NEWS ANALYSIS : It's No Glitch: Computer Buyers Downshift to Smaller Programs

By CARLA LAZZARESCHI

March 22, 1991 12 AM PT

TIMES STAFF WRITER

International Business Machines says the weak global economy has shriveled demand for computers and flattened business. A day later, Apple Computer says sales of its newest personal computers are as strong as ever and announces the purchase of a sprawling new manufacturing plant in Colorado.

Meanwhile, Unisys, Wang Laboratories and Digital Equipment continue to retrench in the face of slowing sales, while Microsoft, Intel and Sun Microsystems report strong business.

What gives? Is the overall computer market as weak and faltering as IBM claimed this week when it stunned financial markets with projections that its first-quarter earnings would be half their expectations?

No. Although the computer business has been stung during the past nine months by the double whammy of the recession and the Gulf War, many analysts and economists say the woes of the nation’s largest computer companies have not been caused by external factors out of their control.

Instead, experts say, the recession is spotlighting anew the ongoing, fundamental shift in computer-buying preferences away from huge, expensive mainframe systems sold by IBM, DEC and other U.S. corporate stalwarts to the sleek, fast and relatively cheap desktop machines made by the likes of Sun and Apple and supported by Microsoft software and Intel microprocessors.

“I caution against believing any company that blames the economy for its problems,” said Bruce Lupatkin, a technology analyst at Hambrecht & Quist in San Francisco. “Technology products, not economics, dictate buying patterns. The real problem is that IBM, DEC and Unisys have a bunch of products that no one wants to buy.”

These buyer preferences, which have become more prevalent over the past five years, were somewhat masked by the booming economy of the late 1980s. But when times get tough, analysts say, the trend becomes even more clear as corporate computer shoppers are more inclined to buy less expensive--but increasingly powerful--desktop models.

And times are tough now. The Gartner Group, a Stamford, Conn., market research firm, forecasts a 2% increase in corporate spending for office computers in 1991, the lowest rate in the eight years Gartner has taken the survey.

“We feel our problems are driven 100% by economic problems that are out of our control,” an IBM spokesman said this week after announcing that first-quarter earnings will slump and sales will probably not exceed the $14.2 billion posted in the first quarter of 1990. “It’s not our product cycle.”

Although many analysts disagree and say IBM’s product cycle is a factor in its slump, they say the depth and persistence of the downturn does signal potentially serious problems ahead for some U.S. high-technology companies.

According to Michael Borrus, an international economist at UC Berkeley, the largest and most important U.S. computer companies--IBM, DEC and Unisys--make big, expensive systems. Not only are these the slowest-growing computer markets in the best of economic times, they are the markets most affected by a recession.

Further, Borrus expects the recession to hasten the “shakeout of the computer dinosaurs” and to possibly bring the demise or further shriveling of Unisys, Data General, Prime Computer and Wang, all companies that had been staggering even before the recession began.

Unisys, which has lost more than $1 billion in the past two years, disputes such conclusions. A company spokesman said Unisys is suffering because it took on tremendous debt to finance the merger in 1987 of Sperry and Burroughs (which formed Unisys) and will rebound in the second half of 1991 when the economy is expected to pick up steam.

SLUMP IN LARGE COMPUTERS

Projected U.S. sales growth in 1991

* Mainframes, minicomputers: 1%

* Personal computers, work stations: 7%

* Software, all types: 8%

* Services (including maintenance, consulting, servicing): 10%

Source: International Data Corp.

The Computer Market at a Glance

Preliminary forecast for worldwide computer industry sales, 1991

Factory revenue in billions of dollars.

* Supercomputers: $1.94

* Mainframes: 31.85