More Players, More Promise in Computers

If you can see the world in a grain of sand, as the poet William Blake put it, you can see the potential good and bad of today’s rapid industrial change in the troubles of Data General Corp.

Data General is a medium-sized computer company--with annual sales of $1.3 billion--that attracted prominence early in the 1980s as the subject of “The Soul of a New Machine,” a book that told how its engineers strove to bring out a computer mightier and cheaper than that of rival Digital Equipment Corp. It was a story of how human beings work, more than of the technology they worked on, and it was a story of success.

Thanks to sales of that “new machine”--the Eclipse minicomputer system--Data General earned net profit of $40 million on sales of $737 million in 1981, when “Soul” was published. Data General stock rose to $76 a share in 1985.

But recent years have not been kind. Last week, Westboro, Mass.-based Data General announced the layoffs of 2,000 employees from a work force of 11,700. It is losing money and struggling to adapt to a changing industry, one in which many customers now buy computers in the same way that they buy stereos: a speaker from one company, a turntable from another. Data General stock closed Tuesday at $6.25 a share.

How did the company falter? It failed to react soon enough to changes in customer attitudes and computer technology. But it was not alone; Digital Equipment, Prime Computer, Wang Laboratories and even IBM underestimated the pace of change and competition in the industry.

And make no mistake, the underlying trends that affected Data General and the others will sooner or later affect your business and investments. “What’s happening (in information technology) will change everything from the VCR to the supercomputer,” says Charles Bosenberg, president of MIPS Computer Systems, a Sunnyvale, Calif., company founded by former Data General executives.

The computer industry is growing and multiplying, despite years of expert predictions that it would mature and consolidate into a few giant firms. There are now 630 computer-making companies, according to International Data Corp., a Framingham, Mass., research firm--more than three times the number in 1979, and more than 10 times the 55 computer companies in 1969.

But trying to pick a single computer winner is the wrong way to go, because the old idea that one company will supply all needs to all customers is fading.

The customers today--the manufacturers and construction companies, airlines and oil companies and aircraft builders--demand computers that are not only interconnectable but interchangeable, capable of running any and all programs. “Open systems” is the buzzword.

In one way, it is like the early days of the telephone business, when, for a time, each competing company restricted callers to its own network. Customers wouldn’t stand for it, and the national phone network was the inevitable result.

The consequences are profound. Customer demand militates against big companies doing it all. That’s why Data General is going beyond selling only its own equipment and is scrambling to offer a new line that uses a Motorola microprocessor and can run a wide variety of programs. Even Digital Equipment, a giant of the industry at $12 billion in sales, is having to move away from offering customers only its own operating system.

IBM, the richest and biggest company, has product offerings in all systems and, following another trend, is forming joint ventures with small companies.

Some see all this interchangeability as a threat to U.S. industry because it opens the market for Japanese competitors. But it also opens opportunities for U.S. companies. Motorola, for example, which supplies the crucial parts for Data General’s new system, is launching its own rival computer system.

What we have is a competitive free-for-all that forces innovation. “The likelihood is that one day soon even a supercomputer will be contained on a single microchip,” says Ronald Gruner, a former Data General executive who is president of Alliant Computer Systems. “That has to affect every computer maker’s planning.”

“This industry is so young that the personality and vision of the founder still counts,” says Paul Saffo, research fellow at the Institute for the Future, a Menlo Park think tank. “The passion of the inventor and the entrepreneur counts as much as the technology.”

And that’s enormously hopeful, because it says that the computer industry--even at age 50--still has a long way to go in developing. Which means that all other industry influenced by information technology is still in development, also.

So what of Data General? “Well, it’s a tough road, but the company has a clean balance sheet and can go on serving its minicomputer customers while trying to be successful in open systems,” says industry consultant Richard Shaffer of Technologic Partners.

In that respect, it may still get a helping hand from “The Soul of a New Machine.” “It’s a great recruiting tool,” says a company spokesman. “It tells young engineers that they can get working on major projects early in their careers.”

That human ingenuity is still a prized and critical factor may be the most hopeful prospect of all.