International Business Machines Corp. announced yesterday that it would stop making its IBM PCjr home computer, its first attempt at producing a mass market computer.
The decision represents IBM's first major failure in the personal computer field.
Saying that "the home market didn't expand to the degree that IBM and others thought it would," an IBM spokeswoman confirmed that the company would halt production of the machine in April "because we have enough inventory to meet all the anticipated demand."
"Our initial expectations [for the PCjr] might have been overly optimistic," she said.
While IBM will discontinue making the PCjr, the spokeswoman stressed that the company would continue manufacturing software cartridges for the machine, along with such options as memory and power supply attachments. In addition, IBM will maintain its service and support for the PCjr, such as its toll-free IBM PCjr Customer Support Center.
Analysts and sources close to IBM indicate that the company ultimately will cut the price substantially of its popular IMB PC and IBM PC XT personal computers to fill the market niche that the junior computer had attempted to address.
The announcement surprised most analysts and participants in the turbulent home computer industry, which has seen such companies as Texas Instruments, Coleco and Mattel Toys abandon the market as other companies such as Atari Corp. and Commodore International face mounting financial problems.
"This is a bombshell that's been dropped on virtually everybody," said Ed Toshkus, president of Creative Strategies, a computer market research firm in California, "It's going to shake up a lot of people."
"I guess they saw the handwriting on the wall," said David Bunnell, publisher of PC World, a magazine that tracks IBM personal computers, "They had a low end product that wasn't really competitive."
Analysts point out that the IBM PCjr -- introduced with much fanfare in November 1983 -- had problems from the beginning. It's chiclet-style keyboard drew criticism and it was widely regarded as too little computer for the price. John Opel, then chairman of IBM, had stated at the company's annual meeting last April that PCjr sales had been "disappointing."
Analysts estimate that IBM sold somewhere between 250,000 and 300,000 of the machines last year, with most coming during an expensive promotional push during the Christmas season. Some analysts say that advertising alone cost IBM nearly $200 per machine.
Future Computing, a Texas-based market research firm, said 80 percent of the estimated PCjrs sold in 1984 were sold in the fourth quarter, when IBM slashed the price on the machine. The PCjr with a disc drive now costs $999 list.
However, Jan Lewis, an analyst with Infocorp, pointed out that while IBM PCjr sales accounted for 17 percent of the retail computer sales last December, that number dropped to barely 4 percent last month. "And that's 4 percent of a shrinking market," said Lewis.
Industry sources indicate that retail sales of home computers have dropped by over half since the Christmas season. Indeed, IBM cited the seasonality of the home computer market as one reason why it has discontinued PCjr production now.
Speculation now centers on whether IBM is abandoning the home computer market to focus its efforts on the business market -- where it dominates in personal computers -- or how it will choose to remain in home computers.
IBM spokesmen declined to speculate on future products. But there are reports that IBM is preparing to introduce a new business personal computer by June. According to several analysts, including Infocorp's Lewis, the new machine will enable IBM to cut the price on its existing IBM PC and IBM PC XT and thus enter the low end of the market.
"I think they'll come downstream on the PC," said Marshall F. Smith, chief executive officer of Commodore International Ltd., producer of the Commodore 64 and a competitor in the home computer market.
However, there are other reports that IBM might introduce a new low-cost home computer based on the JX computer the company recently introduced in Japan.
"It would be similar, but not the same," said Aaron Goldberg, an analyst with International Data Corp. "It would have a 3.5-inch disc drive and an Intel P8 chip set -- it would be similar to the IBM PC [computer chip set] but cheaper to build."
Such a machine would be in the $700-to-$800 price range, Goldberg assets.
IBM asserted that discontinuing the PCjr would have "no financial impact" on the $46 billion-a-year company. The company did not disclose the size of its existing inventory or how it would handle the PCjrs now in the retail pipeline.
Apple Computer, which stands to benefit from IBM's withdrawal of the PCjr, would not comment.