Going From Gloom to Boom

By Gordon Bock

"The slump is over," crows Tandy Chairman John Roach. Indeed, Roach and his computer-industry rivals have reason to feel a sudden rush of confidence. After being relatively cool to personal computers for three years, customers are snapping them up faster than a high-speed printer spews out sprocketed paper.

The big four in personal computing -- IBM, Apple, Compaq and Tandy -- logged first-quarter unit sales of PCs that were about 10% higher than last year's. Industry analysts expect the spurt to signal the start of a lasting recovery. The Dataquest market-research firm predicts that personal- computer unit sales will rise 14% for the year as revenues surge 19%.

The industry's fortunes first flagged in 1984, when many corporate customers who had bought PCs began to find they were too difficult to use and too limited in their applications to be practical. Millions of the machines had become little more than expensive paperweights. But over the past year advanced technology has begun to turn things around. Faster, easier-to-use models came to the market, and more are on the way. Just as important, innovative software for old and new machines has made personal computers more versatile. It is now possible to turn out printshop-quality graphics -- and design everything from cabinets to cathedrals -- on the space of a desktop.

New hardware components promise to expand horizons and boost sales even more. A silicon chip known as the Intel 80386 microprocessor already runs Compaq's IBM-compatible Deskpro 386, giving it the power of bigger minicomputers for the price of a PC. At Apple, design engineers use a Motorola chip comparable to Intel's for their Macintosh machines, now the industry's hottest-selling family of personal computers.

IBM's sales will gain momentum when the world's No. 1 computer maker begins summer shipments of four new models using the Intel chip. Once the machines get their full complement of software sometime next year, they are likely to set new performance standards. But customers no longer hold their breath for the latest gear with IBM's distinctive blue markings. Even though buyers knew for much of 1986 that IBM was readying the new line, "they needed new machines and were not going to wait around forever," says Bill Lempesis, a Dataquest analyst. While some settled for deeply discounted older IBM models, others turned to Tandy, Compaq and Apple.

In addition to offering fresh technology, PC manufacturers are getting savvier at marketing their wares. Apple Chairman John Sculley, former president of Pepsi-Cola, has visited many Big Business cronies to tout the Macintosh. The result: Apple's sales to the commercial market have nearly doubled since 1984, and the Mac is seen as a tool for executives instead of just a plaything for students and hobbyists. As Sculley told TIME: "We had to reposition the whole company."

Corporate customers have a new appreciation for the potential of the personal computer. Increasingly, they are stringing together networks of PCs and utilizing the equipment to the fullest. "Everybody has finally started figuring out how to use all these screens, keyboards and wires to their competitive advantage," says Analyst Jonathan Fram, of Bear Stearns.

The buying surge is lining the pockets of computer makers. Compaq, having rocketed last year to the rarefied ranks of the Fortune 500 in just its fourth year of operation, saw first-quarter profits jump 142%, to $20 million. Apple is so awash in capital that it has declared its first cash dividend, a bonus for stockholders, whose shares marched from 30 a year ago to 80 by the end of last week. Tandy, the No. 2 maker of IBM-compatible machines behind Compaq, pushed its quarterly earnings up 20%. Even IBM, which has been hard hit by competition from these rivals and Asian manufacturers of so-called clones, racked up what the normally closemouthed company boasts is a record quarter in PC sales.

No one expects numbers like these to continue apace for the year. Gone are the go-go days of the early 1980s, when revenue growth topped 60% for three years in a row. But most analysts guess that the good news should last into 1988. After a slump, even a small step toward recovery is reason to rejoice.

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DESCRIPTION: Line graph showing actual and projected shipments of personal computers in millions of units, 1984 to 1987 on background illustration of personal computer terminal and operator.