IBM Loses Out to Zenith on IRS Contract : May Mean Firm Won’t Enter Lap-Top Market

International Business Machines this week lost out on a chance to inject some vitality into a listless segment of the computer industry when the Internal Revenue Service unexpectedly awarded a $27-million contract for portable computers to Zenith Electronics.

IBM had been favored to win the contract. Instead, Zenith said Tuesday that its Zenith Data Systems subsidiary was given the job to supply 15,000 to 18,000 lap-top machines to the IRS over the next 18 months. Zenith will also provide software and maintenance services for the Z-171 computers through 1995.

IBM does not now sell a lap-top computer, and the company won’t discuss its development plans. Analysts said that, without the IRS contract, the computer industry leader probably will not introduce one in the near future. IBM’s anticipated presence was expected to reinvigorate the sluggish lap-top market, and now analysts are heading back to readjust--downward--projections for growth in that segment.

However, Zenith is counting on an upturn in sales. Robert Dilworth, president of Zenith Data Systems, told reporters Wednesday that the IRS order will spark a round of sales to Fortune 1000 companies and other government agencies.


Weighs 14 Pounds

The Z-171 is a high-end “true portable"--meaning it is easily carried, compared to some machines that are sold as portables but can barely be lugged by a healthy adult. It weighs 14 pounds but, said one analyst, “you wouldn’t be comfortable using (Zenith’s machine) for long on your lap.”

Zenith’s is not truly a new computer. It is a modified version of a computer originally shown in mid-1983 by its Silicon Valley designer Vadem, according to analysts. Other versions of the machine have been sold by Morrow and Osborne, two companies that market “luggable” portables.

Zenith introduced its modified version late last year. “It’s been out there awhile and has not created a great deal of excitement,” said analyst Peter Tiege of Dataquest, a San Jose market research firm.

Anticipation of an IBM-IRS contract had been building since last fall and peaked last month in the trade press. The personal computer industry was generally dull last year, when sales failed to keep pace with the giddy growth rates of previous years. Something was needed to energize the market--as IBM’s entry in the personal computer market did in 1983--and some had hoped that the lap-tops would be at least a spark.

Sales Prediction

Dataquest had predicted that worldwide sales of lightweight portables would double this year to almost 800,000 units. But that, said Tiege, was premised on the effect of a product announcement from IBM early in the year.

IBM’s entry into a segment of the market has tended to legitimize that area--no matter how many other manufacturers previously had been active. Hewlett-Packard led the high-end portables market last year, according to Dataquest, selling about 34,000; Data General sold about 24,000 of its portables.


Stephen Cohen, analyst with the Gartner Group securities firm based in Stamford, Conn., said IBM most likely will now wait to enter the market. “It’s a relatively small size today, and IBM might be more interested in (the market) when advances are made in the screen technology and the prices have come down a bit.”

The IRS said Zenith’s computers will be used by its field auditors during on-site tax audits. The IRS was supplied several of the Z-171 models during the contract review period, a Zenith spokesman said.