to buy support
from some non-IBM firm. Besides, soon there will be that new IBM state-of-the-
are free operating system and it'll solve all of those problems of the past. . .
Wanna bet?

Competition and antitrust laws made IBM cut the price of its peripherals and
memories. But there is no operating system software competition so far, because
the monopoly has not yet been challenged.

Consider this hypothetical situation : in 1964 IBM announced the 360 at an
average cost of $10,000 per month; IBM also announced an operating system
software package at $1,000 per month. With IBM predicting sales of 20,000 com-
puters, and third party leasers predicting 10-year life spans for 360 computers,
the total 10-year revenue for the 360 hardware line was predicted to be $24
billion. During the same 1965-1975 period, the oi^erating system software package
market alone was predicted to be $2.4 billion. By 1967, three software companies
had developed compatible operating systems to sell for $750 per month; they
were compatible, operated in half the space, and provided faster throughput.
IBM responded by announcing a new version of the operating system. The wheels
of competition keep turning, and the needs of the user community — as well as
those of the industry — are served.

But look at what we have in 1974 : IBM locking in its customers with free vs
operating systems and IBM users facing obsolescence of their 360 hardware and
current operating systems, and no competition in sight. It's all going to happen
again, two to five years from now, with IBM's new, and as yet unannounced,
"Q" operating system. Where is the Justice Department and where are the voices
of the users? IBM's 360/370 line of computers was successful in spite of its inefli-
cient and error-prone operating system. Talk about the need for conservation
and improved productivity ! It would be an interesting exercise for an economist
to calculate the resources that have been wasted because of the marginal oper-
ating system software that IBM has produced and supported over the past 10
years.

In defense of its position in the TELEX case,* IBM recently stated that anti-
trust laws exist "Because through competitive battles resulting in innovation and
price reductions, the consumer benefits." But, IBM, may I ask one simple question :
how do you propose that those "competitive battles" in the field of operating
systems be waged with only one side willing to fight? It still may not be too late
to introduce competition into the next generation of operating systems, but time
is running out.

There's no technological reason why IBM can't unbundle their operating sys-
tems; CDC has announced that they will charge for their operating systems.
Obviously, free operating system software is merely a marketing decision and
unless IBM is pressured into changing its policies, things will remain, unfor-
tunately, the same.

— Martin A. Goetz

Mr. Goetz is a vice president of Applied Data Research, and director of its
Software Products Div. Past president of the Software Industry Assoc, and of
ADAPSO, he is the holder of the first U.S. software patent.

Attachment No. 9

Plaintiffs Exhibit 472

April 20, 1970.
Memorandum to : Mr. P. J. Rizzo,
Subject : Memory Pricing.

I am making this a separate memorandum because I would like to have you
look at it separately and not as part of the Model 50 maintenance pricing issue.
Using the Model NS 2 as an example. Group is looking forward to a profit at 48
months of some 35-63% on memory with a profit of 25% on the CPU.

I am told that the memory represents one-third of the revenue of the com-
bination and the CPU two-thirds. At the above profit level for memories, they
estimate they will be 30% above competition in price.



•Brief of International Business Macliines Corp. presented at the U.S. Court of Appeals,
Tenth Circuit, Feb. 7, 1974, p. 45.



5116

Originally, I advised them to price memories and CPU's both at 30%. They
readily agree that CPU's cannot be easily duplicated whereas memories can be
easily duplicated on a plug-in basis.

I would, therefore, conclude that we should have 25% profit on memories,
higher prices on CPU's and up with an overall profit in the 62% range.

Again, I am sure it is more complex than this simple arithmetic, but why
should it not be studied this way to see what the end result will be.

T. V. Learson.
Attachment No. 10

Plaintiffs Exhibit 391A-083

June 25, 1971.

Present : Mr. T. V. Learson, Mr. F. T. Gary, and Mr. S. L. Reed.

I. 1 :30 SIGNIFICANT ITEMS

A. Systems 370 pricing adjustment proposal discussed prior to presentation
by DP Group. FTC concerned about sequence and timing of events in World
Trade. Might not make good business sense to independently implement a fixed
term lease followed shortly with the price adjustments. Open and Rizzo called
in to discuss the financial impact of the WTC fixed lease plan. No decisions
made pending review of final recommendation.

II. 1 :50 370 PEICE ADJUSTMENTS

J. R. Open, P. J. Rizzo, N. deB. Katzenbach, G. B. Beitzel, T. C. Papers, Jr.,
B. Goldberg, G. E. Jones, F. J. Cummiskey.

DP Group requests MRC review of their preliminary conclusions and approval
of the general direction of their work on the pricing of CPU and Memory com-
ponents of current and future systems.

Increased price performance of CPU/Memory combination is key to main-
taining revenue. Growth of technology will result in the combination of the
two functions into one box. FET memory is solution to lower costs and pack-
aging problems.
Interim exposure to competition with present price performance.
Adjusting present CPU/Memory price relationships recommended as best
solution among options considered. Recommendation is to reduce price of
memory in direction of ultimate FET slope and increase CPU prices
accordingly.

Proposed plan would result in rental increases ranging from 25% to 50%
for System 370 memories and CPU increases in the 20% to 25% range.
Purchase multipliers would remain the same as present and purchase
prices would be adjusted accordingly.

WTC (Cummiskey), on balance, sees minimum problems with approach.
Slight exposure to triggering price control board investigations but prob-
lems are manageable.
During the presentation MRC discussions and questions centered around the
following :

Alternative ways to accomplish objectives. A fixed term lease approach

for memory and CPU's was discussed in detail. It was Group's judgment

that this would prematurely erode the FTP concept to the entire product

line and, in addition, would be ineffective unless accompanied by some

degree of price action.

Problems with separating System 360 actions from System 370 actions. Group's

final recommendations on System 360 and System 3 pricing actions were not

completed yet but there appeared to be no problems in separating System 360

from System 370. Group will include this analysis in their final plan.

Strategy to encourage purchase of memories. TVL commented that since
memories are subject to fast technology changes, it needed to be a purchase
business. A variation to the proposed plan to encourage more purchase (i.e.
same recommended purchase reduction for memories but don't reduce rental
as much) was discussed. Group's initial judgment was negative they will inves-
tigate more thoroughly.

Concept of memory price slopes. FTC discussed his concern over the divergency
of proposed price slopes between 021, M9, and FET memories. Feels FET memory



5117

must be lower. Also feels strongly that we must get away from the concept of
slope pricing on memory inside combined CPU/memory box. Over time, as
costs become less, we should offer less memo size options and larger increments.
Proposes that it might make good business sense to tart in this direction by
increasing the minimum entry memory size on all models of the 370 System.
Group agrees to examine this in their analysis.

Exposure to competitive CPU's. Group was asked to assess the exposure to
competitive CPU's caused by the proposed GPU price increases. Their judgment
was that a competent, well financed, competitor could get to the marketplace
within 12 to 24 months.

Marketplace problem. Group was asked to include in their final recommenda-
tion an assessment of any marketplace phenomena such as GSA exposure, the
effect on recent purchase customers, announcement timing, etc., that could affect
the decision.

The session ended with Group being authorized to continue work in the same
general direction, with emphasis on developing a unified total strategy and a
more exhaustive analysis of options. They were asked to return as soon as pos-
sible with their" recommendations.

in. 3 :50 P.M. — WTO FIXED TERM LEASE

J. R. Opel, P. J. Rizzo, X. deB. Katzenbach, G. E. Jones, F. J. Cummiskey,
K. Cassani, N. L. McElhatten and R. H. Fentriss.

World Trade requests MRC approval to announce a fixed term lease plan in
major countries on July 6, 1971.

Recommended plan is same as announced domestic plan relative to terms,
discount percent, renewal and termination.

Plan differs fi'om the domestic contract on protection against price changes.
World Trade would offer price protection for 12 months only, even on 24
month contract, to provide flexibility in responding to inflation/revaluatiop
problems.

Would offer same products as domestic.

Announcement timing for small countries (Latin America, SE Asia, Africa,
Middle East, etc.) would be deferred for 60-90 days pending evaluation of
soft currency problems, contract preparation and time for training.

Country uplifts on 2314 would be adjusted downward from 4-6% depend-
ing on present level.
MRC discussion and concern centered on the following items :

Price protection

Contractual and marketing mechanics of price increases to customers operating
under a 24-month fixed term lease agreement were discussed at length. All
concluded that problems were manageable and flexibility was necessary.

Products offered under fixed term lease

FTC asks that reasons for offering exactly same products as domestic be
examined closely. Not necessary for action to be automatic. World Trade (Cum-
miskey) defends on basis that rationale for including same products holds in
major countries for same reasons as domestic. Excluding printers looked at most
seriously, but rejected.

Timing

FTC questions urgently to move so soon in light of a possible opportunity to
combine this action with probable System 370 pricing changes. WTC (Jones)
defends on basis that expectation of announcement in marketplace causing deci-



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 28 of 140)