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Essay Subject: Examines industry structure, products & services, competition, pricing, profits, trade barriers, research, focusing on IBM's strategy. Table.... More...

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Paper Abstract: Examines industry structure, products & services, competition, pricing, profits, trade barriers, research, focusing on IBM's strategy. Table. Paper Introduction: EXECUTIVE SUMMARY Computing is a diversified industry that includes sectors devoted to computer hardware, software, maintenance, and services. The computer industry is a multibillion dollar market whose products are sold globally. Despite the global characteristics of its marketplace, the vast majority of major computer industry vendors are American firms. Certain segments of the computer industry are characterized by near monopolies. These include the disk operating software and microprocessing sectors, dominated by Microsoft and Intel, respectively. Once the major force in the personal computer sector, IBM has been relegated to a fourth place position behind rivals Compaq, Apple, and Packard Bell. IBM is staking its corporate future on the provision of Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. In 1991, U.S.exports for computers and peripherals totalled $25.2 billion. The reason is Intel'sdominance of the market. 65). The applications software industry is also characterized by numerousvendors. For example,revenues from software, personal computers, and minicomputers are expectedto grow at rates of 9 percent, 13 percent, and 14 percent, respectively in1995. Microsoft and Intel exclude competition by collaborating on hardwareand operating system specifications protected by patents and copyrights.Intel patents features in its microprocessors and Microsoft implementsthese features in its operating systems. EVOLUTION OF COMPUTER INDUSTRY The computer industry has entered a period of turmoil known as the"third age." Computing's first age occurred in 1953, when the Type 65 Magnetic Drum Calculator was introduced by IBM. Many companies in thepersonal computer industry are attempting to benchmark Compaq's corporatestrategy by re-engineering their production processes, recruiting newmanagers, and reducing the prices of their products. IBM's ability to once again become a market force in the personalcomputer field will be dependent on its product development capabilities.Again, the company is focusing on the link between computers andtelecommunications. Piracy involves the unauthorized copying ofsoftware. Although IBM has re-focused its strategyto favor networked technologies, it believes that the personal computer isstill viable and will continue to be an important part of its core businessfor the near-term. Kirkpatrick, D. IBM has virtually admitted defeat in its battle to develop and marketa disk operating system to rival Microsoft's products. There are globalmarkets for capital, labor, and technology" (Gibson and Rogers, 1994, p.551).PART IV. The computer manufacturer's cost cutting strategies have nottranslated into substantially lower prices for consumers. However, the saleof computers for the home consumer market has already eclipsed that of thecorporate market. IBM's personal computer divisionis the company's biggest hardware unit and accounts for one-sixth of itsrevenues. Since Microsoft and Intel controlthe two key components of personal computer architecture, the two giantshave been successful in consolidating a large portion of the computerindustry. 1 priority"(Business Week, 1995, p. As a supplier of architecture to personal computer manufacturers,Intel has used its bargaining power, in conjunction with Microsoft, tovirtually put a lock on the computer industry. 144). For instance, most computers now come with built-in modems, CD-ROM drives, and stereo speakers. Sales of home computers are expected to rise 17 percent a year forthe next five years compared with 8 percent a year for the business market. Congress. Some argue that theeconomies of scale related to research and development create high barriersto entry. and Rogers, E. The battle for market dominance between giants Compaq Computer,Apple Computer, Packard Bell Electronics, and IBM has resulted in Compaqemerging the winner with almost 15 percent of market share in 1994.Lagging behind Compaq are Apple with slightly more than 1 percent ofmarket share, Packard Bell with slightly less than 1 percent of marketshare, and IBM with well under 1 percent share (Kirkpatrick, 1994, p.11 ). The followingtable shows major competitors in the computer industry: Rivalry in the Computer Industry DiskPersonal Operating Network Global Micro-Computers Software Applications Networking processorsCompaq, IBM, Microsoft, Oracle, IBM, AT&T, Intel,Packard Bell, Novell, Microsoft, MCI, EDS, AMD,Apple Apple, AT&T, IBM, British Cyrix, IBM, Sun Hewlett Telecom TI Micro- Packard systems Price cutting is one of the strategies employed by Compaq in itsrelentless rise to the top of the personal computer market. In addition, IBM's consultants andtechnicians possess the technical expertise to help its corporate customersgain access to networking resources and applications. Certain segments of the computer industry are characterized by nearmonopolies. In 1992, Compaq introduced a new line of personal computers thatwere one-third less expensive than the company's previous models. Although regaining market share is animportant objective for IBM, generating profits is the more immediate goal. IBM recentlyacquired Lotus Development Corp. In1989, 42 percent of Microsoft's revenues were generated by applicationssoftware; by 1994, that percentage had increased to 63 percent (Economist,1994, p. IBM's expertise in managing corporatepersonal computers and networks has resulted in a backlog of orders of $3 billion and the company is ranked second only to Electronic Data Systems(EDS) in providing computer management services. . Capital expenditures, material requirements, andtransportation costs are relatively minimal. Some rivals claim that IBM's own mindset is its worst enemy:"Competitors, naturally, say Big Blue will stay mired in the pre-networkpast" (Business Week, 1995, p. C6). One proof of this contention is the diversity of the rivalry inthe personal computer industry. In addition, Gerstner hascreated a new consumer division aimed at increasing IBM's presence in thehome computing market. Adobe Systems and Aldus, both publishers ofdesktop publishing software, recently merged. 69). AlthoughToshiba has held steady in the highly competitive environment of personalcomputers, its compatriot companies have not been as fortunate: "Japan'scomputer companies, such as Hitachi, Fujitsu and NEC, have been left behindas they have focused on their ailing mainframe and minicomputer businesses,and on developing ever-bigger memory chips" (Economist, 1994, p. For instance, designing a new computer operating system andestablishing the system in the market requires a multimillion dollarinvestment. 1 9). According to Moore's Law, the number of transistorsthat can be accommodated in a microchip doubles every 18 months. Although poised for the changes that the third wave ofcomputing will bring, many in the industry are reticent because it is notyet clear precisely what form those changes will take. Such companies find it impossible to compete with the majormanufacturers who, noted for their efficient manufacturing processes, canaccept lower profit margins by appealing to mass markets. 122). In addition, the financial resources available tostartup companies normally cannot sustain the need to continually upgradenew products to keep pace with the research and development efforts oflarger companies. Small companies that produceinnovative products with high consumer appeal are able to capture marketshare, even from software giants like Microsoft. Despite the international scope of the computermarketplace, the leading firms, particularly in the software, personalcomputer, and microprocessing sectors, are located in the United States. The third, and present, age of computers is driven by networktechnology that merges computers, phone lines, video, and television. In terms of quality and usage, the copy is virtuallyindistinguishable from the original. Barriers to entry in the software sector of the computer industry arealso considered low. The homecomputer market is vastly different from the business market because of thediversified needs of consumers. In 1994,about 5 million personal computers were sold worldwide--an estimated $74billion worth--compared to 35 million passenger cars and 1 million colortelevision sets sold (Economist, 1994, C4). IBM's market share collapsed from 1 percent during the early 198 s to below 1 percent by the mid 199 s. The computer software industry is the fastest growing major industryin the United States. These include the disk operating software and microprocessingsectors, dominated by Microsoft and Intel, respectively. Some analysts attribute the buying reluctanceof non-owners to rapidly changing standards in the computer industry.Consumers are fearful that if they make the investment on a computer itwill eventually become obsolete, necessitating further cash outlays toeither upgrade or replace. In theUnited States around 5 million computer users have e-mail addresses andworldwide between 15 million and 2 million users are hooked up to theInternet (Economist, 1994, p. It is IBM's personal computer division that hastarnished the company's reputation in the past. Labor andoverhead costs have been reduced by 75 percent, while revenues generatedper manufacturing employee have risen to $1.5 million (Economist, 1994, p.C6). Onceconfined to the narrow realm of the mainframe computer, computing nowencompasses a wide range of goods and services. 118).PART V. Consequently, IBMsoon found itself losing market share in what was to become an extremelyhigh-growth industry. EXECUTIVE SUMMARY Computing is a diversified industry that includes sectors devoted tocomputer hardware, software, maintenance, and services. Gordon Moore, co-founder ofIntel, coined a rule known as Moore's Law to explain the microprocessor'sevolutionary power. C1-C22. IBM's overall corporate vision is to create a network that itscorporate customers will use as an information and technology resource.Customers can either own the networking hardware and applications outrightor rent them: "In the wired future, says Gerstner, companies will be ableto buy computer power and applications software the way they buy electricservice" (Business Week, 1995, p. The onlytwo foreign firms were the Japanese companies NEC and Toshiba. vendors (U.S. At thattime, IBM forecast a global market for its host-based mainframes andstorage devices to be, at most, five machines. The Software Business Alliance estimates that American softwaremanufacturers are losing almost one-half of their global market to pirates(U.S. MCC was proposed as acooperative venture between teams of scientists and engineers engaged inresearch in the computer and semiconductor fields: "MCC was to leveragethe resources of its member companies to develop breakthroughs in advancedtechnology and development tools and to transfer these research advances tothe funding companies in a timely manner" (Gibson and Rogers, 1994, p. 148). Already personalcomputers are being manufactured that function as televisions, radios, faxmachines, answering machines, and CD players. With personal computers selling at around$1, , few consumers are willing to buy software priced at $5 .Consequently, most mass-market software packages now sell for under $15 .For example, Borland's spreadsheet software, priced at $495 in 1992, nowsells for $5 . U.S. Compaq's rivalshave been forced to follow suit by reducing their own prices. An estimated one-third of all homes in the United Stateshave personal computers; in homes with teenagers the percentage is one-half. Other experts contend that barriers to entry in the computer industryare low. Finished-goods inventory dropped 65 percent.Procurement and distribution costs fell 5 percent. Richard Thoman in charge of the personalcomputer division with a directive to revamp operations. A big part of the problemwas that IBM's product line failed to spark the imagination of the buyingpublic. An emerging trend inthe computer industry is the establishment of consortia to pool resourcesand realize economies of scale in R&D efforts. Although competition is rampant among American firms, the U.S.faces minimal threat from foreign competitors.PART II. International BusinessMachines (IBM) is a prime example of the computer industry's diversity.IBM's core business includes software, personal computers, maintenance,mainframe hardware, minicomputers, rental/finance, storage products, andprinters. The company's new efforts include services, componenttechnology, and workstations. C9). Towardthis end, IBM recently acquired Lotus Development Corp. Novell bought WordPerfectalong with Borland's Quattro Pro spreadsheet business. In an effort to increase the number of Notes users, IBM entered intoan agreement with 11 communications companies, among them British Telecom,CompuServe, AT&T, Deutsche Telekom, and Nippon Telegraph & Telephone toestablish the Notes Public Networks. 68-72. Among them isSEMATECH (SEmiconductor MAnufacturing TECHnology), an industry-governmentconsortium formed in 1987. Congress, 1993, p. Industry analysts believethat the big Japanese consumer companies will soon have no choice but toenter the personal computer market: "The Sonys and Matsushitas have tocome in, because the nature of the devices they sell is changing too.We're all heading toward the same room from different places" (Kirkpatrick,1994, p. 1 9-122. Shipments rose 22 percent worldwide and 37 percent inthe United States. Many computer manufacturers are hedging theirbets by entering into various alliances with telephone companies, cable-TVcompanies, and even Hollywood studios. Sopervasive and fast-paced is this third wave of computing that manymainstream computer manufacturers are finding it difficult to cope. The division, which had long been losing market share, generatedan estimated $1 billion operating loss in 1994. Congress, 1993, p. Although widely prevalent in the United States, this problem isparticularly serious in foreign markets. IBM is attempting to turn around its struggling personal computerbusiness. In thelatest round of cost cutting, Compaq slashed prices on its existingbusiness computers by 22 percent and IBM responded with cuts of up to 27percent (Kirkpatrick, 1994, p. Software system piracy iswidespread because of the relative ease of committing this crime. C5). JoiningCompaq, Apple, Packard Bell, and IBM are ambitious mid-sized firms such asAST Research, Dell Computer, Gateway 2 , and Acer Computer of Taiwan.The economies of scale that larger companies enjoy bars entry into themarket for smaller companies and puts intense pressure on less financiallystable upstarts. Since their formation, both MCC and SEMATECHhave become more open to foreign collaboration: "Businesses andgovernments are operating in an era where there are no nationaltechnologies, products, corporations, or industries. By the year 2 , 54 percent of all personal computers in use will be homecomputers (Economist, 1994, p. Towardthis end, IBM recently acquired Lotus Development Corporation and its $3 million-a-year business based on Notes, a network software popular amongthe business community. Sager, I. Several constraints exist for IBM to realize its vision of becoming adriving force in computer networking. (1995, October 3 ). The most serious constraint iscompetition. 1). IBMshould pursue strategic alliances with companies that are capable of makinginnovations in the home computer market. As one industry expert notes: "There are currently numerousproducers of personal computer hardware components who sell the componentsto the thousands of original equipment manufacturers who have turnedpersonal computer hardware into, essentially, a commodity business" (U.S.Congress, 1993, p. C5). Others believe that the television set will become themedium through which users interact with the information highway. Thisincrease in power brings a concomitant decrease in price. Competitors are restrictedfrom copying Intel's proprietary chip microcode. Lotus is thepublisher of Notes, a leading network software. C6). According to one industryanalyst: "[The Microsoft/Intel] hegemony has translated into the nearestthing to monopoly that the PC business has to offer" (Economist, 1994, p.C8). (1994, September 19). Since the founding of MCC, numerous research associations in avariety of different industries have been established. Networked computers will provide a means of instantcollaboration between customers, suppliers, and vendors. 1 3). As one computer executive observes,"unless it looks forward and finds new applications in communications andmultimedia, this industry will shrink like mad" (Economist, 1994, p. Washington: GPO.----------------------- 1 1 3rd Congress, 3rd session. These mergers are aimed at cuttingproduction costs and gaining economies of scale. and washed out"(Economist, 1994, p. Committee on the judiciary. 69). Compaqhas continued cutting the price on its computers by 2 percent to 3 percent since Pfeiffer assumed control of the company. A prime example isIntuit, a small California firm that produces the highly successful Quickenpersonal-finance software. One source of collaboration wouldbe Japanese electronic giants like Matsushita and Sony, who are poised toenter the personal computer market. Unless the new system offers significant improvement over theproducts of established vendors, customers will not incur the costsnecessary to switch. 34).PART III. In the first quarter of 1995, IBM manufactured a record 1.1million machines. IBM is decreasing manufacturing costsby cutting the number of different components used in its machines by anaverage of 5 percent. One of the threats of substitutes in the software industry comes fromthe existence of pirates. IBM already formed corporate alliancesacross national borders during the early 199 s when the company formed aconsortium with Japanese computermakers against computer giant NEC. In the sameyear, the world market for prepackaged software was $52.5 billion, 75percent of which was captured by U.S. Thoman claims that providingunique features such as these are critical to IBM's future success: "IfIntel and Microsoft have to carry all the innovation on their backs, itwill be hard to grow our business at the rate we think is possible"(Kirkpatrick, 1994, p. Another $3.4 billion was spent onsoftware. As one IBM software executiveobserves, "Increasing the number of Notes seats is our No. Untilrecently, Compaq was described as a "troubled" computer company: "Once thefastest growing firm in American corporate history, Compaq had by 1991grown fat and lazy, standing aloof while new, nimbler rivals undecut itsprices" (Economist, 1994, p. Top competitors Compaq, Apple, PackardBell, and IBM combined claim less than 5 percent of total market share.The United States is the home base for thousands of assemblers of computersystems. Clones of the IBM personal computer began pouringinto the market by the millions. Electronic commerce through networked computing is expected to enterthe mainstream for both homes and businesses over the next decade. Although the chiefexecutive officer of Lotus, Jim Manzi, quit shortly after the acquisition,IBM is confident that its new subsidiary will flourish. Unlike the operating software and microprocessing sectors of theindustry, no single personal computer manufacturer has a dominant share ofthe market. (1994). Meeting the challenges posed by the third wave of computing requiresstaggering investments in research and development. In 1994, American consumers paid $8 billion to buy 6.6 millionpersonal computers for home use. 145). C5).Personal computers are already in use as surrogate telephones. RECOMMENDATIONS FOR IBM IBM must follow the lead of other computer companies and hedge itsbets in making the transition into the third wave of computing. Congress, 1993, p. Some firms, such asIntel, are confident that the multimedia revolution will revolve around thepersonal computer. Competition in the computerindustry. Annual revenues are estimated at $35 billion (U.S.Congress, 1993, p. Microsoft is increasing its presence in theapplications software market. Merrill Lynch & Co. Intel has responded to the competitive threat posedby RISC chips by slashing the prices on its Pentium chips and by forgingahead in its efforts to bring a new generation of x86 chips to the market. The company's revenues andprofits have risen an average of 4 percent annually (Economist, 1994, p.C8). The Type 65 was a massivedataprocessing machine that cost thousands of dollars to rent. IBM isbetting heavily that the computer revolution will initially manifest itselfwith exploding growth in the business computing sector. (1995, July 24). . (1993, October 13). The total exceeds what Americans spent on televisions for thesame period (Kirkpatrick, 1994, p. The major issue that has emerged in the computer industry is hookingthe personal computer up to communications infrastructure. The focus of these services is the corporate sector. The competitive field for providing networking servicesincludes long distance telephone companies, Intel, Microsoft, and EDS toname a few. The U.S. Thoman studiedthe success of rivals Compaq and Dell Computer Corporation in the followingareas: "How to bring products to market quickly, build them in sufficientvolumes, cut their prices at the optimum moment, and replace them beforethey're unsalable" (Sager, 1995, p. C6). Business Week, pp. Because ofimprovements in managing supplies, the company was able to close 13warehouse in Europe. Pfeiffer's strategy was tomake drastic price cuts that would drive the smaller clone manufacturersout of business. All ittakes is for the computer user to copy the software program to blankdiskettes. 142-152. The first R&D collaborationin the United States was established in 1982 through the Microelectronicsand Computer Technology Corporation (MCC). These companies would includeJapanese consumer electronic giants like Matsushita and Sony.PART I. The market for computer industry products is global. As oneindustry analyst notes, "The transition to this third age of computingcould make the move from room-sized mainframes to book-sized PCs look likea model of stability" (Economist, 1994, p. Several threats to Intel's dominance of the microprocessor marketexist. The customers will be resident ina network in which all applications are on the server. IBM'sfirst personal computer, known as the IBM PC, came to market in 1981. Its closest competitor was Motorola with 6percent of the market. (1994, September 17). Intel develops the microprocessor architecturethat has become the standard in the industry. IBM has a strong contingent of bigcorporate customers. Whereas IBM'soriginal Type 65 mainframe possessed about the same computer power as amodern video-cassette recorder, Intel's latest Pentium chip can process 1 million instructions per second. The only other notable foreign computermanufacturer on the global scene is Acer, a South-East Asian firm, but itsimpact is relatively minimal. The company recentlyannounced that Sears Roebuck will stock its products and the computer giantis even targeting children's outlets such as Toys "R" Us. C5) IBM is in danger of missing the prevailing trend in the computerindustry if it pins its hopes primarily on the corporate sector. Large personal computer manufacturers such as Compaq, AST Research,and Zenith Data Systems have defected by using rival microprocessor chipsfrom AMD and Cyrix instead of Intel products exclusively. IBM also has the world's largest private datanetwork. In the United States, themarket for home computers has now exceeded the market for businesscomputers. 69). Compaq's rivals Dell, AST Research, and Apple have seen profits fallby as much as 8 percent. estimates that sales for IBM will increase 15 percentto $1 .7 billion and that profits could add as much as $5 million by theend of 1995 (Sager, 1995, p. 114). 1 ). Some promising signs of success have emerged from Thoman'sleadership. Compaq is aggressively seeking to capture even more market share byincreasing the distribution of its product line. The undisputed leader in theoperating software business is Microsoft. Despite lower prices and an overall surgein interest regarding computers, roughly 67 percent of American householdsstill do not own a personal computer and 9 percent of non-ownersresponding to a survey claim that they have no plans to buy one(Kirkpatrick, 1994, p. In 1993, Intel's sales rose 5 percent to $8.8billion (The computer industry, 1994, p. RISC chips arealready being used in computer lines introduced by Apple, Digital, SiliconGraphics, and NexGen. The second age of computers arrived during the 198 s, whenmicroprocessors and simplified operating systems were introduced. IBM also established a public data network with 11international telecommunications companies. Once the majorforce in the personal computer sector, IBM has been relegated to a fourthplace position behind rivals Compaq, Apple, and Packard Bell. Foreign competition in the computer industry will likely increase ascomputer technology merges with consumer electronics. The computer industry plays an important role in the economy of theUnited States. COMPUTER INDUSTRY STRUCTURE The breadth of the computer industry is rapidly expanding ascomputers play an ever increasing role in homes and businesses. Unlike its rivals, Compaq can acceptlower profit margins because it has increased its efficiency. The averagepersonal computer for home use costs about the same as it did in 1993--$1,2 . Even the larger computer manufacturers have suffered losses becauseof Compaq's relentless cost-cutting. Considerable debate centers on whether the computer industry ischaracterized by significant barriers to entry. Inventory turns of 8 dayslast year were reduced to 6 days. What's driving the new PCshakeout. What manufacturers have done is to offer more features in theirproducts. The computer industry. Annual revenues for 1992 are estimated at $36.7billion (U.S. STRATEGY FORMULATION FOR IBM As mentioned above, IBM is a diversified computer company. 5).MCC was established in response to the threat that the Japanese posed tothe computer and semiconductor industries and excluded all foreign firms. The changes at IBM have been greeted favorably by financial analysts. Most point to the competition thatNotes faces against the Internet's firmly entrenched World Wide Web.Corporations have already started questioning whether they could get thesame services and capabilities of Notes from the World Wide Web at a lowercost. For IBM to develop the volume of business necessary to recoup itsinvestment in network-centric computing, the company must attract softwareand corporate programmers to write applications for its networks. Advanced Micro Devices (AMD) Cyrix, and TexasInstruments (TI) held 5 percent, one percent, and one percent of themarket, respectively. 114). In 1993, Intel captured 83 percentof the microprocessor market. C8). This public data network makes itpossible for corporations to use Notes without building and operating theirown networks. Boston: HarvardBusiness School Press. Infrastructure is already in place to provide network computingresources on a global scale. C4). Business Week, pp. Other competitors in this marketare IBM, Novell, Apple, Sun Microsystems, NeXT, and a consortium ofJapanese companies such as Matsushita and Sony. The Economist, pp. Among the leading competitors are Microsoft, WordPerfect, IBM,Lotus, and Borland. IBM is banking on Notes Public Networks to increasecorporate acceptance of its software. IBM has forged ahead in making its network-centric future a realityby expanding its outsourcing and systems-integration businesses.Outsourcing is currently being used to solve the business problems of suchmajor firms as Campbell Soup, DowBrands Inc., and Walgreen: "Outsourcinginvolves taken over a company's data processing operations and then sellingback computing service or simply running the operation for a fixed annualfee" (Business Week, 1995, p. The company recently unveiled its Windows-based software with an unprecedented media campaign and has since takenover the leadership in the word-processing market from WordPerfect. The computercompanies that do not accomplish this feat will find themselves dinosaursin a rapidly changing industry. The man who's rebooting IBM's PCbusiness. C6). Price wars in the personal computer industry have affected thesoftware industry as well. In addition, anew generation of microprocessors based on a technology called reducatedinstruction-set computer (RISC) has been introduced. Analysts predict that the big computer companies will get bigger.The top ten computer manufacturers have captured 7 percent of the market,an increase of 7 percent since 1993 (Kirkpatrick, 1994, p. While the computer industry overall was experiencing unprecedentedgrowth, IBM found itself strapped with over $7 million in obsoleteinventory (Sager, 1995, p. As oneexpert pointed out, "The brutal truth is that IBM's PC unit has proved adisaster area" (Economist, 1994, p. As poorly as Asian companies are performingin the personal computer industry, European companies are faring muchworse. Although lower prices have significantlyincreased demand among current computer users, profits for most computermanufacturers have nosedived. The microprocessing segment of the computer industry is alsodominated by one major player--Intel. 69). COMPETITIVE INDUSTRY STRUCTURE The acceleration of demand fueled mostly by the burgeoning homecomputing market has caused a shakeout in the hierarchy of the computingindustry. IBM's workforce was slashed by 2 percent and costsreduced by $4 million (Sager, 1995, p. As onecomputer executive notes, "The PC is old and creaky . R&D collaboration on trial: Themicroelectronics and computer technology corporation. One of its new computers breaks ground with itsability to answer phones calls, receive faxes, and store messages withoutleaving the machine turned on all the time. Compaq's gross profit margin dropped from 43percent in 199 to 27 percent in 1994, despite doubling its profits for thesame period (Economist, 1994, p. For example, of the top ten personalcomputer companies worldwide in 1993, eight were American firms. The view from IBM. This explains Intel'sclaim to over 8 percent of the microprocessor market. Although IBM is banking on corporate networking as the wave of thefuture, surveys indicate that the home computing market will grow at a ratedouble the pace of the business market over the next five years.Therefore, IBM must hedge its bets and expand its corporate mindset. The computerindustry is a multibillion dollar market whose products are sold globally.Despite the global characteristics of its marketplace, the vast majority ofmajor computer industry vendors are American firms. Congress, 1993, pp.135, 137). IBM must form strategic alliances with companies that are makinginnovations in the home computer market. 74). Other popular software applications from smallcompanies include Turbotax (tax preparation application) and After Dark (ascreen saver). Whereas the needs of corporate clientsrevolve around basic hardware components and business applications such asword processors, spreadsheets, and databases, home computers are used for awide variety of work, personal finance, entertainment, and educationalapplications. Compaq's fortunes reversed when EckhardPfeiffer assumed control in the early 199 s. Companies like Northgate Computer, Zeos International,and CompuAdd, though once promising prospects, are now struggling tosurvive. Competition for microprocessor manufacturers is not as intense asthat found among personal computer manufacturers. As mentioned above, the leading competitors in the computer industryare based in the United States. Some industry expertscontend that not only are RISC chips superior to Intel's product, theirsimplicity makes them easy to manufacture at a low cost. The computer industry is in the transition stage of the third age ofcomputing. Counterfeiters often make hundreds ofcopies of original software programs and sell them to the consumer at deepdiscounts. The economic impact of the third wave of computing is so intensebecause of the ubiquity of personal computers in the marketplace. Chairman Louis Gerstner, Jr., IBM's chief executive officer forthe past two years, placed G. The company eventually sold25 of its Type 65 processors and made a fortune as the first massproducer of computing machines. In contrast, revenues from services, component technology, andworkstations are expected to grow 33 percent, 28 percent, and 51 percent,respectively for the same period. The ever-increasing capacity of the microprocessor is responsible forthe turbulent nature of the computer industry. personal computer sector is characterized by ahandful of major manufacturers and over 3 smaller manufacturers (U.S.Congress, 1993, p. Pfeiffer's initial strategy was toaccept a lower gross profit margin than the industry standard of 4 percent. In 1992, the small clones accounted for 6 percent of thepersonal computer market, by 1994, their share of the world market hadfallen below 4 percent (Economist, 1994, p. Manycomputer manufacturers expect this revolution to take hold first in thebusiness world. IBM, however, has distinct competitive advantages in its effort tobecome a giant in computer networking. Microsoft's share of the disk operating software market has beenestimated at between 8 percent to 9 percent. In 1992, the personal computer industry generatedapproximately $4 billion in revenues (U.S. Fortune, pp. References Gibson, D. C4).Although NEC is the market leader in Japan, it is experiencing stiffcompetition from low-cost computers manufactured by American companies suchas Dell, Apple and Compaq. IBM is staking its corporate future on the provision of networkingservices. 11 ). C3). Houseof Representatives. By the 199 's, IBM's personal computer division was in deep trouble,and some industry analysts considered it to be in a free fall. IBMfailed to realize the vast marketing potential of the personal computer andcontinued to devote the lion's share of its resources into research anddevelopment for its mainframes: "For Big Blue the PC was a sideline, anirritating diversion from its core business of churning out bigger, morepowerful mainframe computers" (Economist, 1994, p. Thetime has come again for IBM to collaborate with Japanese firms, because thecompany's existing long-range strategy based primarily on corporate networkprojects is simply too risky. Lower gross profit margins in the software industry have led toincreased consolidation. Over thepast few years, the company has been moving away from its core business infavor of exploring computer networking opportunities. 144). Many in the computer industry do not share IBM's optimism over thefuture success of its network projects. 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