I.B.M. Aims To Cut 25,000 More Jobs; Sees Record Loss

I.B.M. Aims To Cut 25,000 More Jobs; Sees Record Loss

Shifting Role In Technology

By John Markoff
The New York Times

December 16, 1992

The big cutback that I.B.M. announced yesterday has underscored what some of the nation's experts on technology have been saying for several years: While the world's largest computer maker remains a huge enterprise, it no longer can be expected to set the pace for technological innovation in the United States.

I.B.M. will slash its development spending by $1 billion, or 17 percent, next year, an amount unprecedented in its history. The company spent about $6.6 billion in 1991, the last year for which figures are available. Analysts believe it will spend a similar amount this year.

Role of Follower

"I.B.M. as the I.B.M. that defined computing is over; it's gone," said Nathan Myrthvold, the Microsoft Corporation's vice president for advanced technology and business development. "As a result of new technology developments during the past 10 years, I.B.M.'s role in the computer industry has fundamentally changed."

The consequence is that what was once one of the world's most vaunted high-tech companies has been reduced to the role of a follower, frequently responding slowly and ineffectively to the major technological forces reshaping the industry. It has become increasingly clear that I.B.M. will no longer be the technological bulwark against foreign economic competition, a role it often played in the past with such inventions as the Winchester disk drive for data storage, a seminal achievement in 1973.

But rather than being a sign for despair, some technology experts say that I.B.M.'s decline may instead mark the emergence of a new model for computer and technology development in the United States that will become powerful in its own right. Alliances of smaller, more innovative companies -- sometimes working with Government support and sometimes on their own -- will come together quickly to attack crucial problems.

"We have watched while a small number of very important development organizations in the United States, including I.B.M., Bell Laboratories and Xerox, have slowly taken apart the engines behind their innovation," said R. Andrew Heller, a former I.B.M. engineer who now runs a Silicon Valley start-up company. "But we're seeing new centers of innovation emerge."

This year, for example, the United States will recapture the lead in market share in the world semiconductor market after lagging behind Japan for several years. And the Intel Corporation of Santa Clara, Calif., is poised to reclaim its title as the largest and most successful chip maker.

Moreover, despite fears of overwhelming international competition, American personal computer and disk drive companies have largely held the line against Asian and European competitors.

Sematech Given Credit

A share of the credit for the semiconductor industry's remarkable turnaround is being given to Sematech, the industry-Government research consortium created five years ago to revitalize the country's chip makers. The consortium, based in Austin, Tex., developed new techniques to make chips to counter strides by Japanese competitors.

Sematech's success could point the way for further alliances in areas where in the past giant multinational corporations like I.B.M. and Digital Equipment would have carried most of the financial burden.

"It's fortuitous that the Clinton Administration has arrived when it did," said Samuel H. Fuller, vice president of research at Digital Equipment. "It's important that we have these underlying technologies and when companies like I.B.M. can no longer entirely fund development, its important that the Government step in."

This new alliance-based model of development and competition is one that I.B.M. has had a large hand in creating. As it found itself increasingly unable to compete and simultaneously sustain the burden of new technology development, the computer maker has reached out and built hundreds of alliances in recent years, ranging from one with Apple Computer to develop software to one with Supercomputing Systems Inc. in Eau Claire, Wis., to make supercomputers. And while some of these alliances have been successful, they have not been enough to turn the much greater tide of competition and shifting market forces.

But despite optimism about future research and development alliances, a deeper, more troubling issue still remains: Has I.B.M.'s technology spending nevertheless translated into an American advantage that will now be lost? The answer coming from many analysts and computer industry executives is no.

They now argue that the company's vast laboratories have frequently done much to bottle up needed technologies.

"We need to invest differently and what I.B.M. didn't do is figure out how to invest in things that paid off," said David Ditzel, director of advanced systems at Sun Microsystems, now a giant but a few years ago a tiny company that through quick moves came to dominate the engineering work station market that I.B.M. was slow to enter.

I.B.M.-watchers also argue that by spinning off tens of thousands of engineers and programmers in the last five years, the computer maker has increased the pace of innovation.

For example, while I.B.M. invented a way of speeding up computer hardware called reduced instruction set computing, or RISC, it was commercialized elsewhere first, in part by former I.B.M. researchers who left to join other, more nimble companies.

The company developed a fundamental data base computer technology called SQL, but it was the Oracle Systems Corporation in Belmont, Calif., that took the technology and turned it into a company with sales of $1 billion a year, eclipsing I.B.M. in the data base market.

Underlying I.B.M.'s collapse is simply what the economist George Gilder has called "the law of the microcosm." That is, every three years the world's chip makers have been able to put four times as many transistors on a single piece of silicon, leading to vast increases in power and miniaturization.

Each new powerful generation of microchip has created a new computer industry and overthrown the previous one: mainframe computers in the 1960's gave way to minicomputers in the 1970's, then personal computers, work stations and now palm-sized personal digital assistants.

Although over the years I.B.M. often became a significant, if not dominant, player in new computing businesses, the pace of change has been so swift that the company, growing ever larger, could not alter its course fast enough.