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 29 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 29 of 140)
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sions to be delayed and customer confusion. Affects competition as well as us.
Jones convinced action must he immediate.

Session concluded with MRC giving approval for World Trade to proceed with
implementation of the plan as presented.

IV. 4 :25 PERSONNEIi EECXJMMENDATIONS

W. E. Burdick, W. R. Liebtag, H. P. Kneen, R. W. Hubner, J. R. Opel, E Buhl,

S. Blasgen.

A. Personnel makes information presentation on possible design of a special
one time "retirement" plan which could be used to help alleviate excess man-
power problems.



5118

Employee who voluntarily leaves (resigns or retires) may receive special
payment, based on salary amount up to $30,000 a year. Would be paid at
rate of 75% of salary for first six months, then 50% of salary until the earlier
of 1) attaining age 65, or 2) receiving a predetermined maximum total pay-
ment. Maximum would range from 24 mouths pay for employees with 25
years service down to 9 months pay for employees with 10 years service.

Employees would be subject to "no comi)ete" clause during period of
payments.

Possible criteria for implementation could be all IBMers eligible for early
retirement of all IBMers with 25 or more years of service. Other selected
groups could be considered but must be clearly identifiable with skill and/or
geography, and business problem must be clearly identifiable with group
selected.

Plan would be only available to employees for a 90 day period at which
time offer would end.

If plan were adopted for 25 years service and over. Personnel estimates
a yield of approximately 1400 people. Estimated savings during first year
would be approximately $3 million. Over four years approximately $39
million.
MRO discussion centered on examination of various criteria for eligibility and
associated yields. Decision made to restrict the plan to 25 years service and over
at the present time but work should continue on how to extend plan to specific
skill/location groups on a selected basis should circumstances become necessary
Personnel was asked to initiate appropriate staff work to prepare plan for an-
nouncement and return as soon as possible with final recommendation.

B. Personnel reports back to MRC with their recommendations on changing
separation allowances as an inducement to encourage attrition. (Buhl, Blasgen,
leave — ^others remain).

Personnel recommends no change at the present time on the basis that both
internal and external conditions are bad for this kind of action. Plan also has
minimum flexibility to address right segment of employees.

Current study is under way to adjust our separation allowance to be more
in line with industry practices. This will continue and Personnel will return with
final recommendations.

MRO accepted recommendations as presented.

O. Personnel presents their recommendations on plan to require all deferred
vacations to be taken in order to alleviate manpower overages.

At present, weeks in excess of two may be deferred up to a maximum of eight.
Concern is lack of company control over current deferrable vacation and cumula-
tive vacation deferred to date.

Present plan does allow flexibility in adapting to business conditions (i.e. in
in 1966 encouraged deferral, in 1971 encourage use). It also permits extended
vacations like steel without attendant costs.

Recommendation is to defer timing of any actions until 4th quarter 1971. By
that time we will have a better assessment of voluntary use of 1971 vacation
already being encouraged, and a closer look at the business needs. Also woiild be
better from stockholder relations standpoint and would provide adequate em-
ployee notice.

Plan would require taking of full 1972 vacation. We would also encourage
further use of "bank" in 1972 and reemphasize business needs in "About Your
Company" booklet.

MRC discussion centered on history of vacation deferral plan and flexibility of
present set-up. FTC expresses concern that our present plan for low service em-
ployees too lush. Personnel given approval to proceed with recommendations as
presented but to give additional consideration to changing options available to
low service employees. They should return for MRC approval prior to taking
final action.



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5120

Attachment No. 12
Minutes of the Management Review Committee

plaintiff's exhibit 387-021

April 23, 1971.

Present: Mr. T. J. Watson, Jr., Mr. T. V. Learson, Mr. F. T. Gary, and Miss
Jane P. Cahill.

I. 2 :oo significant items

A. WTC executive resources — FTC discusses organizational and mission
clianges required if organizing by systems definition. FTC also to think about
staflSng in the business practices area.

B. TJW, Jr. wants : Might also do same thing in financial area with Rizzo.

n. 2 :50 DP marketing, product pricing and policy recommendation — G. B.

BEITZEL, p. J. RIZZO, J. R. OPEL, T. C. PAPERS, JR., S. L. REBH)

1. Additional use recommendation — all 370 CPU's at 10%.

2. Reduce all other 370 outboard types from 10 to 2%.

3. Hold 360 at 10%.

4. Reduce 1400/7000 types used on 370 from 30% to 10%.

TJW, Jr. wants clear understanding that company swallow whatever financial
pills required now and get ready for the future. We can't have ourselves mesmer-
ized by the balance sheet— irrespective of financial considerations of one or two
years— must return this business to a growth posture and operate accordingly.

A. Discussion on additional use charges continued. Currently we service all
of our rental machines. A night per call charge over time could certainly effect
prime shift control. TJW, Jr. again stressed need to make the hard decisions
today so that some problems don't have to be faced again and again down the

road.

Attachment No. 13

Plaintiff's Exhibit 67

TASK force to REVIEW OEM PC FILE SUPPLIERS

Objective : Improve accuracy of OEM file projection — installed inventory '7(>-'73.

Task Force Members : R. R. Nern SDD. Chairman ; T. C. Cooper. DPD Fore-
casting, H. M. Silveira, OPG Adv. Prog., G. J. Fassig, DPG Fin., D. R.
Hunter DPO, K. J. Gaffney DPD Forecasting.

DEM Suppliers to be Reviewed: Memorex, Telex-ISS, Century, COC, Potter.

Target Completion Date : October 30, 1970.

AREAS TO BE REVIEWED

7. Analysis of OEM 231Jf Orders/Installations to Date

A. Installations by — Branch OflBce

Customer 7 Digit Account Number

CPU Model

Number of CPU's in Installation

OEH 2314 On Leased CPUs On Customer Purchased CPUs

By OEM Supplier

Other IBM 2314's Exposed

In Account : CU, Drives

Total Points

B. Correlation of 370-3330 Orders With OEM 2314 Installation.

C. Analysis of OEM 2314 Backlog as Reported to Comstat —

By OEM Suppliers
By Branch OflBce
By Customer
*******

B. Announcement of PC 3330 Equivalent.

1. Estimated Announcement Date.

2. Estimated FCS Date.

C. Announcement of PC 2314 Enhancements.



5121

V. FINANCIAL

A. Cash Flow.

1. OEM PC Suppliers Arrangements with Finance Companies.
(a) Finance Co. Agreements —

Finance Company

S Commitment

Obligation to Remarket (Product Life Required)

Expiration of Agreement

% of PC Suppliers Production
( & ) Effect of 2314 Price Changes
(c) Effect of OEM PC 3330 Announcement on Suppliers—

2314 Life

2314 Production

B. Estimate of 2314 Product Cost.

1. 2314 CU.

2. 2314 Drive.

3. 2319 Equivalent.

C. OEM Profit. How Low Can OEM PC Supplier Go on 2314 Prices

D. 3330— Estimated 3330 Prices :
1st Year.

2nd Year.
3rd Year.

Attachment No. 14

Plaintiff's Exhibit 323

1mb confidential,

June 1, 1971.
Memorandum to : Mr. T. C. Papes.

Subject : Fixed Term Plan : MRC Presentations — May 20 & May 25, 1971.
Attached are the charts we used for the two subject presentations.
I am putting together a package of backup and prior MRC presentations
which led up to our decisions on the Long Term Plan.

J. G. POWEBS.

But, PCM Corporate Revenues Lower :
— No funds for mfg., eng.
— Dying company !

Renewal Follow-on

P. cost - - - -

Eng

Mktg... - -

Svc... - - - -

G. &A

Profit. -

Rev./prlce 55 90

Follow-on gets

— ^More revenue -f profit $ for company
— Mfg, Eng funded
— Growing, profitable company
Conclude : Don't go for renewal if you can sell follow-on — limited selling old
line to new customers.

(Attachment No. 15)

Plaintiff's Exhibit 396-037

June 18, 1970

Present : Mr. W. C. Hume, Mr. G. E. Jones, and Dr. D. R. McKay.

I. significant items

1. Opel reported briefly on the Leviu-Townsend situation.

2. McKay and Phypers reported on the content of the Poughkeepsie meeting as
it applied to the management of the SE resource.






18





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5122

3. Jones reported his conversation with Opel on Data Processing Systems
with specific concern for CMIS and tlie fact that the presently planned scope
and expense was not necessary. It was agreed that this would be addressed
later in the presentation.

4. McKay reported on plans to cover NS-ASCII with the Bureau of Standards
stating that they were satisfactory. It was agreed that this should be covered
wih Dr. Grosch as well.

5. Hume reported on his audit of Sales Schools at TVL's request. He stated
that the curriculum and the quality of the instructors was very good. He fur-
ther stated that morale among the students was not as high as it should be be-
cause many of them were somewhat reluctant transfers from SE. He further
stated that recruiting of instructors was becoming more diflScult because of
the moves involved and the relative drop in prestige of the position.

n. ECONOMIC OUTIOOK

Knaplund, Grove, Karchere, and Wills entered. Karchere stated the outlook
keyed Federal revenues and assumed continued moderate increase in state and
local taxes no Federal Income Tax increase with the exception of Social Security.

He reviewed Government spending over the period 1959 and projected through
1979, a percentage of GNP and predicted that whereas defense spending would
level off, expenditures for other purposes would continue to rise. He stated that
the only basic changes since the last outlook were that unemployment rates
and wage increase estimates for 1971 had been increased. He stated that he felt
that the Administration game plan was sound and illustrated this by the history
of relationships between unemployment, cost of living, and price increases
stating natural forces on the economy would bring current imbalances into better
line over the next 18 months.

Attachment No. 16

Plaintiff's Exhibit 387-090

(MC Minutes of 6/6/72)

Hf Hf * * * * :jc

Truex then presented the 725 marketing plan for WTC. He reviewed the
marketing approach, several case studies, the announcement implementation
plan, and key marketing strategies which were similar to Domestic.

Since this was an informational presentation, no decisions were requested
or made by the MC.

12:35 P.M. Morning Session Adjourned

IV. 2 :05 P.M. FSD GOALS

Attending: J. B. Jackson, G. B. Beitzel, W. C. Bentson; D. G. Thoroman, A.
Katz, H. L. Kavetas.

The purpose of this session was to present for MC approval the FSD 1972
Goals Plan for the 1972-76 strategic period.

As background, Jackson reviewed an assessment of the international and do-
mestic problems along with contemplated U.S. Government responses and national
security expenditures as a percent of GNP. Security expenditures were projected
to continue to decrease to somewhere between 3% and 6% of GNP by 1976, with
the key dependency relating to the outcome of the 1972 national election. Key in-
ternational problems were described the Viet Nam war entering a new phase,
unstability of the Middle East, groAving SS-9 missile and Soviet naval threats,
and success of strategic arms limitation talks. Anticipated U.S. responses in-
cluded building limit ABM capabilities, building new sea-based missile systems,
modernization of the U.S. Navy, continued purchase of new tactical aircraft, and
continue low key space program with emphasis on international programs and
domestic benefits. Domestic problems included expanding systems requirements for
postal service and air traffic control, increased emphasis on general welfare and
law enforcement, environmental control, and urban traffic control. Attendant re-
sponses included new enabling legislation, massive new funding, and increasing
responsibility of state/local levels for general welfare.



5123

Jackson then presented the FSD 1972-77 Goals Plan in terms of sales, sales
by business area, main thrust programs (airborne warning and control systems,
advanced bomber, hardsite, undersea launched missile system, shuttle, and ad-
vanced airborne command post), manpower, revenue, NEST, margin, and ROI.
(see attached charts for key elements) unfavorable to World Trade. First, a late
announcement on NS-O and secondly, the lack of funded plans for low end educa-
tion aids and programming techniques. He concluded by covering a number of
decisions which were felt to be uniquely favorable to World Trade. All agreed that
the system is working well in regard to worldwide development and that the lack
of escalation results from a sound system.

Attachment No. 17

Plaintiff's Exhibit 386-005

(MO minutes of 1-22-70)

* W: * * * * *

VI. The DP Group repre.sentatives and Phypers left and Witham entered to
cover Balance of Payments. Witham reviewed our favorable balance of payments
position as well as our present and future diflBculties in securing sufficient fund-
ing for overseas investment. AKW is calling on Secretary of Commerce, Stans, on
•January 27 to cover this matter as well as Eastern Bloc trade. His plan had been
to point out the very real difficulties that we face resulting shortly in adverse
effects on the U.S. balance of payments problem. The MC determined that our
case is irrefutable and that this results from our kind of business, i.e. rent and
is therefore not representative of American business as a whole. As a result the
MO will strongfily urge that Mr. Watson be accompanied by Mr. Witham on his
call and that his case be based totally on IBM. The MC exlpored other alternatives
such as discus.sions with Senator Javits. the CEA, etc.

In summary, all agreed that our position is absolutely right not only for IBM
but for the nation and that it was imperative that Washington clearly understand
this. The MO will reconvene on this matter following the call on the Secretary
of Commerce.

Meeting adjourned.

(Attachment No. 18)

Greyhound Computeb Coepokation, Inc., plaintiff-appellant

vs.

International Business Machines Corporation, defendant-appbxlee

plaintiff's exhibit 97

Please destroy
when finished
Strictly Confidential

September 21, 1967

Memorandum for : Mr. F. T. Cary, Mr. J. R. Opel, and Mr. D. M. Piccone
Subject : Purchase Considerations

Attached is a statement of Finance's view of the important considerations of
purchase.

Many questions are unanswered, but the basic points have great validity. I
thought these points would be helpful to you.

/s/ Ted

T. 0. Papes.
TCP : AM
Att.

Purchase Considerations

I. — Lease/Purchase — Effect on IBM

1. The higher the proportion of lease business, the more stable the company's
growth.



5124

2. There is a certain portion of the computer market that is "harti core"
purchase. It is in the company's best interest to compete for and achieve as
high a share of that hard core purchase market as competition will allow.

3. We believe that through "purchase emphasis" or "purchase de-emphasis"
marketing programs we have the capability to influence the level of purchase
somewhat either above or below a "natural level" ; however, the "natural vol-
ume", influenced by a number of factors, is subject to variations that consid-
erably exceed the extent to which we can influence the purchase level.

The principal factors influencing the "natural level of purchase" are:

a. Availability of financing

b. Interest rates

c. Relative position in the product life cycle

d. Market confidence, or lack thereof in succeeding equipment genera-
tion compatibility with the present generation of equipment.

e. Level of sophistication of the customer (excluding leasing company
purchases)

f. Tax provisions (i.e., investment tax credit)

g. Relationship of lease and purchase price

h. Market confidence in the hardware performance (high up time) and
accompanying software packages.

4. It is probable that increases in the purchase level have the effect of decreas-
ing the average rental life of the system being purchased.

5. In most instances, at the time of announcement, profitability of a purchase
unit exceeds the profiitability of a rental unit (at the average rental life) by
approximately 10 percentage points of profit. This is due to the relatively high
purchase multiplier used to establish the purchase price from what is basically
a rental pricing exercise.

A further differential can be derived from evaluating the relative "profit flow"
from a purchase transaction versus a lease transaction and considering those
profits to be re-invested at 6%. This differential represents approximately 5
percentage points of profit.

For each month that the lease unit exceeds the average rental life, that addi-
tional revenue stream represents approximately 2 percentage points of addi-
tional profit, on a total program basis, for that unit.

6. A predominant lease market places the greatest financial strain on the
competing equipment manufacturers. A significant unknown regarding the pur-
chase phenomena is the extent and ultimate fluidity of a used equipment market.
Taken to its theoretic maximum limits, a completely fluid used equipment market
would have the same effect on the "customer purchase" segment of the inventory
as is effected by the "leasing company" segment of the inventory.

7. The greater the level of outright purchase, the more control or more insu-
lated we are from influence by competition as to the rate of technological
change.

8. It is probable that a reasonable level of purchase early in a product program
has a stabilizing effect on the market reception of the new product.

9. Though the currently available statistics are inadequate for a complete
evaluation, it is probable that purchase customers grow more slowly than lease
customers. Some of the factors that make evaluation diflScult are as follows :

a. The growth pattern for purchase customers is not complete until the
potential for "fire sales" of upgrade boxes at the end of a product cycle
has had its effect.

b. The "CPU growth pattern" evaluation is too narrow. The statistics must
be developed to allow evaluation of the total account. These statistics rela-
tive to the total amount would also shed light on the question, and the proba-
bility, that the purchase customer would have had a smaller initial system
configuration had his decision been to lease.

10. It is probable that the lease customer requires a greater amount of sales
attention in order to protect the lease inventory. This point bears on relative
profitability.

11. The importance of varying levels of purchase on cash flow requirements is
a significant consideration.

II. — Leasing Companies — Effect on IBM

1. It is proTiable that the vast majority of the points purchased by leasing
companies will remain on rental for a period suflScient to represent a significant
loss of profits by IBM from a total program point of view. This is without regard



5125

to the relative profitability on the transaction actually earned by the leasing
companies The point here is that once installed the marginal cost of keeping the
equipment on rental is relatively low, which significantly reduces the potential
for price improvement at the installed performance level to the degree necessary
to win back the business. . i. .^.r,

2 In many instances price, policy or product strategies to compete with an
acceleration 'of the leasing company trust are either excessively detrimental to
our main stream rental business profitability, or are counter to what represent
meaningful strategies to meet the competition of the other equipment manu-
facturers. The greatest risk faced by the many new systems leasing companies
is that of allowing their uninstalled inventory to increase beyond a minimal
level. In most cases an uninstalled inventory level of 10%-15% can wipe out any
book profitability.

3. The overall effect of leasing companies on the computer market will be
to deter technological change and eventually erode the overall profitability levels
of the equipment manufacturers.

plaintiff's exhibit 99

June 23, 1969

2B Harrison

30-613

Declining Purchase Price

Mr. F. T. Gary

Frank, the subject of declining purchase price has at various times been
reviewed. From these reviews, it has been concluded that although it does make
economic sense, an average purchase price is a more advantageous approach to
doing business for the following reasons :

1. The potential negative impact on leasing companies through a devalua-
tion of their inventory.

2. The potential loss of revenue and profit to IBM, caused by lower pur-
chase quantity in the early years of the program, and resistance to increase
original price to level needed to offset subsequent declines.

3. Pressure to decrease lease price over time.

Should you care to discuss any of these points in more detail, I will be happy
to review them with you.

T. C. Papes.
TCP/crp

plaintiff's exhibit 111.

IBM Confidential — Not To Be Reproduced.

January 17, 1968
Memorandum to : Mrs. F. T. Gary, Mr. G. B. Beitzel.
Subject : Financial State of the Union

This report is the last one covering 1967, and I will try to give you our best
viewpoint of the business as .seen at this time.

]967

On balance, last year was a very good business year. Gertainly profits were
good, growth was satisfactory, costs were in sound condition, expenses were
reasonably well managed after a rough start in FED, reliability and service-
ability factors were improved, manufacturing schedules were properly adjusted
to the rate of market acceptance, manufacturing inventories were reduced and
brought under better control, and our accounts receivable position improved,
except for the uncontrollable .situation with GSA. On the negative side of the
ledger there clearly was too high a level of outright sale, we did not install
enough systems, we did not sell enough new accounts, our service time and costs
are still too high, our field administration problems are still with us, and we
lost the Air Force order. So much for history.

1968

This year we face many new challenges requiring creative, flexible management
response. We should not see a major issue or problem develop in the adequacy
of our annual growth and profit performance. However, we are facing a severe
quarter-to-quarter performance problem which could become acute in terms
of public understanding. It is rea.sonably clear that we will have a very sharp
increase in the first quarter of 1968 as compared to the first quarter last year.
By the fourth quarter of 1968 our plan would have us showing an absolute



9126

decline versus the fourth quarter of 1967. This is entirely due to the dynamics
of equipment sale in which we are facing the possibility of another overrun
this year. Regardless of the development of an overrun, we will have the quarter-
to-quarter problem. This is because our 1967 first quarter had a modest equip-
ment sale, our 1967 fourth quarter had a tremendous sale, we exiject similarly
to have a continued high level in the first quarter of 1968, and we expect it will
have tapered ofE by the end of the year giving us the decline problem at that
time.

The major clouds on the horizon for this year are the continued erosion of
our rental inventory, softness in the backlog, pressure for higher product devel-
opment expense money, the rapid growth of Information Systems throughout



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 29 of 140)