IBM Competitors Scramble to Produce Clones of Firm's Personal Computer AT

By Dennis Kneale, Staff Reporter
The Wall Street Journal

April 26, 1985

The clones are coming. Again.

Eight months after International Business Machines Corp. unveiled its top-of-the-line Personal Computer AT, a spate of competitors is scrambling to market clone versions -- and entering turf strewn with past failures.

Kaypro Corp., Texas Instruments Inc. and Zenith Electronics Corp. already have announced new AT-like products. Next Tuesday, NCR Corp., Compaq Computer Corp. -- which parlayed IBM cloning into a huge business -- and possibly Xerox Corp. are expected to announce similar efforts. AT clones from TeleVideo Systems Inc. and Corona Data Systems Inc. are expected to debut the following week at the big computer trade show known as Comdex. Meanwhile, Tandy Corp. and several Japanese companies also are believed to have AT clones in development.

More than a dozen computer makers are expected to enter the fray, in recognition that IBM's PC AT is becoming the new standard and target in the $10 billion-plus personal computer market. "Sum it up this way: anyone who currently has a position in the market will have a machine like this out by the beginning of September," predicts Richard Levandov, marketing vice president at Phoenix Software Associates Ltd. A total of 15 computer makers have agreed to buy the small firm's internal, chip-based programming that imitates that of IBM's PC AT.

The rivals are rushing to exploit big demand and severe shortages of the AT, caused by problems associated with its hard-disk data-storage device. But they haven't much time: IBM has said it will double AT shipments in the second quarter compared with the first, when industry analysts said about 75,000 machines were shipped. IBM also said that production volume is expected to continue increasing.

The AT scramble is important because it will shift most of the industry's focus to a new generation of machines, thereby determining the type of computers and software programs most customers ultimately will buy. Moreover, the competition is bound to produce losers and that may result in some volatile stock prices. Last year, for example, clone maker Columbia Data Products Inc. went public at $11 a share and hit trouble; its share price eventually fell to 50 cents and earlier this year it was delisted from over-the-counter trading.

The followers in IBM's wake may have to navigate some of the same difficulties that surfaced in cloning the original IBM Personal Computer: IBM price cuts of 15% or more a year; the threat of IBM legal action if its software design is copied too closely; high marketing costs, and a struggle for crowded retail shelf-space.

A number of copycat companies had losses last time around. Small, closely held firms are believed to have lost millions, and three publicly held concerns reported combined losses of $73.5 million -- $28.8 million in 18 months for Eagle Computer Inc.; $16 million in six months for TeleVideo; and $28.7 million in nine months for Columbia, which warns it will report full-year losses "substantially in excess" of that sum. IBM last year sued and settled with Eagle and Corona over copyright infringement allegations. So serious is the threat of litigation from IBM that Phoenix Software offers liability insurance with its AT-imitator software to protect customers against any IBM action.

Moreover, the flurry of AT-like introductions initially will aim at a much smaller market than that of the original IBM Personal Computer, which currently is priced at $1,995. The AT's $5,795 model includes a 10,000-page hard disk and the capability to serve three workers at once, features that appeal to high-power customers and corporate offices rather than rank-and-file users.

"The AT market is much smaller because of its (higher) price, and that makes for a smaller total pie," says Rod Canion, Compaq president and chief executive. "The key is distribution: everyone is facing how to get shelf-space when there's less and less room all the time as IBM, Compaq and Apple come out with new products." Compaq is expected next week to unveil both a portable and a desktop version of an AT-like product, though Mr. Canion declined to comment. The company has scheduled a lavish media event, including a performance by the Pointer Sisters, in Houston next Tuesday.

Despite the potential perils, IBM's competitors may have little choice but to clone the AT. "What other option do they have? I don't think there is one but to follow IBM's lead," says Norm DeWitt, a former IBM employee who left the company's personal computer division last year to join consultant Dataquest Inc. The IBM PC family holds about 30% of the personal-computer market, and PC clones hold an additional 30%. The AT signals the future direction of IBM's entire product line, and Mr. DeWitt and others believe IBM's "PC2" computer, expected to debut this summer, will rely on the AT's same central-engine chip.

IBM's rivals must come up with better ways to compete. In the past, their strategy was limited to offering little more than lower prices while aiming at too broad a market. "The only hope for most of these clone suppliers is to become extremely strong in one or two vertical markets," such as real estate or a medical field, says Charles W. Newton, president of Newton-Evans Research Co. in Ellicott City, Md.

In a just-completed survey of about 100 Fortune 1,000 companies, Newton-Evans found huge demand for the PC AT. About 84% planned to buy the AT -- more than for any other IBM PC product -- saying they will purchase an average of 25 ATs this year and 34 in 1986. And among those companies planning to buy "multi-user" systems, the AT was cited more than twice as frequently as the combined total of 15 competing products, Mr. Newton said.

Such strong demand could help clone makers, particularly while the IBM product remains in short supply. Computer Memories Inc., initially the only supplier of the AT's hard disk, a data-storage accessory, couldn't keep up with orders. In addition, IBM has denied rumors of major quality problems, while admitting a small number of drives haven't worked.

Kaypro, hoping to exploit the supply gap, began shipping its AT clone without a hard disk rather than wait until such an accessory was ready. "We felt it important to get to market first, and before we introduced (a hard disk) we wanted 100% assurance it would be bug-free," says David Kay, vice president of marketing. IBM rivals likely will have to offer more features for a comparable or lower price. IBM's AT version without the hard drive sells for $3,995; the Kaypro 286i sells for $4,550 and features twice the IBM model's memory, two floppy disk drives instead of one, and bigger and less expensive internal expansion features.

Another problem for cloners is that the AT shortage may be short-lived. IBM already has hired two extra hard-disk suppliers and is making additional drives on its own. Dataquest's Mr. DeWitt believes IBM shipped only 75,000 ATs in the first quarter, but counts 435,000 new hard disks to be delivered to IBM in the next few months. "IBM is really gearing up for heavy production volumes on PC AT. The shortage won't last that long," he says.

That likely will force some competitors to find narrower markets that IBM might ignore. Others, including Xerox with its expected debut next Tuesday of several new computers and laser printers, will offer products with many non-IBM features while including the optional ability to run AT software. Indeed, many companies such as Compaq and Corona currently shun the same "clone" label that some concerns had once touted and argue that their products merely fit the "industry standard" -- read IBM.

"There's been so much negative press against these (clones), and our company definitely isn't that -- we're one of the survivors," insists James E. Alexander of Corona, which will show a portable AT clone at the Comdex show in two weeks and hopes to ship it in 60 days. Closely held Corona has fared better than most by using "value-added resellers," dealers that add accessories and then sell to narrower markets like medicine.

Other clone makers also will aim at "VARs." TeleVideo last year spent $19 million on national TV ads but did poorly at retail with its first PC clone. In July, it plans to sell a new AT version -- priced $1,000 cheaper than IBM's and built in Korea -- through 1,500 resellers serving "vertical" markets like the construction industry. It currently advertises in narrow trade publications like Shipping and Handling Management. One snag: with so many aiming at narrower markets, how many brands can a reseller carry? "One," says TeleVideo marketing director William W. Heil. "Some will carry two. And some will carry just IBM."