IBM announced new PC products on June 2 in New York City. The products include several new models of the PS/2 family: three versions of the new Model 70 (a desktop 80386 CPU), two new Model 50s with faster and larger hard disks, and a Model 25 with a Token-Ring adapter. Suggested retail price cuts of 6 to 15% on existing versions of the Model 80 were also announced. The new products broaden IBM’s PC product line to 8 models with over 30 configurations from $1395 to over $13,000. IBM also announced a flatbed scanner at $3345 and unbundled its laser printer ($4995.) This Bulletin gives details on the new products and discusses their impact on Apple.
Overview
IBM introduced desktop 386 models, a configuration some competitors have offered for over a year, and two enhanced versions of the Model 50, which had been criticized for its slow and low capacity hard drives. IBM announced a Model 25 with a bundled Token-Ring adapter, and is offering an optional 20 MB hard disk for the Model 25 (which IBM had said was not possible last year). All the units are shipping now except the high-end Model 70 which will be released in 3Q88.
New CPUs
PS/2 Model 70. The three new desktop 80386 systems running at 16, 20 and 25 MHz fill a major gap in IBM’s product line on which Compaq and others were capitalizing. The 25 MHz system includes an 82385 cache controller, 64 KB cache RAM, 2 MB high-speed RAM, and integrated hard disk controller. The Model 70s use the same case as a Model 50 and so are probably the smallest 386 machines on the market. These are well priced and positioned to regain some lost share in this class of machine. However, the higher performance and generally lower prices of Model 70s compared to Model 80s will cannibalize 80 sales. Although the 80s are more expandable (8 slots versus 3), there are very few expansion products available or needed and so it may be a non-issue to customers. The low end Model 70 is only $200 more than the high-end Model 60 so IBM will need to make adjustments there as well.
PS/2 Model 50 Z. These two new configurations of the Model 50 increase performance substantially by changing the 10 MHz 80286 to zero wait states, speeding up the RAM to 85 ns and offering higher capacity and much faster 3.5-inch hard disks. But the pricing is much higher than what 10, 12 and 16 MHz AT-class clones cost and IBM has yet to show the value of Micro Channel bus, which is the product’s only real differentiation (other than VGA on board). IBM’s cost on these units should be significantly reduced due to a totally new double-sided motherboard design that makes extensive use of ASICs and surface mounting. The board is about 2/3 the size of the previous Model 50 board and by eliminating some slots could easily be used for a portable PC.
PS/2 Model 25 LS. The LS presumably stands for “LAN Support.” This new configuration is simply a bundle of the existing Model 25 with the Token Ring LAN card preinstalled in one of the two slots. There is no price break on this bundle versus buying the LAN card separately. This is not the rumored Token Ring chipset built into the motherboard.
Other products
Hard Disks. For the Model 50, IBM is offering a new 60 MB, 27 ms fixed disk drive for $1695 including the replacement controller card. It will be available as a separate item in September 1988. A 20 MB drive was unveiled for the Model 25, which just a year ago IBM said could not support a hard disk. The internal unit includes a controller with a cable that plugs into a special connector on the motherboard. In this configuration, the drive formats with 610 cylinders, transfers at 5 Mbits/ second and has an average seek time of 80 ms. With a separate adapter card that plugs into the standard PC bus slots, the drive’s specs improve to 7.5 Mbits/sec and 38 ms, but formats differently at 400 cylinders. Strangely, the drive costs $795 either with or without adapter!
Laser Printer. IBM unbundled the Personal PagePrinter from the Personal Publishing SolutionPac and has priced it at $4995. This is $400 more than the LaserWriter II NT which is somewhat faster, easily networkable, upgradeable, and has better output quality.
Scanner. The 3119 PageScanner desktop flatbed scanner scans a letter size page in 14 to 28 seconds at 300 dots per inch at up to 8 bits/pixel. A unique feature is that scanning density is user programmable in 1 dpi increments from 1 pixel per inch up to 600 with up to 128 gray levels per pixel. The compact unit (15.2x13.5x5 inches, 21.3 lbs.) will be available in August for $2395, including the Adapter card which is Micro Channel only. Scanner software will be sold separately: ImagEdit 2.0 costs $495 and an OCR package, IBM TextReader, is $595. This looks like a good product but with somewhat high pricing. The quality of the software, of course, will determine the scanner’s true capabilities and functionality.
IBMLink. IBM announced its intentions to create a customer-oriented online service that will offer product information (InfoLink), order processing (OrderLink), technical support (Support Link), service information (ServiceLink) and user tools and messaging (User Functions). No further details or plans were divulged. This is likely a premature, hasty response to Apple’s recently unveiled plans for AppleLink Personal Edition.
Self Education Facility. A set of authoring tool software for compiling computer-assisted instructional programs using graphics, animation, text, full screen with input fields, etc. The program costs $2500 and is available now.
Updates to Personal Publishing SolutionPacs. The new SolutionPac bundle includes PagePrinter Adapter Program version 1.3, Microsoft Windows 2.03, and Aldus Pagemaker 3.0. (These were previously versions 1.0, 1.04 and 2.0, respectively.) This should increase performance somewhat.
Expanded Product Line Issues
This is a very extensive product line and it raises important issues that Apple will also be facing soon.
Manufacturing and Inventory. Having this many models puts some strain on manufacturing and requires very flexible, automated manufacturing and order processing systems. Dell, Televideo, Wyse and a few other clone firms manufacture to order and are beginning to turn it into a competitive and cost advantage, but IBM, like most PC makers, doesn’t. IBM currently requires dealers to forecast their orders for two quarters ahead. IBM creates a demand forecast from that input. However, with this many models, shortages and overstocks are a certainty.
Distribution & Dealer SKUs. There is a major question as to whether the dealer channel is willing to stock so many different models. The common perception is that they won’t. However, IBM’s channel control is fairly strong and with the higher volume quotas and shipping of direct sales through dealers, it seems likely that most dealers will carry most of the line, if not too deeply. Major dealers will probably stock all models initially and let the market dictate the stocking levels.
Why so many models? Many might question why anyone needs so broad a product line. These are some potential reasons why IBM is offering so many models and configurations:
• The desktop 386 Model 70s fill a gaping hole that Compaq and many clones have taken advantage of and used to build a sizeable market presence.
• A broader product line can help push competitors off the shelf.
• It gives the impression that IBM has a product to fill everyone’s needs and niches and therefore enhances the likelihood and “Safety” of the IBM purchase.
• Facilitates “selling up.” Buyers think, “If it only costs a little bit more for the next higher model, I might as well get that now instead of trying to upgrade later.”
• Competitors may find it more difficult to position their products against the “right” IBM product. Firms with fewer products might be unfavorably “bracketed” by IBM’s.
• More choices make it easier for VARs, system integrators and dealers to find the right fit for customers. (Similarly, customers don’t buy clothes if they are the wrong size.)
• Because it’s what Japan Inc., Tandy, Consumer Electronics, Cameras and Car makers do—put out a huge variety of products and let the channels and markets decide which will sell.
Analyst Reactions
In general, industry analyst reaction has been fairly ho-hum as there were no surprises. Here’s the gist of our conversations with some of them:
• Doug Cayne, Gartner Group: “Underwhelming. Prices are a bit high, but street pricing will take care of that in three months. Model 25 with Token Ring is just a bundle, no big deal.”
• Stella Kelly, InfoCorp: "These are important announcements. They were necessary to fill the gaps in IBM's line of products. The 286 and 386 machines are priced to be more aggressive than Compaq’s, especially the low-end Model 70 at under $6,000. The networkable Model 25 will provide stronger competition to Apple in the education market."
• Peter Teige, Dataquest: "These announcements might be boring for other vendors, but for IBM they are significant. The most important part of the announcement is IBM's aggressive pricing. IBM has priced some of its 386 systems as much as $2,000 below Compaq, so you know Compaq will have to lower its prices. With these announcements, the Model 60 looks even less attractive and IBM may discontinue it."
Conclusions
Apple Impact. The new Model 70s compete against Macintosh IIs. The 20- and 25-MHz units will out-perform Macintosh IIs in computational-intensive tasks, but the 16-MHz unit will likely be quite com para ble. However, the Model 70's hard disks go well beyond ours in capacity and are slightly faster. The Model 50s and 25 should have very little effect on Apple. The scanner may be a prob lem in the DTP area, but its high price should severely limit its attractiveness. The PagePrinter should have little impact, since it has made a relatively poor showing market-wise as well as performance- wise and will probably sell to IBM’s installed base.
IBM initiates a round of price cuts. IBM’s new lower pricing should initiate some price decreases from PC clone vendors. Compaq is expected to lower the prices of its 386-based machines, and many other vendors will be forced to follow suit.
Macintosh II price advantage diminished. The Macintosh II with an extended keyboard, a 40 MB disk, and a video card lists for $6,097, which is $100 more than a Model 70 with a 60 MB drive. So IBM now has a lower priced 386-based system (with 20 MB more disk capacity) than the Macintosh II. Previously the Macintosh II had been priced at least $1,000 less than comparable IBM 386 systems.
Networkable Model 25 is expensive. IBM has simply bundled two items with its existing Model 25 and called it a new machine. The 25 LS is $744 more than the previous Model 25, and all that has been added is the Token-Ring adapter (priced at $695) and 128 KB of RAM (priced at $49). This new bundle does not save the customer any money from what he would have purchased previously. Therefore, the new Model 25, which has been targeted mostly at the home and education markets, should not pose any additional price/performance competition for Apple, although it does emphasize IBM's focus on networking in education.
