Six months after the introduction of its new-generation PS/2 line of personal computers, International Business Machines Corp. has found itself between a rock and a hard place.
The rock is Compaq Computer Corp., which is enjoying record sales of personal computers based largely on the technology IBM abandoned.
The hard place is Apple Computer Inc., which has taken advantage of IBM's delays in rolling out parts of its new computer line to rack up huge sales increases and to make important inroads in the business computer market long dominated by IBM.
And while IBM claims to have shipped 1 million PS/2 models to dealers since the computers were announced in April, some industry analysts and consultants say aggressive discounting programs indicate that sales of the machines may be lagging somewhat. One computer industry magazine even has suggested that the PS/2 might be the "New Coke" of the computer industry.
Perhaps more importantly, the experts say, the success of Compaq and Apple in recent months means IBM now has company in the leadership position in the personal computer industry.
"Both Compaq and Apple clearly have benefited from the PS/2 introduction, at least for now," said Daniel C. Benton, a computer-industry analyst at Goldman Sachs & Co.
"There is some relative market shifting, let's say, between Compaq, IBM and Apple," said John C. Maxwell, an analyst at Dillon, Read & Co. Inc., the New York brokerage. "I'd say Apple has been able to gain the most in terms of their market position."
Although the Apple II, introduced in 1977, is widely acknowledged as the first mass-market personal computer, the introduction of the IBM PC in 1981 turned personal computers into a big business.
The PC quickly became an industry standard, and IBM sold 6 million of the computers in various increasingly powerful versions. Millions more IBM-compatible machines -- known as clones -- have been sold by other makers, such as Compaq, Leading Edge and Epson. Apple, whose computers operate differently, made only minor inroads into the market, particularly in the hugely lucrative business computing field.
The introduction of the second-generation IBM personal computer, then, was widely awaited. Indeed, many potential buyers held off purchases for months before the announcement last April, creating a pent-up demand that analysts say still is running its course.
The new PS/2 models are a quantum leap in technology from the old PCs, offering a great deal more power and other features. But while they will run existing MS-DOS software for IBM PCs and compatible machines, operating software that will take advantage of many of the PS/2s advanced features still is unavailable, and not due until early next year.
Analysts believe that has hurt IBM's sales, because customers are reluctant to pay a higher price now for features that are not immediately available. "It's all futures and IBM promises," said Bruce M. Lupatkin, an analyst at Hambrecht & Quist, the San Francisco brokerage.
IBM, however, insists that sales of the PS/2 line are excellent. "Demand is very strong," said a spokesman. "It's certainly exceeding our expectations."
But analysts aren't so sure. They say IBM has offered discounts on some of the computers in the PS/2 line, an unusual step for such a new machine. In addition, the analysts say, IBM has been untypically loud in boasting about the PS/2's sales. "They do seem to be doing a little bit too much promoting for a product that's selling so well," Benton said. And Lupatkin said, "It's interesting that IBM claims to have such a high sales rate and such confidence that their products will be successful, but at the same time, they're offering price discounts."
And while 1 million computers shipped in six months is an impressive number, experts caution that it's a little misleading, since IBM only counts computers shipped to dealers, not customers. Many of those computers may be sitting in dealers' storage rooms rather than on customers' desks, analysts said.
Nonetheless -- and despite the "New Coke" jokes -- there is little doubt that the PS/2 will become as much of an industry standard as its predecessor, if only because of IBM's clout and reputation. IBM also is said to have taken advantage of the PS/2 introduction to increase its already strong retail sales network, through incentive and exclusivity programs with dealers, which will further help the PS/2 in the future.
"All the indications are that the acceptance and popularity of the machine are increasing all the time," said Peter Teige, an analyst for Dataquest, a San Jose, Calif., technology research and consulting firm. "It appears to be rapidly on its way to becoming the new standard."
In its wake, however, the PS/2 has created an opportunity for Compaq and the clone makers, experts say, because of IBM's decision, shortly after the new machines were introduced, to discontinue the remaining vestiges of the old PC line, the extremely popular XT and AT computers.
"I think IBM gave away a large part of the market. They made a major marketing mistake by drawing attention to the alternative when they said, 'We're not going to make the low end of our market,'" said Richard Schaffer, an analyst at Technologic Partners, a New York consulting firm. "There are still a lot of people out there who worry that they can still get wheels for the car they had."
"By discontinuing the XT and AT, they said to their customers, 'You've got to buy the PS/2 today,'" Benton said. "But a lot of people didn't want to."
Instead, many customers went for Compaq's IBM PC-compatible computers. Over the past couple of years, Compaq has established a considerable reputation in the industry for technological advances, distinguishing its machines from other IBM "clones" by offering features that not even IBM PCs had. Indeed, the high-end machines in Compaq's current line are considered equivalent or better in power, features and value to many of the PS/2 models.
"Compaq's engineering prowess has kept them in a good position that nobody's been able to attack," said Tom Willmott of International Data Corp., a Framingham, Mass., high-technology analysis firm.
That Compaq was able to take advantage of IBM's actions was evident in the company's most recent earnings statement, released in August. It showed that during the three months immediately after the PS/2's introduction, Compaq's sales jumped 82 percent, and its profits more than tripled.
Even as Compaq has taken advantage of what IBM left behind, Apple has been feasting on Big Blue's future, analysts say. Though the Apple Macintosh was compatible with the PC world until recently, it has featured since its introduction almost four years ago several of the features that IBM now is touting on the PS/2, most notably a simplified graphics-based user environment that uses easy-to-understand symbols instead of computerese. IBM's equivalent system, in fact, won't appear until the new OS/2 operating system comes out next year.
"IBM has endorsed graphics-based systems, and Apple's got them," Benton said. "IBM doesn't."
That graphics-based system, combined with a new thrust toward business customers by Apple's marketing team, improvements in power and technology, and momentum from the Macintosh's previous popularity as a desk-top publishing machine, that has put Apple and the Mac on a roll. Last week, the company reported a 54 percent quarterly increase in sales -- particularly impressive for a company whose annual sales top $2 billion -- and a doubling of quarterly earnings.
"The Mac is really catching on. Everywhere I go, when I talk to business types, I'm really impressed," said Esther Dyson, editor of Release 1.0, a technology newsletter. "Apple is certainly making some inroads into the market in general."
"It's finally the machine it should have been," Schaffer said of the Macintosh. "Real men didn't use Macs. Suddenly the Mac is acceptable and, in some ways, it's superior."
For the first time, important personal computer programs now are being written for the Macintosh before they are produced for the IBM PC, instead of the other way around, experts say. The best example of this is Microsoft's Excel, a highly sophisticated spreadsheet program for the Macintosh that has recently been coverted to MS-DOS and is expected to provide real competition for Lotus 1-2-3, for years the dominant PC spreadsheet.
Some experts believe that Apple could be the biggest winner in the current personal computer market as acceptance of the computer picks up speed. More and more business software is becoming available for the Mac, and some analysts argue that the Macintosh is now the best bargain on the market -- at least until IBM gets all of the PS/2's features up and running. Apple's share of business personal computer market is expected to begin increasing from the current 5 percent level in coming months, with the gains coming at the expense of PC-compatible machines.
"I think this year really marks the turning point for the Macintosh, and the acceptance of the Macintosh in the corporate office," Teige said.
In any event, analysts say, there's plenty of business out there for everyone, at least at the moment. "I haven't seen this market so healthy in years. It's just booming," Schaffer said.
"From everything that we're seeing and hearing ... it's a very big comeback year for the personal computer industry," Teige said. "Practically every vendor out there is reporting 20 percent to even 100 percent higher sales of units."
The pent-up demand released when IBM finally introduced the PS/2 is seen as one factor in the sales rush. Another is the fact that businesses that bought the first generation of IBM PCs several years ago now are replacing the machines with more advanced models. "In part, it's a massive upgrading of a lot of the systems," Teige said.
In addition, the experts said, the overall popularity of the personal computer as a business tool seems to be on the upswing as more businesses realize the advantages of having the machines. "I think the biggest part is that PCs have become ubiquitous," Benton said. "When I joined my firm three years ago, I got a calculator. When people join now, they get ATs. It's an accepted part of the business world.