IBM Unveils Newest Line of Mainframe Computers
Industry giant IBM unveiled its newest generation of mainframe computers Tuesday, but the machines won’t be available as soon as some observers had expected and the initial price quotations were higher than forecast.
For those reasons, industry observers predicted that International Business Machines Corp.’s competitors in the big-computer business will be able to respond with comparable machines and escape major market damage.
“I don’t think you’ll see much change in market share as a result of this announcement,” said William Easterbrook, a computer analyst based in San Francisco for Kidder, Peabody & Co. “I think it’s very ho-hum and anticlimactic after all the media hype of the last year.”
Investors seemed to express some skepticism. The computer giant’s stock, which had finished off $3.75 on Monday after two brokerage houses lowered their earnings forecasts for the company this quarter, closed down an additional $1.75 at $131.75 a share.
The announcement of IBM’s latest product, known in the trade as Sierra, had been anticipated for months by Wall Street and competitors. IBM has captured about three-fourths of the market for mainframe computers, which are large, powerful machines used by corporations and other big institutions. Mainframes are said to account for 25% to 35% of IBM’s revenues.
The first and less powerful model of the new 3090 series, called the 200, won’t be shipped until November. The 200, capable of carrying out about 29 million instructions per second, isn’t significantly different from IBM’s current most powerful computer, and analysts said competitors will be able to match it.
IBM said the first shipment of the second and more powerful model, the 400, is more than two years away--sometime in the second quarter of 1987. That machine will perform about 50 million instructions per second, a level of power that would make it unique today but not necessarily two years from now.
The 200 system will cost $5 million to $6.1 million. Customers can only get the more powerful 400 system, for an additional $4.3 million, by upgrading their 200.
Some analysts had expected the new machines, with their higher computing power, to represent, in effect, a 40% price cut. Instead, analysts estimated the effective price cut at 15% to 20%.
“I was concerned about what real dramatic price cuts would do to (IBM’s) bottom line,” said analyst George D. Elling of Oppenheimer & Co. in New York. “I was quite pleased with the pricing.”
The unexpectedly long delay in introducing the 400 model is good news for makers of so-called plug-compatible mainframes that can work alongside IBM equipment. Those makers, such as Amdahl Corp. and Fujitsu Ltd., will be able to keep pace, both because of the delay and the fact that IBM’s new machines won’t pose any software problems for their equipment, analysts said.
Break for Competitors
The two-year delay on the 400 model also affords breathing room for such major producers of mainframes as Sperry Corp., Honeywell Inc. and Burroughs Corp. As for IBM’s 200, analyst Easterbrook said, “most of them already have processors equal to it.”
Meanwhile, to forestall an interim sales collapse of the 308X mainframes that eventually will be supplanted by the new machines, IBM said it is cutting prices by 5% on selected models, by up to 12.5% on monthly maintenance fees and by 30% on the charge to upgrade a 308X system.
Those price cuts, and an expected falloff in sales to customers awaiting the new machines, have prompted analysts to modestly reduce their first-quarter earnings estimates for IBM. The company acknowledged Tuesday that the outlook is for flat first-quarter earnings, putting profits in the range of the $1.2 billion, or $1.97 per share, posted in the year-ago quarter.
