Big Blue Aims to Get Bigger

By Charles P. Alexander

IBM names a boss and moves deeper into telecommunications

The colossus of the computer industry took some giant steps last week, sending shivers through competitors that stand in its path. In a pair of sudden moves, International Business Machines (1983 revenues: $40 billion) demonstrated its determination to boost sales and broaden its product line. The Armonk, N.Y., company announced a deal to acquire, for $1.25 billion, 100% of Rolm, a leading manufacturer of telecommunications equipment based in Santa Clara, Calif. IBM already owns 23% of Rolm (fiscal 1984 revenues: $660 million), but Big Blue, as IBM is nicknamed for its corporate color, had previously said it would not seek control of the smaller company. On another front, IBM introduced two lines of business software for personal computers and thus stormed into a field that has been dominated by small firms. Said Esther Dyson, editor of the industry newsletter RELease 1.0: "IBM wants it all and needs it all. The company has a biological urge to grow."

To lead its competitive charge, IBM named a new chief executive. John Akers, 49, currently the company's president, will take the helm from Chairman John Opel on Feb. 1. Opel will be 60 in January, and IBM's leaders traditionally step aside at that age. Akers is a 24-year IBM veteran who started out as a sales trainee and moved up through marketing.

If the acquisition of Rolm is approved, as expected, by federal antitrust authorities, it will be the first time that IBM has bought 100% of a firm since its 1962 purchase of an educational publishing house. In 1969 the Justice Department sued IBM for trying to monopolize the computer business, and that marathon case inhibited the company from shopping for partners. The shackles came off in 1982 when the Government dropped the suit.

Rolm's specialty is a type of electronic switching system known as a PBX (for private branch exchange). Used primarily in large offices, PBXs relay calls between telephones and data between computers. For more than a decade, IBM has tried unsuccessfully to develop a market-winning PBX. By buying Rolm, IBM is challenging the telecommunications supremacy of AT&T, the largest manufacturer of PBXs. This year AT&T invaded IBM's domain by introducing personal computers and minicomputers.

For IBM, the purchase of a telecommunications firm was logical and perhaps inevitable. Reason: the instant transfer of information between computers that may be thousands of miles apart is almost as important as the work that goes on inside the machines. As a result, the telecommunications and computer industries are converging. IBM and Rolm are believed to be preparing to unveil a desktop terminal, code-named Mesquite, that will function as both a telephone and a personal computer.

Some industry observers are dubious about the prospects of a happy marriage between IBM, a huge company that is famed for its buttoned-down, highly regimented managerial style, and Rolm, a 15-year-old firm nurtured in the free-spirited environs of California's Silicon Valley. Said Ulric Weil, an industry analyst for the Morgan Stanley investment firm: "History shows that acquisitions of this type, when you mix corporate cultures, don't work. IBM is taking a big risk." Rolm employees set their own work hours; a million-dollar recreation center at the firm's campus-like headquarters includes two swimming pools, an exercise room, a sauna and tennis and racquetball courts. Even so, Rolm is not as informal as many other Silicon Valley firms, where jeans and open-necked shirts are in fashion. Rolm's senior executives and marketing managers normally wear business suits to work and could easily be mistaken for their counterparts at IBM.

In a memo last week, Rolm President Kenneth Oshman assured his employees that "our partners at IBM recognize the need to preserve Rolm's culture and informal style." Feelings within the company were mixed. Said a Rolm marketing manager: "There is a vague disquiet about the takeover and a feeling that something has been lost, but no great sense of panic."

The debut of IBM's new business programs has caused more than vague disquiet in the $2.2 billion personal-computer software industry. Big Blue has developed 31 different programs that can perform such tasks as compiling payrolls, drawing graphs and creating reports. Until now, all the personal-computer software that IBM sold was produced by other companies. IBM's new programs will compete most directly with the popular ones sold by Lotus Development of Cambridge, Mass., and Ashton-Tate of Culver City, Calif. Some experts are confident that small companies can hold their own in the software competition because they are often more inventive than IBM, which is known more for its marketing prowess than its creativity. "IBM software is not likely to be on the leading edge," said Douglas Cayne, a technology specialist at the Gartner Group research firm. "Major innovations will continue to come from small companies and entrepreneurs." Other industry watchers, however, fear that IBM's aggressiveness could hurt the long-term health of the electronics business. Said Benjamin Rosen, chairman of Se-vin-Rosen Management, a venture-capital firm: "It will have a chilling effect on future investment in innovative start-up companies that would be vulnerable to IBM competition. Investors are afraid that they will be trampled by the stampeding elephant."

The industry is already waiting for IBM's next acquisition. Predicts Morgan Stanley's Weil: "Now that the precedent has been set and the taboo broken, IBM won't stop at Rolm." One possible target is Intel, a leading manufacturer of semiconductor chips, the key components of computers. IBM already owns 20% of Intel and may decide to go for more. --By Charles P. Alexander. Reported by Thomas McCarroll/New York and Michael Moritz/San Francisco

With reporting by THOMAS McCARROLL, Michael Moritz