Wang Could Get $100 Million in Deal With IBM : Technology: The computer giant will sell hardware to its former rival’s customers. The word-processing pioneer will focus on software.
International Business Machines and Wang Laboratories on Tuesday unveiled a stunning and creative business alliance that could save Wang from extinction and give IBM a much needed boost in computer sales.
The deal calls for IBM to invest up to $100 million in Wang’s faltering business in exchange for Wang’s agreeing to resell under its own name a wide range of IBM computers to Wang’s huge customer base.
As a result of the alliance, Wang will gradually curtail its own computer manufacturing operations, a move that will probably result in plant closings, an undetermined number of layoffs among its 17,000-member work force and significant restructuring charges later in the year.
The surprising agreement received mixed reviews from analysts.
Some said the deal would give Lowell, Mass.-based Wang the cash and support it needs to stay alive and Armonk, N.Y.-based IBM additional market presence, particularly in office systems, where Wang made its name with popular word processing systems.
Other analysts cautioned that it offers no guarantee that Wang--which pioneered the electronic word processing revolution in the 1970s but failed to cash in on its evolution into personal computing--will survive its current deep troubles. In fact, they note, IBM could steal Wang’s customer base, taking away its last remaining business.
Further, some questioned whether IBM, the world’s largest computer manufacturer, is really interested in aligning itself with a stumbling computer maker to gain additional market presence. They speculated that IBM is probably more interested in winning access to Wang’s widely acknowledged advanced optical and imaging technology, some of which will be built into future IBM computers under terms of the deal.
IBM Senior Vice President Terry Lautenbach said the deal should be a “substantial revenue contributor” to IBM. He stressed that Big Blue has no grand designs on Wang. “This is not a merger, takeover or buyout,” he said at a New York news conference.
Wang was the most actively traded issue Tuesday on the American Stock Exchange. It closed at $4.375 per share, up 50 cents. IBM was the fifth most actively traded stock on the New York Stock Exchange, closing at $100.875 per share, up $1.375.
The deal highlights several important trends shaping the computer industry.
On one level, it underscores the growing acknowledgement that computer hardware is becoming only the delivery mechanism for interesting and innovative software. Wang, in essence, is getting out of the hardware business and will focus on developing and selling its office software and computer image-processing products, which will run on IBM computers.
“This is the first of what I’d call a mainstream commercial computer manufacturer that’s said, ‘We give up. We’re going to focus on software,’ ” said Frank Gens, an analyst with Technology Investment Strategies Corp., a research firm.
The deal also demonstrates the increasing importance of computer operating system standards that allow software to run on a myriad of machines and the large role IBM continues to play in setting those standards.
“When you get a business to sell your product, you can make it a standard,” said Barry Bosak, a technology analyst at the Smith Barney, Harris Upham brokerage in New York.
The agreement also shows an increasing tendency among once-rival manufacturers to strike alliances for their mutual benefit. IBM last week acknowledged that it is negotiating with Apple Computer, once its bitter competitor in the personal computer market, over a possible technology-sharing alliance involving IBM computer chips and Apple’s innovative software.
IBM has made it clear that it expects to strike numerous business alliances and technology swaps with manufacturers in an attempt to stay on top of the swift-moving currents in electronics.
Under terms of the latest deal, IBM will initially invest $25 million in Wang and will receive debt securities transferable into 3% to 4% of Wang’s common stock. Additional investments, up to a total of $100 million, could be made during the next 2 1/2 years, depending on Wang’s performance in selling IBM computers, IBM said.
The IBM computers covered by the deal include its most popular products: the PS/2 line of personal computers, the RS6000 technical workstation and the AS400 family of minicomputers.
Wang Financial Data Billions of dollars, year ended June 30 1986 Revenue: 2.6 Profit/Loss: .05 ’87 Revenue: 2.8 Profit/Loss: -.07 ’88 Revenue: 3.0 Profit/Loss: .09 ’89 Revenue: 2.9 Profit/Loss: -.42 ’90 Revenue: 2.5 Profit/Loss: -.72
