A Settlement for IBM

Peace negotiators have been meeting secretly for the past year at law offices in Manhattan and Minneapolis-St. Paul to settle a long and chafing conflict between two industrial powers. On one side was International Business Machines Corp. of Armonk, N.Y., the world's largest maker of computers; on the other was Control Data Corp. of Minneapolis, which ranks fifth in the U.S. computer industry. Last week the companies announced an agreement: Control Data lawyers consented to drop the company's four-year-old antitrust suit against IBM.

Both sides could claim a victory.

IBM, which controls at least two-thirds of the entire computer market and has a reputation as a tough and unrelenting competitor, had been accused in the suit of all sorts of monopolistic mischief. With the settlement, IBM executives disposed of the antitrust complaint without having to admit to the charges.

IBM may also have weakened another serious challenge. The Justice Department has its own antitrust suit pending against IBM, and Government lawyers have been relying on Control Data attorneys for help in understanding the labyrinthine complexities of the computer business. As part of the settlement. Control Data agreed to end that assistance.

In return for dropping its suit, Control Data won a good deal. For about $16 million, it will acquire IBM's Service Bureau Corp., a subsidiary that processes customers' data and sells time on its own computers. Wall Street analysts reckon that the Service Bureau's real market value is closer to $60 million. In addition, IBM will buy services from the bureau for five years, stay out of the services business itself in the U.S. for six years and reimburse Control Data for $15 million in legal fees spent on the case. Total cost of the package to IBM: at least $80 million. William C. Norris, Control Data's one-man-gang chairman, said that the daring suit had turned out to be "one of the best management decisions in our history."

Norris has long held a grudge against IBM. Control Data, founded in 1957 by Norris and seven other computer engineers who quit Sperry Rand Corp., rose to prominence by concentrating on a part of the market that IBM did not dominate: the large computer used mainly in scientific research. In 1963, Norris' engineers came up with the biggest "number cruncher" of all, the 6600. But before Control Data could put it on the market, IBM announced that it would introduce a giant computer of its own, the System 360 Model 90. Such is the magic of IBM's name that a word from Armonk was more persuasive than a machine from

Minneapolis. Control Data was technologically far ahead in the contest, but IBM's announcement dried up orders for Norris' 6600. In a rage, he filed the antitrust suit.

Norris' reprisal will speed Control Data's financial recovery. The firm lost a total of $46 million on computer operations in 1970 and 1971, but will probably report a small profit on them for 1972. Acquiring the Service Bureau, which last year earned $1.5 million on revenues of $63 million, will swell Control Data's profits, as well as make the company a power in the services business. Control Data now has 27 service centers of its own and will pick up 44 more from the Service Bureau.

IBM executives have been close-mouthed about the settlement, but competitors see it as an admission that the men from Armonk are taking the threat of antitrust more seriously than they have admitted. Last week the company reported record net income of $1.3 billion on record revenues of $9.5 billion for 1972. Still, says Control Data's Norris: "We found that IBM marketing pressures that we had challenged lessened considerably" after the suit was filed. Until the Justice Department's antitrust challenge is resolved, IBM may well avoid any attempt to fold, spindle or mutilate the competition.

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