Apple Reference & Presen…rary 8 (Internal Edition)/Apple R&P Lib Internal v8.0.iso/3-Presentations/Apple Computer Inc./Industry Competition/ROMs/Industry/Competitive Update

Text File | 1990-06-24 | 17KB | 360 lines

Sub:    Competitive Update

COMPETITIVE UPDATE
OCTOBER, 1990

Confidential / Need to Know

Apple Competitive Analysis


Here are some recent worldwide competitive developments...


Key developments:

    SUN MICROSYSTEMS NEW POSITIONING
    IBM PS/2 MODEL 90 RUMORS
    PATRIOT PARTNERS:  IBM & METAPHOR JOINT VENTURE
    “GRAPHICAL” LOTUS 1-2-3 SHIPS
    SPARCstation CLONES BEGIN SHIPPING
    IBM RS/6000 UPDATE
    OPEN LOOK: SUN EVANGELIZES VIA CD-ROM
    SONY MOVES WORKSTATION FOCUS TO U.S.
    DELL GOES RETAIL
    PRICE POINT STUDY
    PROBLEMS OF THE DEALER CHANNEL
    PHILIPS RESTARTS HEADSTART & MAGNAVOX PC LINE

____________________


•  SUN MICROSYSTEMS NEW POSITIONING

We believe Sun is now on its way to becoming a broad-based, white collar
desktop competitor to Apple, in the class of IBM, and Compaq.

Several market developments have caused us to change our position on Sun’s
competitive status:
--First, Sun has started to build a legitimate presence in the dealer channel
(Intelligent Electronics, MicroAge, Nynex) and is now attempting to penetrate
traditional business environments.
--Second, Sun’s newest machine, the IPC, has come down into the traditional PC
price range, albeit at the high-end.  We expect Sun to push the
price/performance of its product line down further in the coming year.
--Third, we expect Sun to begin aggressive marketing targeted at business
customers.

While each of these developments is significant in its own right, taken
together the message is clear:  Sun is becoming a full time competitor.

Sun will try to position Apple as a company with a good idea that is behind the
times on three counts:  proprietary technology, low network functionality and
poor price/performance.  To do this, Sun will obviously stress the “standards
based” nature of its platforms and dollars per MIPS. Sun will also argue it has
a strategic long term price/performance advantage over Apple based on RISC
technology.

This does NOT guarantee Sun’s success or even say that Sun has some fundamental
competitive advantage over Apple.  Indeed, there are compelling arguments
against Sun, including:  the ability to manage the retail channel, the
competence of the retail channel to service and support Unix and
network intensive systems and applications availability.  Finally, there is
some question as to whether word processing and spreadsheet users even need the
power offered by RISC/Unix/Sun.


• IBM PS/2 MODEL 90 RUMORS

IBM is expected to announce the PS/2 Model 90 sometime this month.  This is NOT
the dedicated server (a la SystemPro) machine we discussed in the last update.

The Model 90 is a cleanly architected 486 system unlike the Model 70/486, which
was shoehorned into a 386 architecture.   We expect a 25 and a 33 MHz model,
along with a new 1024 x 768 monitor capable of 32,000 colors (XGA?).  Pricing
is expected to begin just under $10,000.

This aggressive price and recent price cuts for many current IBM PS/2 products
shows a new direction for IBM.  We believe IBM views price/performance as the
only mechanism that will help it regain market share and/or maintain account
control.  As a low cost producer,  IBM still has margin to maneuver (we
estimate IBM is currently operating at 35-40% margin in its PC business).


•  PATRIOT PARTNERS:  IBM & METAPHOR JOINT VENTURE

IBM and Metaphor have formed a new company called Patriot Partners to create a
combination graphical user interface and object-oriented development
environment.  This development environment will be portable -- that is, one
that permits a developer to code for a particular processor (e.g. Intel 80X86,
Motorola 680X0, SPARC) but not have to code for a particular vendor's platform
or operating system within that architecture.  It is likely that Patriot
Partners’ new environment will not become available for at least three years.

Metaphor claims that most major third-party PC developers and major workstation
and PC vendors have expressed some interest in this system.  However, Microsoft
is not one of them.  Microsoft is not happy about Patriot Partners for many
reasons, one of the main being that it strengthens a technical and business
relationship between IBM and Metaphor (which could be construed as a weakening
of the relationship between IBM and Microsoft).  Also, Microsoft certainly has
aggressive object-oriented plans of its own and Patriot complicates things.

If Patriot Partners became wildly successful, Apple could lose its application
differentiation, since applications built using the Patriot Partners
environment will only be able to take advantage of only features implemented in
the Patriot Partners object library.  Macintosh applications written using the
Patriot Partners environment would probably look and work almost exactly the
same as applications written for other machines.

Patriot's success would also be a major blow to NeXT and its licensing of its
NeXTstep object-oriented environment to IBM.  IBM doesn't need both products.

On the other hand, Patriot Partners is not at all certain to succeed.  In the
past, cross-platform development systems have failed because the development
system vendors were small and underfunded, and because applications made using
them were outperformed by programs optimized for a particular platform.
Patriot won't suffer from underfunding, but it's not clear if it can solve the
optimization problem.


•  NEW “GRAPHICAL” LOTUS 1-2-3 SHIPS

Lotus 1-2-3 version 3.1 is now shipping at a price of $595.  It offers some
advanced DTP/layout features and has a new, more graphical user interface.  It
can be launched from within Windows 3.0, but doesn't look or feel like a
Windows 3.0 application.  Lotus will probably ship a version of 1-2-3
specifically written for Windows in mid-1991.

It has been rumored that the sales of Microsoft Excel have doubled since the
introduction of Windows 3.0.  Lotus is trying to take advantage of the
popularity of Windows 3.0, and this is its initial effort.  However,
considering Lotus' lack of success in the Macintosh market, along with PC
Excel's three year headstart over Lotus in the Windows market, we doubt that
Lotus will ever be as dominant in the Windows environment as it has been under
DOS.


•  SEND IN THE CLONES: SPARCing SOME COMPETITION

At least three SPARC-based Sun clone workstations will be available by the end
of the year.   Effect on Sun sales is unknown at this time since most of the
the clones are in different niches.

--Toshiba’s Unix laptop, the SPARC LT AS1000/L10, is slated for US release.
The laptop has already been released in Japan, receiving journalistic praise
but mediocre market response.
--Solbourne / Matsushita will release an IPC clone featuring a highly
integrated board design with very low chip count.
--MARS Microsystems / Tatung plans to ship the Mariner 4i, another IPC-clone
with an unusual IBM AT-compatible bus.  In addition the Mariner has an optional
Intel processor card that allows the workstation to do full MS-DOS processing
(processor, file structure and peripheral cards).

Other manufacturers with SPARCstation 1-clone plans but no announced products
include: Trigem (Korea), Twinhead (Taiwan), Goldstar (Korea), and Solatrix
(Fremont, CA).  All machines will be priced around the $10,000 mark and run
approximately at Sun IPC speed levels.

These product introductions represent the downside of Sun’s licensing strategy.
Sun’s open licensing agreement has provided large advantages for Sun, allowing
it to attract silicon and software developers by promising large future markets
of SPARC licensees.  This strategy allowed Sun to quickly take the lead in the
RISC processor market.

The problem with a licensing strategy is that Sun must do battle with its own
licensees.  Sun is prepared for the first conflict: it will turn the technology
crank within six months to ship a "Sparcstation 2" that delivers 27 MIPS.
These initial skirmishes are reminiscent of the early Intel-based PC market.
The question remains, how long can Sun expect to stay ahead of its competitors
on the price-performance curve?


•  IBM RS/6000 UPDATE:  Slow, Buggy and Hard to Get

UnixWorld recently reported that independent testing of IBM’s RS/6000
POWERserver 320 revealed that the workstation only delivered performance on par
with 486-based PCs.  Early IBM reports quoted impressive performance on
floating-point benchmarks; however, when performing real-world tasks,
performance appears to be much weaker than was at first suggested.  We are also
hearing many reports of of extremely buggy and unstable system software.

In a possibly related move, the RS/6000 series has been difficult to obtain
from IBM.  IBM claims that the workstation line is sold out until 1991.  We
believe that for most customers, IBM is delaying the shipment of machines until
new versions of the compilers and the AIX operating system are ready for the
machine.

IBM is a late entrant into the real workstation market.  The RS/6000
introduction announced that IBM had arrived for the main event of the
workstation wars.  Thus far, IBM appears to have generated plenty of publicity
and no product.  If it doesn’t deliver soon, the industry will quickly forget
IBM.  Worse, IBM  can't do another "we're here now" rollout.  IBM has
squandered its potentially valuable initial impact; it will be forced to build
workstation market share slowly and carefully.


•  OPEN LOOK: Sun Evangelizes via CD-ROM.

Sun has announced plans to distribute third-party Open Look SPARC-based
software via CD-ROM.  CD-ROM discs featuring demo versions of software may be
bundled with new hardware.  Users will be able to test drive crippled
applications, then contact the software developer to unlock the copy for
full-featured use.

Sun plans to encourage Open Look application interface compliance by only
publishing approved software on the CD-ROMs.  If successful, Sun will join
Apple to become the second hardware manufacturer to actively manage the
third-party application user interface.

However, Sun may find it disadvantageous to strictly enforce interface
compliance.  Sun has been happy to list Lotus 1-2-3 in Open Look guides, even
though 1-2-3 is not Open Look-compliant.  We expect that Sun will be forced to
adopt selective enforcement of Open Look compliance until it has a large number
of developers.


•  SONY MOVES WORKSTATION FOCUS TO US

Sony seems to be learning the role of software in selling computers.  Although
its “NEWS” workstations have achieved some success in Japan, they have not sold
well in the US or elsewhere.  Now Sony has decided to offer the OSF/Motif
interface for its machines, apparently replacing the Sony-proprietary interface
which had been bundled with them.  Sony also created a workstation OS
development group in San Jose, staffed primarily by American engineers.  The
company said developing software in the US will help it retain its edge in
Japan, and make it more competitive overseas.

Sony will need to do more than fix its software in order to make itself a
workstation success, but it’s patient and willing to experiment with different
strategies.  This approach could eventually pay off and give Sony access to the
market we think it really wants:  general-purpose personal computers.


•  DELL GOES RETAIL

Dell Computer announced that its products will be sold through the
SoftWarehouse chain of computer “superstores.”  This is the first move away
from mail order for Dell, and the first “name” computer brand for
SoftWarehouse.

Some analysts interpreted Dell’s move as a sign of weakness in its mail-order
channel.  We think it means just the opposite -- SoftWarehouse is one of the
hottest chains in computer retailing, and Dell just locked up a very strong
position in its stores.  As SoftWarehouse puts Compaq and IBM dealers out of
business, Dell will take share from those companies.  This is how channel
evolution changes the marketplace, if the leaders don’t react to the change.
So far, Compaq hasn’t reacted at all, and IBM has done only a little with its
PS/1 line.


•  PRICE POINTS

A lot of retailers will tell you that there are certain natural “price points”
for the products they sell -- prices which generate a lot of volume, and toward
which product prices gravitate.  For instance, $999 is often assumed to be a
very strong price point for many businesses, because it’s the highest price
less than a thousand dollars.

In an informal survey of more than 500 advertised prices, the most popular
price point for computers was $1,699.  More computers were advertised at that
price than at any other.  There were also clusters at $999, every $100
increment from $1,000 to $2,000 except $1,099, and at $2,699 and $2,799.

These are prices for CPUs only, sometimes not fully configured, so the actual
price paid by a customer is higher.  But the results clearly indicate that most
of the advertising action is in systems priced under $2,000.

(That $1,699 gets you either: a fully-configured 386sx machine [color monitor,
hard disk] from a no-name clone vendor, a fully-configured 286 machine from a
second-tier vendor like AST, or an AST 386sx without a monitor.)


•  PROBLEMS OF THE DEALER CHANNEL

It’s almost a cliche that there are serious problems in the dealer channel,
especially in the US.  Two recent tidbits illustrate this:

--In the last 12 months, average sales volume for the 12 largest PC dealer
chains was up 12%, but earnings were down 85%.  They’re selling more, but
making almost no money on the sales.

--Computer Factory recently increased the base pay of its sales representatives
by 25% to 50%, to a new level of $18,000 to $22,000.  The company said this
will let it attract and retain better people.  Of course they get commission on
top of this, but even so you can’t picture a minicomputer or mainframe
representative accepting that sort of pay.


•  PHILIPS COMPLETES FOLDING OF VENDEX / HEADSTART INTO MAGNAVOX

Philips has now established Magnavox as its brandname for PCs in North America.
It has introduced three new product families.

-- The HeadStart family consists of several new 286- and 386sx-based models
ranging from $1999 to $2999 for full systems without monitors.  All models
feature a large software bundle and optional CD-ROM drives.  HeadStart systems
are sold in consumer electronics stores, computer retailers and Montgomery
Wards.

-- The MAXstation product family is positioned as being more powerful than the
HeadStart series yet is sold paradoxically via mass merchants and catalog
showrooms.  The two MAXstation models list at $1899 and $2399.

-- The Magnavox Magnum line is aimed at small businesses buying in quantity via
Price Club, CostCo and Sam’s Place wholesale clubs. Two models list for $2299
and $2799.  Optional color 14” VGA monitors for all the above systems are
available at $499.

Philips’ new product lines are a good example of targeting market segments by a
combination of product technology, different brandnames and distribution
channels.  This will become increasingly necessary in the commodity PC
industry.


Other Developments:

•  IBM Moves Portable PC Development to IBM Japan

IBM’s laptop PC R&D and manufacturing will be moved to its Japanese subsidiary.
IBM Japan has had a couple of designs in the Japanese market, while IBM’s US
efforts in the portable PC arena have been laughable.  So look for IBM’s US
offering to become much more competitive by mid-1991.

•  Matsushita & Tandy Manufacturing Joint Venture

The new firm begins making 80286-based laptops in October.  The finished goods
will be sold under the Tandy and Panasonic brand names.  Tandy already supplies
Matsushita with some desktop models on an OEM basis and Matsushita has been
making one of Tandy’s portable models.  (Matsushita also manufactures for IBM
in the US and in Japan)  This is becoming an increasingly popular way of
lowering costs and risks for PC manufacturers.

•  New HCR (Handwritten Character Recognition) Notebook PC

Active Book Co., Ltd., an English startup, is developing a $2000, 4 pound
notebook PC.  It uses a 10 mips Acorn Risc Machine processor running the Helios
UNIX operating system.  The stylus-based, LCD system is about the size of a
legal notepad and features 3.5 inch floppy drive, up to 8 MB RAM and a
9600-baud modem.  The interface is modeled after daily schedulers and includes
hyperlinking.  Availability is scheduled for Q1 1991.

_________________________
Covered elsewhere:
    IBM PS/1 anouncement
    IBM & Microsoft Split Development of OS/2
    NeXT’s Next Step
These reports can be found in the Competition/Customers icon on AppleLink (look
in the "New Information" folder).


_________________________
Compiled by members of the Competitive Analysis staff:  Michael Bobrowicz,
Brian Fant, Dave Garr, T. Erik Hokanson, Michael Jay, Ken Lim, Michael Mace.

We welcome your comments.  Please link us at COMPETITION.