US_vs_IBM_Exhibit_14971_part_2_Jul80 US Vs IBM Exhibit 14971 Part 2 Jul80

US_vs_IBM_Exhibit_14971_part_2_Jul80 US_vs_IBM_Exhibit_14971_part_2_Jul80

User Manual: US_vs_IBM_Exhibit_14971_part_2_Jul80

Open the PDF directly: View PDF .
Page Count: 713

Download
Open PDF In Browser	View PDF

[7/22/80J

Historical Narrative
The 1960s
Table of Contents

IV.

IBM's Systern/360 and the 1960s

269

34 .

269

IBM

a.

3000

b.

The Spread Repo"l'

Seri~s

(i)

Price/Pe~

(iii)
(iv)
(v)

(vi)
(vii)
(viii)

Spread Committee

'nd S/360 .

.

.

.

27]

.

~ and Technoa.4ip--Generally

278
279

Systern/360 Component Technology

282

Single Family for All Applications

290

System/360 Compatibility

296

Emulation

304

Systern/360 Soft\..;are

311

System/360 Peripherals .

314

Standard Interface/Modularity

332

Appendix:

36.

th~

..Jrn.
logical LeadE:

(ii)

35.

and

Examples of System/360 Uses

Al

The System/360 Commitment . . • .

341

a.

Preparation for Announcement

357

b.

360's Success and Impact on IBM.

367

Initial Competitive Responses to System/360
a.

RCA

b.

GE

c.

CDC

. . . .

.

. . .

· ·
· · · . . · · . . . · ·
· · .
· · ·
. · ·
· · · . . · ·

376

377
379
381

2

37.

d.

Sperry Rand

e.

Burro~ghs

f.

Honeywell

g.

SDS

. b.

382
383

............

.

.......

IBM's Responses

a.

38.

...

-

383

.........

(1964-66)

385

l1C!l1ory Improvements .

.386

•

~

c.

Tape Drive Improvements •.•

d.

Disk Drive Improvements •

e.

Introduction of the Nodel 20

f.

The Model 90 Program

401

g.

The 360/44

412

h.

The 360/67

417

.

.

390
393

.... .

Educational Allowances

UnDundling

395

437

. . . .. . . . . . .
. . . . . . . . . .. .

444

IBM I

S

a.

Introduction

b.

The Continued Demand For Bundling
in the 1960s • • • • • • • • • • • •

458

IBN's Unbundling Announcement.

462

c.
40.

385

Reduction of Extra Shift Usage Charges

IBM's Educational Support Programs

39.

383

451
451

Sperry Rand/Univac

473

a.

univac's Problems in 1964 • •

473

b.

The 1108

477

c.

The Product Line Task Force .

480

Page

41.

The 9000 Series • •

e.

Univac's Success in the Late 1960s

General Electric

482
486

..........

488

a.

The GE 400 Series •

490

b.

The GE 600 Series

493

c.

Time Sharing

d.

False Starts

e.

The Management of GE's Computer'Operation .

516

f.o

GE IS Position in the Late Sixties • . • • •

523

h.

?he Ventures Task Force and the Decision
to Disengage
• • • • ~ • • • • • • • •

533

i.
42.

..........

d.

Did GE Lose Honey

...

RCA

......

a.

RCA 3301

b.

The Spectra 70 Series
(i)
(ii)
. (iii)

(iv)

c.

···
..···..
· . .
···

Compatibility with System/360

(ii)
(iii)

512

543
547
547
551

...

Commercial and Scientific Ability
of Spectra 70 Series . • • • • •
Problems with Spectra 70 Series

505

552
558

· ...

RCA Success with the Spectra 70 Series

RCA Computer Systems Division 1969-1971
(i)

d.

·..
·..

560 ·
575
578

Changes in Management Personnel
and goals
• • •

578

The RCA Series . . .

583

• • • . • .

Computer Systems Division's
Prob1ems--Early 1970s • • •

RCA's Decision To Sell Its Computer
Business To Sperry Rand . . • . • •

595
606

4

e.

After the Sale to 'Sperry Rand • •

(i)
(ii)

f.

43.

~ctivities

•••••

Sperry Rand's Success with RCA's
Computer Systems Division • • •

615
616
616

Conclusion

HoneY'vel1 •

619

a.

The 200 Series

619

b.

Problems and Solutions

626

(i)
(ii)

44.

RCA's

615

Otlv~r

Systems

626

r~ri~hs~als

628

c.

Marketing Practices

630

d.

Product and Service Acquisitions
and Expansion •
• • •

632

Burroughs • •

a.

Burroughs in 1964:
(i)
(ii)

b.

Problems and Changes

638

Reduction of Expenses

640

Increased Product Development

642

Computer Development 1964-1969

643

(i)

The 500 Systems Family •

644

Smaller Computers

650

(ii)
(iii)

c.

638

Peripherals

........

Burroughs at the End of the 1960s •

653

654

45.

National Cash Register

657

46.

Control Data Corporation (CDC)

670

a.

CDC's 6000 and 3000 Series Offering
(1963-1969) • • • • • • •
• •••
(i)

The 6000 Series

671

671

5

Page
'(ii)
b.
c.
d.

e.
f.
47.

SLS

a.
b.
c.
d.
e.
48.

49.

The 3000 Series

-

·········

CDC's Expansion into Commercial
Data Processing

········

678

····
Data Centers
·············
CDC's Acquisitions (1963-1969)
····
Conclusion
···
····
···
· .. · · · · .. · ..
The SDS Entry Strategy
···
···
The SDS 910
··············
The Expansion of the SDS 900 Series
· ·· ·
The Sigma Series
·······
The Merger
· ··
···· ···

CDC's Expanding Peripheral Business

...

Digital Equipment Corporation

·

PDP 1, 4 , 5 and 7

b.

PDP

682
684
686
690
091
693
695
696
703
711
713

·······
6
·· · ··
·
···
8
······
·····
10
· · ·
···
15
···

a.

677

····
····· ·
· · ··
· · · · .. .

718
721
,J

c.

PDP

d.

PDP

e.

PDP

f.

PDP 11

g.

Peripherals and Soft\vare

731

h.

Competition

732

AT&T

..···

···

· · ·

···
· · · · · · · · ·
··· ···
··· ···

Competition for Bell System EDP Business
Other AT&T Competition

· · · · · ·

722
727
729
729

736
737
746

6

Page

50.

The Emergence of IBI1 Plug-Compatible
Manufacturer (PC}l) Competition

a.

From OEN to PCH

b.

PCr.! Entrants

750

····

753

·····

····

762

······
····
······
··

762

· · ·
(vi) Sanders Assr .Lat_, - Inc •
·······
c. PCB Price Competition and Success
···
Leasing Companies
····
···
····
a. An OvervieT,v of Leasing Company Operations
·
(i) The InvesL'"TIent Tax Credit
····
(ii) Harketing Costs
·····
(iii) Capital Availability and Cost
····
b. The History of Leasing Companies in
the 1960s . .
· ··· ·
········
(i) Leasing Company Growth
·
· · · · ·

776

(i)

Telex

(ii)

Ampex

(iii)
(iv)
(v)

51.

····

(ii)

(iii)
c.

Mernorex

ISS

.·····
···
······

CalComp/Centu"

..

'ata Systems

The Emergence of Netv Challenges
Diversification

···

···

····
Greyhound
· · ·· ··
·· ···
Boothe Computer Corporation
····
Itel . .
· · · · · · · · · · · · · ·

765
767
775

777
780
797
797
800

801
803
805
807
814
818

Some Individual Companies

·

819

(i)

·
·
·

819

(ii)

(iii)

821
824

7

Page
d •. The Effects of Leasing Companies on IBM
52.

...
.....

Service Bureaus -• • • •

826
831

a•

Entry and

b.

Time Sharing and the "Computer Utility"

835

c.

Competition • •

840

Gro~vth

831

53.

Software Companies

851

54.

The Role of the Federal Government

866

55.

Planning for New Products ••

878

c.

Introduction

878

Tape Drive Development: The 2420 and
3420 (Aspen)
••••••

885

Disk Drive Developments: The 330 (Merlin) I
2319 and 3340 nvinchester)
...
. •.

898

(i)

The 3330· (Merlin)

898

The 2319 and 3340 (Winchester)

902

New Processor Planning eNS and System/3)

907

(i)

Monolithic Logic and Memory

907

System/3.

911

Virtual Hemory .

913

NS Prices

918

(ii)

d.

(ii)
(iii)

(iv)
e.
56.

57.

Conclusion

..... . . ...

922

Growth of the EDP Industry

923

a.

Increase in the Number of Users of Computers

926

b.

Expansion by Existing Computer Users

928

c.

Explosion of New Applications of Computers.

929

d.

Improved Price/Performance and Ease of Use.

937

Conclusion

944

I
I

!i
I

,I
I!

IEM'S SYSTEM/360 AND THE 1960S
34.

IBM.

The 1960s for IBM was an era of great change,

3:

of great risk and difficulty and most of all a decade marked by the

4. ~

phenomenal success of IBM IS 'System/360.

it

*

T~e 360 story begins in

·
t
I

5 !'

I

I
I

*

Several witnesses actively participated in the planning, development and execution of the System/360 program. Their testimony
provides us with a useful means of understanding this critical
period in IBM's history.

ro
•

1

!

I

L21r
L3

il

Erich Bloch was the engineering.manager of Project STRE~CH from
October 1958 to April 1961, and "was responsible for the circuit
design and systems organization and implementation".
(E. Bloch, Tr.
91468.)
In April 1961, Bloch headed IBM's Advanced Technology Study
Committee, which was established to recommend the appropriate logic
component technology for future products.
(E. Bloch, Tr. 91492.)
From June 1961 to September 1964, Bloch led IBM's development of
Solid Logic Technology and "was responsible for the development,
design and pilot manufacturing of the SLT family of components and
packaging and their manufacturing l1 •
(E. Bloch, Tr. 9146 ':-.')9.)

:t~

Dr. Frederick P. Brooks, Jr., hired by IBM in 1956 as an engineer,
helped to design the architecture of the STRETCH computer.
(Brooks,
Tr. 22650-51.)
In 1960, Brooks became Systems Planning Manager of
the Data Systems Division (DSD) and was responsible for developing
"the plans and architecture" for the 8000 series.
(Brooks, Tr.
16 :! 22656-57,
22665.)
Brooks served as Manager of IBM's New Product
...
i! Line project from 1961 until 1964 and was responsible for "think [ing]
~/ q
through the technological and architectural approach to a total corpo(Brooks, Tr. 22656-57, 22666-67.)
From
18 :1 rate-wide product line".
:1 early 1964 to the summer of 1965, Brooks was Manager of Operating
19 :! System/360 (Brooks, Tr. 22673-74) and headed the design and develop(Case, Tr.
:i,I ment activities for System/360's progr~~ing support.
77966-67.)
ZOi:,

:1\

?,

:1
,I

Richard Case, in 1962, was a member of the Advanced Systems

.... :! Group which was responsible for the design and development of System/
.j

II

!

22 :i 360, and personally headed the engineering group which was at that time!
(Case,
!
.i designing what was announced as the IBM System/360 Model 60.
,.... ;1 Tr. 72010, 73235-38.)
During this time fr~ue, Case also served on
~
IBM's Architecture Committee (Case, Tr. 72008-09; DX 3538), which
was responsible for developing System/360's architecture.
(Case, Tr.
24 72008-09.) Case's function on the Committee was to represer.t
all of
the 360 engineering groups.
(Case, Tr. 72012, 73238.)
In 1964 to
1965, Case was Assistant ~anager of OS/360 (Case, Tr. 77966-67;
DX 3538) and assisted Dr. Frederick Brooks (~anager of OS/360) in the
I

-269-

;'

IEM'S SYSTEM/360 AND THE 1960S
34.

IBM.

The 1960s for IBM was an era of great change,

3:

of great risk and difficulty and most of all a decade marked by the

4. ~

phenomenal success of IBM IS 'System/360.

it

*

T~e 360 story begins in

I

t

5 !'

I

I
I

*

Several witnesses actively participated in the planning, development and execution of the System/360 program. Their testimony
provides us with a useful means of understanding this critical
period in IBM's history.

ro
•

1

!

I

L21r
L3

il

Erich Bloch was the engineering.manager of Project STRE~CH from
October 1958 to April 1961, and "was responsible for the circuit
design and systems organization and implementation".
(E. Bloch, Tr.
91468.)
In April 1961, Bloch headed IBM's Advanced Technology Study
Committee, which was established to recommend the appropriate logic
component technology for future products.
(E. Bloch, Tr. 91492.)
From June 1961 to September 1964, Bloch led IBM's development of
Solid Logic Technology and "was responsible for the development,
design and pilot manufacturing of the SLT family of components and
packaging and their manufacturing l1 •
(E. Bloch, Tr. 9146 ':-.')9.)

:t~

Dr. Frederick P. Brooks, Jr., hired by IBM in 1956 as an engineer,
helped to design the architecture of the STRETCH computer.
(Brooks,
Tr. 22650-51.)
In 1960, Brooks became Systems Planning Manager of
the Data Systems Division (DSD) and was responsible for developing
"the plans and architecture" for the 8000 series.
(Brooks, Tr.
16 :! 22656-57,
22665.)
Brooks served as Manager of IBM's New Product
...
i! Line project from 1961 until 1964 and was responsible for "think [ing]
~/ q
through the technological and architectural approach to a total corpo(Brooks, Tr. 22656-57, 22666-67.)
From
18 :1 rate-wide product line".
:1 early 1964 to the summer of 1965, Brooks was Manager of Operating
19 :! System/360 (Brooks, Tr. 22673-74) and headed the design and develop(Case, Tr.
:i,I ment activities for System/360's progr~~ing support.
77966-67.)
ZOi:,

:1\

?,

:1
,I

Richard Case, in 1962, was a member of the Advanced Systems

.... :! Group which was responsible for the design and development of System/
.j

II

!

22 :i 360, and personally headed the engineering group which was at that time!
(Case,
!
.i designing what was announced as the IBM System/360 Model 60.
,.... ;1 Tr. 72010, 73235-38.)
During this time fr~ue, Case also served on
~
IBM's Architecture Committee (Case, Tr. 72008-09; DX 3538), which
was responsible for developing System/360's architecture.
(Case, Tr.
24 72008-09.) Case's function on the Committee was to represer.t
all of
the 360 engineering groups.
(Case, Tr. 72012, 73238.)
In 1964 to
1965, Case was Assistant ~anager of OS/360 (Case, Tr. 77966-67;
DX 3538) and assisted Dr. Frederick Brooks (~anager of OS/360) in the
I

-269-

iI

1 :: the 1960-61 time ?eriod.

~.s

we have seen, by that ti:ne IB:-l

:1

" Ii was marketing more than 15 different processors and at least

'" i!

:j

3

il seven
:1

II

separate lines of second generation computer systems.
.

4 I (See above, pp. 126-49.)

The architecture of those systems was

1

5

I "quite dissimilar", as was their programming.

6

liP.

3925.)

(DX 4740, Evar.s,

Whatever software compatibility there was existed

I,'I

7 I,onl y over a very narrow range of processor performance.
I;

8

;1
;1
!I - - - - - - - - - - -

9 ildesign and development of System/360's programming support.
(Case,
i!Tr. 77966-67, see also Tr. 77977, 77982.)
Case was a co-i~ventor on
10 I' the original System/360 patent.
(Case, Tr. 71998-99; DX 3538.)

Pla~ning

II
II

Bob o. Evans was Director of Systems Development and
for DSD from early 1961 to mid-1962 (Evans, Tr. 101269; DX 8081 (Tr.
12 11101035)), and initially responsible for "personally evaluating . . .
'I the 8000 series" and deciding whether IBM should pursue the project.
13! (Evans, Tr. 101269.) During this period, Evans also served as ViceiiChairrnan of the SPREAD Committee.
(Evans, Tr. 101270; DX 1404A, t'. 3
14!! (App. A to JX 38).) In the 1962 to 1965 time frame, Evans was VicetjPresident of Development for eSD (DX 8081 (Tr. 101035)), and assumed
15 il "worldwide responsibili ty for coordination of the development" of
:1 System/360.
Evans, Tr. 101061.)
16 !I
:1
Paul W. Knaplund was Manager of Systems Marketi:1g for the Da ta
17 :i Processinq Di vision (DPD) in 1960 and was responsible for understand!jing and i;forming IBM's product divisions of ~the functions and
18 ;~ prices necessary for IBM products to be economically attractive t':J
:!users".
(Knaplund, Tr. 90467, see also DX 9033 (Tr. 90458).)
In the
19 :1 latter part of 1960, Knap1und became Manager of Systems Development
llfor the General Products Division (GPD) and was responsible for pro20 ;1 jecting profitability for and meeting profitability objecti~Tes of
ilvarious IBM products, including the 1401 and 1620 processors and !3~
21 !!unit record equipment.
(Knap1und, Tr. 90464-68; see also DX 9033
'; (Tr. 90458).)
In 1963 Knaplund was named Assistant Group ExecutiiJe,
22!Product and Profit Planning for the Data Processing Product Group ~p~
:i (Knap1und, Tr. 90474: OX 9033 (Tr. 90458)), and "was directly in~]'lJlved;
23 :Iin the preparations and discussions that resulted. in the System 360
,announcement of Aoril 7,1964".
(Knaolund, Tr. 90474-75.)
In t::e
24 ::1964 to 1966 ti:ne- frame, Knaplund ass~rned further executiile respc:1si~ibilities as Vice President and Group Executive of the Data Precessi:::r
25 ilproduct Group, and as "Jice President and Group Executive of the
:!Svstems Develoornent and :1anufact.uring Group, which reauired hin 'Ite
II d~al with functional, pricing and schedule - issues" reiati:1g to SyS't2!:1
11360 and othe= ?roducts.
(E· A to JX 38).)

DSD and GPD were achieving great success in the

I

24 dmarketplace with their current

25 [11401.

(DX 1404A,

pp. 81-82,

linp~--9articularly

85,

86,

il

II
11

I!
:,
!l

~I

-271-

89

with the 7090 and

(App. A to JX 38).)

In fact,

i

i
lithe 1401, which had been announced in October 1959, was the most suc2 IlcessfUl computer system that IBM had ever introduced, with domestic
II

3 Ilshipments of more than 1600 by year end 1961.

1404A, p. 75

(DX

II
4 II (App. A to JX 38); ox 2609B, p. 94.)*
I.

5

II

Nevertheless, neither of the Divisions was resting on its

6 !Ilaurels; they were planning for the future.

If IBl1 was to conti.nue

7 lito compete successfully, it would have to commit itself to the develi
8 lopment of even better products. Such a commitment would require large
I

9 Ilfinancial investments by IBM.

T. J. Watson, Jr"

IBM's Chairman,

10 Ijfull Y understood this requirement and reported the following to IBM's
11 IjManagers in an April 24, 1961, Management Briefing:

II

12 II

13
14

11

il
:1

15 II
II

n[OJur competition is getting stiffer all the time . . . .
The best way to meet this competition is to keep our prices
competitive. Prices involve costs and earnings . . . . We need
constantly to spend :arge sums in research and development of
new products which will not produce revenue for some years to
corne. Without funds for this vital expense, competition would
eventually surpass IBM."
(DX 8886, p. 43.)
Thus, within both divisions, improvements and extensions to

16 "
17 :[the then current product lines were being developed.
-

:III

At GPO, Engineert

'j

18 ,:ii ing Manager Ernest S. Hughes, Jr.

(DX 1399, p.

2 (Tr. 33869)), had

19 l!set up two groups of engineers--one to pursue improvements to the

II

I'

20 11 1400 family and another to outline and define a replacement for the
21111400 family.

(Hughes, Tr. 33915.)

At DSD, development was even

il

,I

22 :iII further alone.

A machine called the 8106 had been under design for

'i

:1
23 "some
years and was already under construction within DSD when
,I

24 iI"j _________________________
II

* ~Ale are aware that DX 2609B is not in evidence but v-Te rely on it
!I because it represents a s".,.;orn response by a.n IBM executive which
reflects information taken from IBM t s accountincr- books and records.
,I

2511
11'1

iI
'I

'1'1

It

il

~I

-272-

,
Dr. Frederick P. Brooks, Jr., came to the Division in 1960 as Systems

Planning Manager.

Thereafter, IBM began to develop the 8106* into a

series of machines called the 8000 Series.

(Brooks, Tr. 22771.)

By

1961, IBM had spent many mill;i.ons of dol'lars en t.he 8000 Series

• i

'!. development.

(Evans, Tr. 101047.)

I

Despite the relatively advanced state of the 8000 project

: J'1
;\

•. J and the money IBM had already invested in it, there was "vigorous

, ':1I
I

debate" within the company over !,yhether the 8000

~:

proceed.

(Brooks, Tr. 22665-66.)

~vas

the right way to

With the first elements of the 8000

I

J nearing

~

:\ Systems Development and Planning for DSD, was charged with evaluating

annour.cemen t , B. O. Evans, who at tha 1:: time was Directo r

the 8000 to determine

, ;1

~vhet.1.er

it was a "leadership" program.

0

f

(Evans,

- 'I

l -I Tr. 101045-46, 101269.)
~:IT.

Evans was charged by DSD's Group Executive,

V. Learson, to get the 8000 into

::1 thing to do or,
,. :~!' that

if it was the right

if Evans thought the 8000 Series was the wrong

approach, to do what was right.

~ :1'

:

produc~ion

(Evans, Tr. 101046.)

Evans concluded

the 8000 Series was "wrong" for a variety of reasons:

~I

f

One, the family was based on "contemporary transistor tech-

3 :1

'I

9

In Evans' vier,y ,

:\

nology" and would not be "far-reaching enough".

'1

it would have been a "terrible mistake" to build a new family of

.i
.j

a:,I
I

..- .!I

machines that could be rendered obsolete by competitive products'

I

.~

·l

2 .,

incorporating much better transistor technology that ".,ould soon

I

,--

\

... I

be available.

(Evans, Tr. 101048; see also OX 4773, 9. 3.)

* The 8106 was an outgrowth of the STRETCH program.
22771. )

-273-

(BrooKs, Tr.

11

!I

~,

1 :1

the 8000 had a "lackluster" plan with respect to

I

i

peripherals.

Zi

(Evans, Tr. 101048-49.)

,I

Three, the 8000 Series was planned to be "a range of five

3

4-

different machines:

a small scientific machine,

a small business

machine, a medium to high performance business machine, a higher
speed scientific machine .
(Evans, Tr. 101051.)

.

• [aJ

superspeed scientific machine.

II

Evans thought that offering this "collec-

tion of differing machines with kind of loose ties .

.

. in

their structure" was "a basic mistake from the user's standpoint".

9-

(Evans, Tr. 101049.)

10

Although Evans believed that the 8000 Series would be an improvement

II

12 It over IBM's existing product line and might give IBM a "momentary
13 : advantage" over competition, he recommended its cancellation.
l~:

15
~

10

Tr. 101049; see also OX 4773, p. 1.)

11

(Evans,

On June 27, 1961, W. B. McWhirteI

wrote Learson that IBM's Regional Managers had been apprised of the

;, reason why the 8000 was withdrawn:
II

"7
il
~
d

18 ,I;j

If [T] he' 8000
Series offered insufficient advances to insure
our competitive position at this time--[it] is being replanned
with new ~echnology to provide a major breakthrough . . . . "
(DX 14059.)

!\

19 :I

In late 1961, T. V. Learson, then IBM Vice President and

:1

20 :, Group Executive, appointed a task force called the SPREAD Committee
:1
?1 'I
-'! to develop a new• plan for IBM's data processing products during the

,j

Z2. :i 19 6 as.
"

?_

~

(JX 38, p. 2; see DX l404A, p.

7

(App. A to JX 38).)

Its

:1

:,Chairrnan was J. W. Haanstra, Vice President of Development for GPD
Ii

24 '! and its Vice Chairman was Evans, who had become Director of Systems
,i
25

;1

Development and Planning for DSD.

"

-274-

(DX 1404A, p. 3 (App. A to JX 38);

.1
-!

DX 8081 (Tr. 101035).)

~;

Dr. Brooks and J. W. Fairclough, Manager of Product Development at

i

Other members of the SPREAD Committee included

r:

IBM's Hursley Laboratory in England,·' who had been in charge of yet

~'

another processor development, the SCAMP.·*

(Tr. 71984-85; DX 4779.)

The Committee issued a report of its recommendations in December
1961.

(JX

38, p. 2.)

That report is Exhibit A to the System/360

Stipulation of Fact (JX 38) and is also Defendant's Exhibit

l404A.

The SPREAD Committee recommended "termination of the proliferation of IBM products and

t.~e

development of a family of compatible

processors which would employ a common technology (Solid Logic
1.:
1

Technoiogy or SLT), a compatible set of peripherals and a compatible
program operating system".

(JX

38, p. 2.)

The report and recom-

mendations of the SPREAD Committee were accepted by IBM management

-...
~

• The remaining members of the SPREAD Committee included D. T.
Spaulding, Group Director of Product Line for the Data Processing
Group; J. D. Aron, Programming and Technology Coordination Manager
for FSD; W. P. Heising, Programming Systems Planning Manager, Development for DSD; H. 'Hellerman, staff member, IBM Research; W. H. Johnson,·
Director of Product Evaluation, Corporate Headquarters; M. J. Kelly,
Senior Engineer and Technical Advisor for GPO; o. V. Newton, Manager,
Mathematics and Programming for DSO; B. G. Oldfield, Manager, Systems
Development for FSO; S. A. Rosen, Oata Processing t1anager for the
Queens IBM New York Branch Office; and J. Svigals, Manager, Systems
t1arketing for DPO.
(Tr 71984-85; OX 1404A, p. 3 (App. A to JX 38).)
f

** SC&~p was an experimental computer built in 1960 by IBM's Hursley
Laboratory in England.
(JX 38, p. 5.) SC&~p's control function was
implemented by the technique of microprogramming.
(Id.) Although
the SC~~ project was cancelled in favor of System/3~(DX 4779, pp.
2-3), Fairclough was able to convince the SPREAD Committee of the
benefits of microprogramming, which the Committee adopted as the
principal means of implementing control functions in Systern/360. In
addition, because microprogramming techniques were better known in
IBM's British lab than in the United States labs at that time, design
of the Model 40--which was the lead System/360 model in development-was assigned to Hursley.
(Brooks 1 Tr. 22806-07.)
(The importance of
microprogra~ing is discussed below at pp. 302-03.)
-275-

1; and the development of the New Product Line (NPL), which ultimately

Z!

became System/360,* began in 1962.

( JX 3 8, P

~

3.)

,

3: !

The principal alternative course of action, which the

~

SPREAD Committee considered and rejected, was the addition of improved

s:

successors to the then existing product lines, rather than develop-

5

ment of an entirely new line.

(Case,

Tr~

73571.)

The one course of

i

7

II,t

action that IBM could not afford to take was simply to maintain the

11

8 ! status quo and continue marketing its current products.

That much

I

g.~

was plain from the "product survival charts" incorporated in the

la!I SPREAD
11

! charts

Report.

II quickly

l~:

systems

73-91 (App. A to JX

38)~)

Those

"showed that all of the existing products in the IBM product

tZj!line were
13

(DX l404A, pp.

estL~ated

to have very short lives, that they would be very

coming out of users I installations • . . (bl ecause other
~anufacturers

were developing new and better products and

i

,= : that the evaluation was that all of the existing product line was
~!I
15 'Ivery rapidly heading toward being non-competitive". (Evans, Tr.
I

17 11101271-72 •. )

18;1

According to Paul Knap1und, the "'Product Survival Charts'

"

Ii
1/

19
20

:i----------------------:1

t
'I

* The processors included in the April 7, 1964, System/360 announce,Iment and their NPL designations are set forth below:
System/360

NPL Designation

2030

101

2040

250

2050

315

2060 and 2062

400

20iO

5 01

-2i6-

( JX 3 8,

~r

4, p. 3.)

L; ••' • projected displacement of both announced and planned to be

Z;
l!

announced IBM central processing units (CPU's) by newer products as
users' needs grew and changed and as new technologies and equipment

~f

I,

features enabled'electronic' data processing (EDP) suppliers to offer

~I· improved products.

Those charts demonstrated • • . that IBM had to

6::,move rapidly ahead with the development, of a new line of CPU's or
11

7il else competition would soon displace IBM's EDP business".
:1

a : Tr.

(Knaplund,

904 73 • )
The survival chart for the 1401 (DX l404A, p. 75 (App. A to

10

i JX

38»

made the point graphically.

This most successful of IBM's

;

11 : systems, announced only two years earlier, was projected to reach a
i

~!

peak of installations by 1965, with installations declining rapidly

!I

'.
13 llthereafter.

t~;fThe

Projections for

charts indicated that if

"

15

1

~ail

products its entire installed base would be replaced by its competi~ors
In the face of these projections, the SPREAD Cowmittee stated the

17 Jneed for new products to be developed and delivered by 1965.

Accord-

ingly, they recommended announcement of the first processors in the
15 :i
19 :!line during the first quarter of 1964.
(DX l404A, p. 57 (App. A to
:j:

j
"'0 :, JX 38).)
'-

:,

The SPREAD Report, and the Systems Architecture Group which

21

Z2ilwas responsible for implementing its recommendations, created a
'j

_ !.iproduct plan that went far beyond the recognized competitive need for
I
~;new and improved products and set forth a revolutionary concept of a
24 '!
I :tuture
produc~ family.
This concept represented a commitment to a

~

"

2.S

vision of the future development of the industry far more daring and

-277-

L,

far-reaching than any of IBM's competitors ever attempted.

The

2: concept, subsequently embodied in IBM's System/360, held the potential,

s-

if successfully implemented, for enormous business success for IBM

4--1- and also for- revolutionizing the EDP industry.

It sought not just

competitive success with e·xisting users but a vast expansion of the
number and. types of EDP users and uses.

At the same time, the magni-

tude of the commitment--the devotion of virtually the entire business
to that concept--carried with it a risk of staggering proportions.
Bot.~

91

internally and externally, the IBM System/360 program came to be

i

10; referred to as a "you bet your company" undertaking.

(Evans, Tr.

101126; see also Friedman, Tr. 50378; Case, Tr. 73561-62.)

1::" ;

The SPREAD Report and S/360.

The concept for the New

(NFL), which became 360, embodied a number of

( i)

objec~ives

the clear assertion of price/performance

and technological leadership;

(ii.)

the merger of business and scientific capabilities

in a single family of systems (in fact, the attainment of a
series of computer systems that would be an industry leader
in the performance of all applications, hence

~~e

origin of

~~e

name "System/360" to denote the full 360 degrees of the circle
(Evans, Tr. 101129));

(iii)

upward and downward

compa~ibility

across a broad

family of processors;
(iv)
(v)

a comprehensive set of systems software;
compatibility of a wide range of ?eripherals across

-278i
I

;!

:1
;1

the entire family of CPUs; and

li

z.:

(vi)

the substantial user flexibility attainable from the

.1

resulting modularity of the boxes constituting a 360 computer

,

~I,
f

(DX l404A (APPr A to JX 38).)

system.

Each of the objectives held the promise of greater customer
acceptance and a substantial broadening of the demand for and use of

5:

yait'.

computers, and each raised its own particular challenges and risks.

]

il The attainment of each objective posed obstacles in development,

S~
~!

design and manufacturing, each of which carried with it the possibility of failure.

a

These objectives, and the manner in which IBM

successfully attained them, are discussed in the following pages.

1

(i)

2!
i.

:3 It

Generallv.

Price/Performance and

Tecr~ological

Leadership--

The 8000 Series was cancelled because it would not have

It been a "leadership" product for a significant period of time,

.4- :

...::i
a :I

either technologically or in a price/performance sense.

System/360,

d

T. V. Learson, IBM Vice-President and Group Executive of the

;

its replacement, was clearly intended to be both.

I
Corporate I

In December 1962,

J Staff, wrote to Evans that IBM's aim was to make the new line "eco-·
S!il
il nomical as hell, siJnple to operate and the best on the market".
9 ;i
"
, (DX 4795.)
IBM's Chairman wrote in June 1963 that it was important
:0 :!.,
., for IBM to "make these machines good enough so they will not be just
'I

~l ;1
:~

I., :/:;
~ :t
I

.~

!
~i

I

I
I

I

I
[

iI

equal to competition", because IBM expected that once they were
announced IBM's competitors would "immediately try to better them"

~!

,A

I

and "I [Natson] 'Na!'lt cur neTN line to last long enough so we do not go

:\

! in the red".

(OX 4806.)

-279-

I

3

Tr. 12123-24; Welke, Tr. 17079-80, 17304-05; see also Northrop, Tr.

I

~i

82711; PX 3638.)

In a memorandum written to Evans and Kennard just

I

~ It

prior to the System/360

all

for the Data Systems Division stated that "[i]t is difficult to

7

II

;1 est~ate
;1
:1

announca~ent,

the Manager of Market Analysis

the competitive jolt NPL will create. Never before has a

8! single announcement obsoleted so much existing equipment at one

tL~e"

since "NPL will have an advantage over all existing systems offered

~

la: by major competitors".
(PX 1099A, p. 1.)
In particular, the Model 3D,
11 !! intended largely to replace the 1401, had "six tL~es greater internal

12. I speed" than that system.

(DX 3726 (Tr. 78990); see also DX 4740:

ij

13

(Telex) 4034-35; DX 4755.)

Evans, Tr.

11

:{
14. :,

The following comparisons at the time of announcement il1us-

15 :1 trate these
16

17

L~provements:

II'I

1401

;1

il Rental

Price (with maximum memory)

I,

'I

18

!

$2,680
(OX 573,
p. 6)

$3,875

4,000
(OX 573,
p. 3)

65,536

30

38,
p. 33)

(JX

'j

19 ;!Maximum Main Memory Capacity
,I (Chars.)
20

~lode1

:r

38,
p. 32)

(JX

I
I

I
I
I
1

!

I
"

! Performance
Z!! (instructions/ second)
Z2

I

5,000

30,000
(DX 4740:
4740:
I
Evans, Tr.
:
Evans, Tr.
. (Telex) 4034-35; (Telex) 4034-1
3 5; DX 4 7 55) 1
DX 4755)
(DX

:1
'~

:1
~"" I!

~l

I

Z.i

~Performance/Rental Price

1.87

25
-280-

7.74

I

il
:1
I

1;

7090

Model 75

:

2:

Rental Price (with maximum memory)

i

3";,
4.1,

Maximum main memory capacity

19 6' , 6 0 8 (6. bit
characters)
(OX 572A,
p. 5)

5i

j

I

0.:1

$100,708
(OX 572A,
p. 6)

:1 Rental per million characters

-I 'flI
:1

8!

Performance (multiplications/second)

~f

I

10 ~

I Performance/Rental Price

11

$60,300
(JX 38,
p. 394)

$43,500
(OX 572A,
p. 6)

38,200
(Case, Tr.
74220)
.88

1,048,576 (8 bit
characters)
(JX 38,
p. 394)
$35,286
(JX 38,
p. 394)
366,000
(Case, Tr.
74220)
6.07

!

Knap1und testified that just prior to announcement IBM con-

12!

:, sidered 360 price/performance to be superior to the best known

13

It

14.

t

! competitive

systa~s

and substantially superior to the best of IBM's

; older computer systems.

(Knaplund, Tr. 90503; see also PX l099A.)

15

! T. V. Learson wrote in July 1964 that System/360's price/performance
16 ;!
had achieved a 30% to 50% improvement over IBM's previous product
:./::
.
l~ne.
(DX 1525.) Moreover, the analytical methods used at the time
18
:j to predict price/performance understated the comparative advantages
I
19 i
:\ of System/360 by failing to take into account the benefits to the user
20 '1
:1 stemming from the use of disks, the advantages of compatibility, the
I
I
21 ,\
': System's Lrnproved reliability, the advantages expected to corne from itsl
:1

1-:t
:.11

I
I

,flit?

I

i~

~:i software and the availability of large memories.

(Knaplund, Tr. 90504-

2.3;
105; see also PX 1099-A, p. 1; PX 6204, p. 1.)
The price/performance and other advantages of System/360

25
-281-

I.: were recognized outside of IBM as well.

For example, plaintiff's wit-

!

2.' ness Frederic G. Withington of Arthur D. Little reported in October
1

1964 that "[w]ith the introduction of their System 360 equipment, IBM

4- established the new pri.ce-performance standard. for equipment within

~il the computer industry for the next several years" (PX 4829, p. 16),

a ;1

an opini.on which he rei terated during his testimony.

(Wi thington,

;1

7 i!Tr. 56591-92.)

Withington also testified that System/360, at the

:1

8 : time of its announcement in 1964, was "regarded as the best in terms
~

[ of incorporating the most recent developments in systems program and

la i machine architecture"..

(Tr. 56590.)

Similarly, in a June 1964

11

presentation to G. E.'s Executive Office, John Weil called

!2..1

an "excellent product line with outstanding peripheral offerings" and

System/~60

13 :1 stated that it was "no longer possible to offer equipment with a

~+~t

significant advantage over IBM".

(PX 320, pp. 13-14.)

Additionally,

,

lS! RCA's June 1964 "Five Year Plan" noted that System/360 "has and will
I

16

have a significa.1'1t impact on the marketplace and other suppliers are

11

17 :1 obliged to :neet its capabili ties" ·
18

'I

(ii)

(l?X 243, pp. 5 -6 · )

System/360 Component Technology.

In explaining his

!i

~I recommendation to cancel the 8000 Series, Evans had written:
"New
19 :1
:! technology is essential to a neT,., IBM machine family. Commi tting a

za
21

./
:1

new family's lot to current technology is opening IBH to a maj or

Z2 :!competitive coup".

(DX 4773, p. 3.)

The improvements in price/

:1

23 :! performance offered by 360 could not have been achieved without the
I

24

,I superior circuit technology that

Eva~s had envisioned.

.1

--I
~,.,

,;....

~!

'

:1

'\

';\\
ii

u

-282-

(Case, Tr .

L i 73244; tvans, Tr. 101048.)
Z~

Development of such technology (called

Solid Logic Technology or SLT) had already begun in IBM when the

I

.--.

I

SPREAD Committee met.

~!

The Commi.ttee recommended the use of SLT as

4- 1, processor componentry because it "promised improved cost/performance

~! and reliability."

(JX 38, p. 5; DX 1404A, p. 7 (App. A to JX 38) .)
was predicated.

5 [I Case testified that "the entire System/360 line
7ilon the availabili.ty of the new SLT technology."

a:

(Case,

Tr~

72303.)*

SLT development, which had begun prior to 1961, was acceler-

i

9 ; ated in April of tha.t year- on the recommendation of IBM's Advanced
i

10

Technology Study Committee that a "high priority SLT program" be

t

!

11! established.

(JX 38, p. 5.)

According to Erich Bloch, who headed

~i:/ the Advanced Technology Study Committee until September 1964, that
"
I

W ~ Committee had been charged with recommending the logic component
1~!1

technology that

1:;1 establishing

I~M

should use in its future EDP equipment and with

the schedule and cost objectives for its implementation.

16 ;: (E. Bloch, Tr. 91468-69, 91492, 91686; see also DX 9117, p. 2.)

~~I

The Committee decided that the new technology had to be

:1;

i

is

:!producible at half the cost of the then current SMS (Standard Modular

19

:! System) technology and be four times as fast.

20

i!

93. )

:1

performance and computer performance that could be achieved by IBM

21

:i

:!

(E.

Bloch, Tr. 91492-

These performance goals were influenced by both the technology

,!
·1

Z2:;competitors, including both computer manufacturers and component
1,
I

~i------------------2A

j

* "In fact, in its early states, the System/360 project was known

~l as the SLT family."

(Case~ Tr. 72303.)

~_/_=

I
:1
"

-283-

1 i manufacturers.

According to Bloch, the existence of such competitors

i

2,;

I

and their introduction of new products and processes since the 1960s

l ! has forced IBM to be alert to their offerings in order to remain
ii

~I

competitive in terms of cost, performance, reliability and function.

5 j. (Tr. 91690-92.)

*

As T. V. Learson later put it, prior to the intro-

I

I

6 : duction of System/360, "IBM had been in the market for a long time

7
8

if
with the old circuitry

\1

. • It was time for a change.

Competitive

:1
:1

action told us so .

i

9

.

.

.

If

(PX 1900, p. 7.)

Because of such

"competitive pressures", the Committee decided that the development

1a

of the new technology had to be accomplished within 18 months and the

11

delivery of machines incorporating the technology to customers begun

12 ! wi thin three years.
13

!13.)

l~

;

(E. Bloch, Tr. 91686-87; see also OX 9117, p.

"

The

Co~~ittee

considered three courses of action:

improve-

I

1:

ment of the existing technology; development of monolithic

tecb~ology;

!

15

i!

and further development of a hybrid technology (SLT) with discrete

17 it sa~iconductor components combined with screened circuit elements.
-

t\

18

:II

-

il

(E. Bloch, Tr.

91492.)

SMS was the packaging for discrete components

19 :1 used by IBM in its second generation equipment.
•

:1

(Case, Tr. 72265.)

20 J It had been designed and developed by IBM for Project STRETCH and was

.,
21 :\ superior to the discrete component packaging available from outside
22 ~t suppliers because it was opti..~ized for use in EDP equipment.

~ :1-----------------I

(E.

Bloch;

!
* Bloch included such fi~s as Texas Instruments, Fairchild,
24. "I Motorola, Intel, Mostek, ~~D, Hitachi, Fujitsu, Philips and National
25 :I Semiconductor.
(E. Bloch, Tr. 91691-92.)
1

"
I

-284-

II

!
i
.j
1.; Tr. 91486-87 .)
I

Despite its contribution to IBM's successful line of

~! second-generation computers, the Committee concluded that SMS technology had apparently been pushed close to its limits in terms of

3:

4- cost, performance and reliability and would not yield the desired
5'

I performance improvements.
I

(E. Bloch, Tr. 91493; see DX 9117, pp. 4-

i

6:

5,8.)

:1

7 il

In order to gain additional information about the feasi-

8 ; bility of going directly to monolithic circuitry, * IBM was advised by
!

~! other companies, including Fairchild, Texas Instruments and Motorola,

10

concerning their development activity with monolithic technologies.

11

(E.

Bloch, Tr. 91694--95.)

The Committee concluded that while rnono-

i

12 ! lithics could meet the performance requirements laid down they could
I
I

not be produced in the time or at the cost desired.

~.

l~. 91492-94;

see also Gibson, Tr. 22625-27; DX 4782.)

(E. Bloch, Tr.

The Committee

I

15 : therefore recommended moving part, but not all of the way to mono-

I

16 fllithics:

7 li tion" .
• ,I
18 :I
1

the continued development of the "hybrid (SLT) configura(E • Bloch

~

Tr. 9149 2 - 9 4 . )

That reco~~endation was based on several advantages to the

:i

19

:ISLT
technology:
I

first, it would lend itself well to automation and to

za

:i a fast production buildup; second, it would lend itself "to a product

21

:1
:1

spectrum of applications" in processors of all sizes as well as

Z2 'tinput/output devices; third, it would be capable of providing the

23 :1

~ ·.•'----*--'-'-[T--]-h-e---------.

total integration of all devices . . . and interconnecting
:;wiring in a single piece of semiconductor material".
(E. Bloch,

24:

,~·[Tr.

91492.)

-- iII

I
!

"

"'f
'1

'\
i
·1

-285-

I
I

I

L\

necessary speeds or performance ranges; and finally, the semiconductor

Z:r

packaging

... l

~.

:

wou~d

accommodate the semiconductor

we~~,

provide t..'le needed

electrical characteristics and give the desired packaging densities.

4-i·,

(E .. Bloch, Tr. 91699-701.)

:; it

rea~ized

These anticipa.ted advantages were in fact

and SLT

!;,
:!

became a high-performance technology for its day, offering a sub-

7:1

stantia~ increase in speed at a substantia~ reduction in size.

s;

(Case, Tr. 72301-03; E. Bloch, Tr. 91705; see also PX 3587 (Tr.

9-

25334).)

i

SLT was a "significant advance" in IBM computer technology:

10: it required less space, power and cooling per circuit than SMS; it had
11!

higher performance and "ten times the reliability" of the earlier

~i

technology--all at a reduced cost.

!3

~f

(E. Bloch, Tr. 91496-97; see also

McCarter, Tr. 88380; Evans, Tr. 101132.)

:..;. tli offer
~

Thus,. SLT enabled IBM to

"very substantial gains" in price/performance.

101132.)

Further, SLT "lent itself to automation"

IS

\1

16

;i

17

.f,I development of automatic tools.

lS

.1

19

·i

(Case, Tr. 72298-301.)

coordinated the development of tools, the development of a design

'\ automation system and the production and testing of components

~vith

'r

] the development of the components themselves.

Each of the parts of

:1

the technology took into account the other parts."

}

91497-98.)

Zl :!
,r

(E. Bloch, Tr.

I

-j

Such automation enabled IBM to reduce 'production costs and

,._ 'I
~

"IBM

,i

zcr:,I
/,.

(E. Bloch, Tr.

91705) and IBM took advantage of that fact by investing heavily in the

I

~_

(Evans, Tr.

\
~

improve the reliability of its circuits.

I

.,...!
_- I

\ Tr.
2.': ;
i

91497.)

IBM's "substantial

\ techniques was a very

irnpor~ant

investment~

\

f

'f.,
j

,I

'!
.. ;

in automatic manufacturing

factor in allowing IBM to make System/

'\
·1I

(Case, Tr. 72301; E. Bloch,

-286-

360 much more powerful for the same price or to be a lot less costly
for the same power.

(Case, Tr. 72301.)

From 1965 to 1969 SLT tech-

nology and the automation which accompanied it gave IBM a cost advantage over other component manufacturers who moved their assembly
outside the United States in order to get a cheaper labor source for
the relatively labor-intensive production processes.
91708.)

(E. Bloch, Tr.

No other computer manufacturer had the equivalent of SLT

technology at the time of System/360's announcement and. delivery
(Evans, Tr. 101131), despite the substantial benefits that it held
I

J'

and despite the fact that SLT was an extension of the existing tran-

.-

sistor technology which was readily available to everyone.

:

.

Only with the benefit of hindsight, however, was it obvious
that the SLT decision was the correct one.

::
I

6

During the middle 1960s,

up to about the beginning of 1966, criticism of the decision was

I

expressed within IBM.

I!

Critics thought that SLT had been the wrong

choice, that by being more aggressive IBM could have gone to mono-

~t

I

-j J: lithic circuits a'nd taken a larger jump forward. *
Implicit in

~~at

(E. Bloch, Tr.

':i!

91695-96.)

S
S

:ii

would be the victim of a competitive coup by other companies moving

. Ii

criticism was the apprehension that IBM

,!

'! beyond IBM in circuit development.
,.. ·i
("fl

I

!'T

i

-

I

2'i

t

i

~I
~-

~S

Based upon a comparison of the cost

i

'~

',4

This failed to happen.

and capabilities of IBM's SLT circuits with competitive monolithic
circuits that became available from the mid-1960s for;vard, Bloch

I
.1
}

* Bloch also testified tl1at the criticism "died dort/n" r.vhen it became
clear that "SLT met all the goals" set for it in a ~Nay tl1at could not
have been done with monolitl1ics.
(Tr. 91696.)
-287-

!

i

1 i concluded that SLT had as good a performance as those later developed

Z

~
i products, was "much denser" and was produced at lower cost than the

1

l;

products which IBM's competitors acquired from outside vendors.

t

i

(E. Bloch, Tr. 91704-05; see also Withington, Tr. 56591.)

~I

:1, when

Moreover,

IBM did convert to monolithic circuits in 1968-1970, i t was able

I

5 ; to use a great deal of what had been done in SLT to ease the transiIf
7;f tion into monolithics.
(E. Bloch, Tr. 91698; Dunlop, Tr. 93991.)
~I

8 ;, This planning for the future had been taken into account by the
9 : Advanced Technology Committee and for that reason IBM designed techI

10 I niques and tools during the SLT development that could be adapted to
I
II ! the manufacture of monolithic circuitry.

(See E. Bloch, Tr. 91500,

12

r

91703, 91494 and Case, Tr. 72300-14 for details of the carryover of

13

il

SLT development into mono1ithics.)

l~!l

SLT still is being used by IBM in

secondary circuit functions of newer products.

(E. Bloch, Tr. 91499.)

15

II

- 15

if

toward monolithics, and of coordinating circuitry, component and

17

:1

product development could be fully realized only through in-house

The advantages of automation, of taking an intermediate step

18 :!development and manufacture.

19
20
?'T

:1

Study Committee recommended the establishment of a components division

;fWhiCh would be able to manufacture SLT on a large scale.

(E. Bloch,

;1

,I

;! Tr. 91562.)

--:!
,I

.

22 ';
~i .

.

..,~

:1 c~rcu~try

~

;1

24

Accordingly, the Advanced Technology

Case called IBM's decision to develop and build its own new
"perhaps the riskiest single decision that had to be made by
t

;; IBM in the development of System/360".
I

(Tr. 73514.)

It required a

:! substantial capital investment in a new business--developing and manu25

I

: facturing transistor components--in which IBM had had little prior
'I
:1
I

,I

if,
d

:1

:t

q

-288-

.1
:1
;1

L· experience.

Not surprisingly, there was considerable debate within

i

2: IBM whether components was an "appropriate business" for IBM to get

l:i into, and the decision to establish the Components Division in 1961
!

~l

second-gues~ed

continued to be

I

-i
!l
I;

well into the 1960s--1ong after IBM

had committed itself to the point whe.p. there was no turning back.

i

!

5
7

(Case, Tr. 73515.)

;1

[I

1a .i
11

IBM

"had to become, in a very short time, the largest component manufac-

~l
'I turer in the world".

8 ;\

~

In short, as T. V. Learson put it in 1966:

1

1

(PX 1900, p. 9.)

If IBM were successful, the

potential benefits overrode those risks:
(a)

in-house manufacture could help IBM reduce its total

costs by eliminating middle-man profits;

(b)

by designing the new circuitry and the new machines

sL~ultaneously,

IBM could get the best new circuitry earliest

because IBM would not have to wait for another firm to finish its
circuit development process and make the circuit available in
order to explore the circuit's potential characteristics and use
in a computer system;
(c)

unlike other manufacturers who were less integrated and

who would have to adapt generalized circuitry to their particular
needs, IBM would be able to enhance the price/performance of its
computer systems by tailoring its own circuitry to the requirements of System/360.

(Case, Tr. 73245-48; see also E. Bloch,

Tr. 91563.)
In-house manufacture would also permit IBM to accelerate the training
of computer engineers in both

t~e

characteristics and use of the new
I

circuit technology.

According to Case, it was believed t~at IBM "couldl

I

,

-289-

t:! synchronize the development activities between the circuit development
:

z~

organizations and the computer development organizations more effec-

I

1

tively if they were in one corporation rather than if they were in

4..

two or'more corporations."

5

I'

(Case, Tr. 73250.)

Such synchroniz'ation was to grow increasingly more impor-

i

6,

I

tant..

t

Bloch testified that as the integration level of components

7 "ili, increases, "more and more of a machine is on a single component.
II

a :1

And therefore when one has in mind the designing of a new computer

I

one can learn a lot by just looking at the individual components that
go into it."

10

(Tr. 91929; see also Case, Tr. 73251-52.)

As the

degree of component integration increased during the 1960s both

11 ',:

symbiosis in development and confidentiality became increasingly more

1211
13

14.

II
11

~

~

I!

ld
1.8

IBM's Advanced Technology Study Committee took the long
view in 1961.

lSi

16

important reasons for in-house development.

:!:i

It was building for the future (E. Bloch, Tr. 91929)

and considered the benefits which might be derived later on from a
long-term kind of· process worth the risk.

(E. Bloch, Tr.

That long range planning paid off handsomely.

91928.)
Case testi-

Ii fied that IBM achieved the objectives that it set with respect to the

19 d

j design, development and manufacture of SLT (Tr. 7326i) and that

za ,I:
21

'1
:1

the ultimate success of System/360 was "in large measure" dependent

:\ on the success of that circuit development activity.

22 :;

~~

~

Z~

!\

(iii)

.

Single Family for All Apolications.

The SPREAD

:1
'1i

C:ommi ttee recom..~ended development of a single line of processors to

:! "meet tl'le needs of the cornmercial, scientific

,I

2.S

(Tr. 73253.)

:1

I

,I

d

,I

'{

I

-290-

I

and communications and

I

1!controlmarkets".
I

(DX 1404A, p.

12 (App. Ato JX 38).)

Thatobjec-

2 lltive called for a "fundamental change" in IBM's design emphasis (DX
3

I
1

4740 : Evans, Tr.

(Telex)

3925-28) but one which was thought to be

4-1 necessary for developing user requirements.
5

SPREAD Report,

IBM's product lines were "distinctly either commercial

or scientific in their emphas is" .

6

II

7

I 38).)

At the time of the

(DX

l404A, p. 13 (App. A to JX

This was true of other vendors' product lines as well.

i

Up to

8 Ii that time, customers who wanted to do what had traditionally been
j

9 ! considered both "scientific applications" and "business applications It

10
11

I
II

generally acquired two computers.

!

(Case, Tr. 73329.)

By the end of the 1950s, however, the distinctions between

I
I

12 ilbusiness and scientific applications were beginning to blur, and
13 Iincustomers themselves were not observing [the] lines between scien-

14

:1
:1

tific and business machines in actual practice".

(Case, Tr. 73274-

:1

151175; see also Tr. 73276-83, see pp. 81-83, 102, 148, 162, 213-15, 239,
16

1'1

above. )

Evans testified that "more and

more~'

often, the "scientific

17 : side" of a user's operation needed the data handling capabili18

il ties

associated with business data processors and the "business side"

I!

19 l!needed the aritr~etic and logic capabilities associated with scienti20 ilifiC systems.

(DX 4740: Evans,

Tr.

(Telex)

3927-28.)

The history of

21 lithe 1950s and early 1960s is full of examples of "business" computers

"2
600

IIlldoin g

"scientific" applications and vice versa.

23 ;1 3 8 - 4 5, 81- 8 3, 1 0 2, 13 8 - 4 9 I 16 2 - 6 8 I
24

(I
I

!

2 0 6 -15 I

(See above, pp.

2 4 2- 4 4 . )

That user need for "dual use" was a major factor in

25 ; the SPREAD CO~L1ittee' s thinking.

According to Evans, "One of

the premises from the beginning was there would be great
I

I

:1

Ii
II

-291-

I

1

il savings

2

!

ability to cover the full range of business applications and scien-

3

l

tific applications as

to the users if we could combine in the single machine the

~,yell.

So our concept was a single machine that

I

4 ! would be equally able in either' of those areas".

(Tr. 101052.)

5

for separate develo .. -

Al.though the Committee foresaw the

n~ed

6 ! ment of ruggedized products for military purposes, it stated that

7 tl"standard products will satisfy about 32 percent of the available
11

8 i military market" and that a basic objective should be "to further
i

I

9 !,penetrate the ultra-reliable portion of the military market with the

10

II SPREAD

11

!I

family".

(DX 1404A, p.

44 (App. A to JX 38).)

Thus, in accordance with these recommendations, it became

oj

I

II

I

II range of applications . • .' equally well suited" to what had pre-

!

12 !Ian objective to design the NFL architecture for the "broadest possibl~
13

II

14 j!ViOUSlY been considered scientific or business computing.

An

f

,I

:1

15 ilinstruction set and processing capabilities were to be designed to

I

16 l!be "equally suitable to both of those classes of applications and
:1

17 i!indeed well suited to the broadest possible range of applications
:i

18 ilthat one could think of" (Case, Tr. 73268-69), including process
It

19 ilcontrol applications and communications control applications.

(Case,

;1

20

11

Tr. 73321).

21

:1

for the new line to indicate the "full circle of the applications

22

i!Il ability

23

i

Evans testified that the name "System/360" was chosen

of the machine".

(Tr. 101129.)

The combining of capability to do the whole range of applica~

24 1\• tions in a single machine promised great savings to users and great
1\

25 i\returns to IBM.

It was far from clear, however, that the objective

1

,1

1,'1

-292-

II,

;1

II
L; of designing "dual purpose" computers could be accomplished without

2;

a degradation of either performance in business applications or per-

3

formance in- scientific applications or, indeed, in all the applica-

~

tion areas.

Evans testified that this risk was perceived by IBM

S management and "haunted" them.*

"The question was whether we could build machines tJ.~at in their
own right as a scientific performer would be the best and also
had the ability to do the business kind of a problem, or in so
doing would we rea~1y be building mediocrity and someone could
come along and optimize as the industry had done before and build
better scientific machines, better business data processors, and
in the process negate our plans and our aspirations."
(Tr.
101052; see also Case, Tr~ 73538-39.)

-.I i;1
il

S\
I

~[
I

10

(Tr. 101052, 101129.)

l

The risk that competitors might specialize and, in so doing,

i
:

11 !

: outdistance a line of products aimed at a wide variety of applications

121

~_ !I!was compounded by the risk that, even if 360 was as powerful as more
1

specialized competitive machines in their specialties, customers might

14-!1 reject
~5

System/360 because they just "might not see it that way".

'

~ il
15 :I

(Case, Tr. 73538-39.)

In the face of these risks, some people in IBM

I
I
II

:j became proponents _of continuing work on the pre-existing "scientific"
I
,7 H
.
~ !tand "business" product lines. During 1962 and 1963 there was continued,

I

18 :\:1 a pro]. ect to build a scientific computer compatible wi th and as a

I

19

i

,I

!successor to the 7094 (Brooks, Tr. 22843-44; Case, Tr. 74574); and

za :

,las late as December 1963-January 1964, a group in the General Products

:~

21:j

.

.

.

''I: D~vl.sl.on led by John Haanstra opposed development of the 360/30 in
-,
22 .;

,_ ~i--------...:.\

* Case testified that IBM management "f.requentlyll inquired of the
,i360 design group_ whether the performance objectives for Systern/360
24 'were being met for both business and scientific use.
(Tr. 73539.)

-293-

I

1

favor of extending the 1401 line in its place.

2

101275-76; Hughes,

Tr~

33970-71.)

Such fears were not unfounded.

3

(Evans, Tr. 101187-88,

As we shall sae, competitor

4

did attempt to offer more specialized systems* to meet the needs of

5

certain users and were successful in competing against System/360

6

where customers wanted such relative specialization rather than the

I

7 i1more generalized range of functions which System/360 offered.

Some of!

!

!

8 ! the history of the 1a·tter part of the 1960s is the history of IBM's
i

9 !attempts to respond to such competition.

I

Despite the risks, the concept proposed by SPREAD was

II pursued.

System/ 3 6 0 was des igned to be a machine equally powerful in

10· !l

11

II

12

II scientific and business applications and with facilities for real-

13

I time applications, which "machines of that age had not been able to

I
t

14 : address before System/360 with real power and versatility".

(Evans,

:1

15

il Tr.

1 0114 4 . )

II

16

11

Weil testified that the distinction between scientific and

;1

17 i!commercia1 processing was "erased" "[i]n a practical sense, with the
il
il

18 :Iannouncement of the IBM 360".

(Tr. 7189; see also Beard, Tr. 10342;

19 ilFriedman, Tr. 50378; 0 I Neill, Tr. 76194-96.)
20

**

That testimony was

11-------

* The "specialization" offered by competitors was a matter of
i\degree--many "specialized" competitive offerings could be and were
22 !jused to perform a range of applications, but were marketed as more
;1" tailored" machines to attract certain users. For example, G. E.
23 !linitial1y targeted its 600 series prirnar'ily for engineering and
\!scientific applications (Weil, Tr. 7026-27) and CDC originally de24 llsigned its 6000 series to perform scientific applicatiI..Jl'!.s.
(0Jorris,
!!Tr. 5617,5618,5629; see pp. 423·-24,672-80,690, below.)
21

\1

25

II

** Weil also testified that "Since the early sixties, it really
rasnlt been economically important to design a computer system only

!

-294-

I

;f

il
11

~I

-

:1

consistent with Weil's assessment of 360 in June 1964:

i,

"~ • • System/360 integrates into a single set of equipment the
capability for business data processing, scientific calculation,
data communications, and process control. It seems clear that
all of these are now but facets of the basic information handling
and processing system. I t . (PX 320, p .. 13.)

~. I

r•
!-

j"

.

I

..

:.

System/360's ability to "do the 360 degrees of the circle" resulted

:-i:"

in acceptance by use·rs who could not get the same range of performance from other architectures.

(Evans, Tr. 101132-33.)*

Its broad

range of applications helped simplify customers' acquisition deci~:

sions, enabled them to achieve economies of scale by acquiring one

J.; large-capacity, rather than two smaller-capacity, machines and
! permitted them to reduce ~~e required training and L~prove the
1..'
(Case, Tr. 73327-28; see also Weil,
~ \1 efficiency of their EDP staffs.

-11

3; Tr. 7059-60.)

The combination of business, scientific, and other

i

applications in the same line also helped reduce IBM's costs.

~.

-.. ,

It

enabled IBM to concentrate on a single machine type with fewer sets

.
I

5

!

:i

of program support and software and with a single set of training and

,_ :1;, education
5
9

a

for customers and IBM personnel.

(Case, Tr. 73328-29,

:\ see also Tr. 73387-89.)
:1

:i

Some of the benefits associated with the "erasure" of the

'I

:t

'1 business-scientific distinction and some of the techniques used to
I
I

i

r

1 ------------------------

~ for business or only for scientific applications, except at the

2 !extreme ends of this spectrum, where you are trJing to do as much
{scientific calculation as you possibly can within the limits of the
:3 \ techno logy II •
(Tr. 7190.)
I

t

i

\

* The diversity of applications to which users applied System/360

~ lare desc~ibed in more detail in the Appendix to this section.

- I
-295-

II
I
I
i
I

I
i

1 ! effect it were also associated with the achievement of another objeci

2

! tive

3

I single

of the SPREAD Committee.

This was the objective of having a

compatible line of processors with compatibility extending

i

~I a wide performance range.

Compatibility in this sense meant that

I'

S i!programs written for one processor in the line could be run on a
6 ilsecond processor, provided that the second processor had at least the

7 !!minimum memory capacity and complement. of input/output and auxiliary
!

8 i storage devices required by the program, and that successful execution
i

9

IOf

the program did not depend on the speed of the CPU.*

10

11 73368-69;

11

!

(Case, Tr.

I

see also Brooks, Tr. 22681-82.J
(iv)

System/360 Compatibility.

The SPREAD Committee recom-!I

I

I

12 !Imended the development of a new family of compatible processors by
I

II

13 !I IBM:
14

1

l

i;
'I

17 ;1

II

"IBM customers' needs for general-purpose processors can be most

profitably met by a single compatible family extending from the
smallest stored-program core-memory machine to the machine for
customers growing beyond the 7094 and 7030. There are processor needs above and below this range-it is not yet evident
that these can be compatible with the new processor family."
(DX l404A, p. 8 (App. A to JX 38).)

!i

18 liThe new family was to consist of at least five CPUs--those five to be
19 ilupward and downward compatible with one another.

20 iJ25

(App. A to JX 38).)

(DX 1404A, pp. 16,

According to Evans, this concept of compati-

21 i,bility envisaged by the SPREAD Committee and implemented in System/360

!I

22 ras "just a mile apart from the rest of the world".
23

(Tr. 101141.)

:1---------~

* These three requirements are satisfiable in 90 to 99 percent of
JaIl the programs that normal businesses execute, according to Case.
25 II (Tr. 73368 -69 . )

24

I'
-296i

it

I

Prior to the introduction of System/360, it was generally

-:;

,

~;

true that the computer lines of a particular manufacturer

ti compatible with one another.

(Welke, Tr. 19193.)

~.;ere

not

Although both IBM

~I and a number of its competitors had achieved upward compatibility
,t

~:I over a "very narrow performance range" covered by two or three machines,

~;t

no one had achieved the full upward and downward compatibility over

.. :1

., H the "very substantial" systems performance range of System/360.

~

:1 (Evans, Tr. 101140-41.)

Thus, several months after System/360 was

i ; announced, Withington wrote that "the degree of upward and downward
J : compatibility that is achieved with System 360 ·

,- ,

far the greatest to date".

is certainly by

(PX 4829, pp. 17-18; see also Case, Tr.

,

, it 7 3 4 0 6 -1 0 • )
-i1

3. :1

The SPREAD Committee viewed compatibility for an entire

4-1 family

.-_. more

as a "major advance" that would appeal to customers and "sell

processors".

(DX l404A, p. 35 (App. A to JX 38).)

From

t~e

"

5 :\customer1s perspective, the Committee regarded compatibility as a
"powerful selling ·tool" because it would

:1·

7

sl,t
..

C

.

,

';
"i

'j

I

i,

j

~ :!r

!

~..

(2)

permit phased growth;

(3 )

minimize his invest."nent in personnel training;

(4)

expand the available labor market of personnel trained

I

-'
j
2!

....

protect his programming investment;

"j

"I

,0

(I)

to operate in his environment;
(5)

simplify the adaptation of his applications to several

processors;

:1

~

(6)

permit him to transfer applications among installations;

-297-

and thus
(7)

provide an incentive for him to convert to System/360

from non-compatible families.

(Id., pp. 35-40.)

Such benefits did, in fact, accrue to customers.

For example, John

1

5 !IJones, Vice-President, Management Information Services at Southern

6 !IRailWay testified that compatibility was of "very great benefit" to
7

8

j1him as a user because

!
1

I

I

9[
10

I
11

11
12

I

i

"it provides me the option of changing or upgrading the capacities and capabilities of my installed network and gives me
an alternative which under some circumstances is a very
attractive one in that I do not have to do reprogramming if I
choose not to do it."
(Tr. 80007-08; see also McCollister,
Tr. 11068; Friedman, Tr. 50377; Case, Tr. 73427-28; Knaplund,
Tr. 90507-08; PX 1215, p. 1.)

I Since System/360 was compatible over a far broader range of processor
I

13 ! capacities than any previous EDP line, those advantages of compatiI

14 !;bility were made available "to a great many users of all sizes"--from

15 ilthe large, multiple-location user who would be able to reduce his
16 iltraining, system development and programming costs to the small first
:1

17

[I

time user who could plan to grow rapidly without incurring reprogram-

I

!

i

18 ; ming costs.

(Knaplund, Tr. 90507-08.)

Of course, this meant that a

r

I

19

II

"great many users" would be attracted to System/360.

As Brooks

20 ,I11 testl... f'l..ed :

21
22

I

l!

II

I

23 !I
I

24

i

25

!

I

I

"We believed the compatibility would make it possible to
make machines a lot easier to use, ,that it would serve the
customers better, and that it would permit IBM to furnish a
better level of customer support. ., . . [M] aking a machine more
usable makes it more marketable."
(Brooks, Tr. 22692; see
also Case, Tr. 73427-28.)
Joseph Rooney, who held a position as an IBM Branch Manager

i

I and later became the President of RCA's Data Processing Division,
\1

I

!
I

!
i
II

-298-

1

testified that there was a "high degree of program compatibility"

2 : within System/360, which provided an advantage to IBM in that
3

7

"Their clients could grow from a smaller system to a larger
system, or if the economic situations were such that they wanted
to go t;) a lower system, they could do so without having to
reinvest in their software.
It also was an advantage if you had
a multi-faceted organization that had large computers and small
computers, and some commonality of applications that they wanted
to use on both types of systems.
It gave the client the advantage of nct having to modify his software to do so".
(Rooney,
Tr. 12550-51; see also Spangle, Tr. 5026; Beard, Tr. 10325.)

8

Withington testified that "[t]here is an advantage to a

4 I
!,

5
6

!
9 !manufacturer in standardizing on a single system set of programs

10 ilbecause that minimizes his total cost of development, maintenance and
,I

11 Ilcustomer support of such 'systems programs".
12

II
11

(Tr. 56612.)

In addition

to the tremendous competitive advantage* that IBM would derive from

I

13

I offering

users a compatible family, the SPREAD Committee recognized

I

14 ~. that compatibility was "clearly advantageous to [IBM's] development
q

1511 and

manufacturing".

(DX 1404A, p. 8 (App. A to JX 38).)

Commonality

"
16 :Iin
processor logic and programming were anticipated to provide IBM
I

'I

17 :Iwith economies in training of field personnel, development of programII

18

:! _________

19 i!

* The SPREAD Committee anticipated that this advantage was one
!that competitors would not be able to overcome during the rest of the
20 idecade unless they adopted new approaches to the achievement of
:1 compatibility:
21 i
!I
"Competitors appear to be relying hea~Tily on common programming
22 !\l
languages to achieve compatibility. The new processor family
I
guarantees to IBM a compatibility level which will not be pos23 ;i
sible, in the 1965-1970 period for a non-compatible family of
:1
processors relying on common programming languages."
(DX 1404A,
24 !i
P • 40 (App. A to JX ; 3) . )
' t . . '
"spec~
f 'l.C compa:u.es
,
25 ;IA
ii s we d'~scuss 1 ater ~n
t~.l.e test~mony concern~ng
II (see pp. 383-84, 480-82, 619, 623, 644, 660-61, 696, 705, below), a
!'number of IBM's competitors did just that, albeit several vears after

iIBM.

•

i

!
-299-

I
i

I

I

I

I
I!

L:
z'f

ming and standardization of installation and maintenance procedures.
(DX l404A, pp. 36-41 (App. A to JX 38); see also PX 1215, p. 2.)

3" 'I System/360 compatibility permitted IBM to realize these and other

~ !I" benefits.

Case testified that training of programmers, salesmen and

~!t systems engineers was made "considerably easier" because they had to

a:1i[

be trained for one group of machines instead of for different incom-

7" patible machines.
~I

a :I:t
g

(Tr. 73387-88.)

rBM also achieved cost reductions

in manufacturing because of the ability to share parts among the

i

various models of System/360 and to provide common training to manu-

10; facturing personnel. , (Case·, Tr. 73388.)

11

i

Finally, IBM had to develop

fewer operating systems than it would have for incompatible processors,

i

tZ~
it

and the design of the individual models was facilitated because

ts

commonality of design permitted the various engineering groups to

til

l~:i

communicate effectively and assist in one another's design efforts .

• - \{ (Case, Tr. 73388-89.)
J.:

15

il

'i

The decision to provide a compatible line over a large

'7 '\ performance range"was recognized within IBM as a risky one.
:,

.

15

From

a competitive standpoint, the SPREAD Committee anticipated that a

f

:j

19

za

i
~

single compatible line could be marketed against by competitive

.j

! salesmen who would be able to develop "knock-offs" applicable to the
I

,I

! entire family.

Z!.l

Z2

It would also provide a more nearly unitary target

against which competitors might react more effectively with their own

.j
'i
"

,.._ ,I product and price moves.
". ,

-

(DX

l404A, p. 40

(App. A to JX 38).)

iI

Perhaps

\ most importantly, it would "encourage competition to be compatible

Z.! \

\ wi th [IBM] in order to tap [IBM r s] support efforts".

Z5 '

-300-

(DX 140 4A,

p. 40 (App. A to JX 38).)

1
2

That latter possibility was one that IBM

plainly foresaw throughout the 1960s and one that carne to fruition in

I

il

3 ildifferent ways in the latter half of the 1960s and
4 ilthe explosive growth of

S

11

leas~ng

i~ the 1970s with

companies and the advent of plug-

compatible peripheral and CPU suppliers.

(See pp. 750-96,807-14,

6 11819-26, below.)

7 II
8

II

The compatibility objective presented risks from a technica
standpoint as well.

Just as the attempt to combine business, scienti

9 !Ific and other applications in the same line raised the possibility
10

I! that the new system would do none of them as well as a more specializeF

11 ilmachine, so too the attempt to achieve ccmpatibility between very fastl
II

12 ilprocessors and relatively slower ones raised the possibility that nonel
13 Ilof them would be truly optimal.
14 ;1

'"

15
16

II
:1
~1
11

17

Case testified that

"It was thought prior to System/360 that having one machine

architecture for both the fastest and the slowest machines in a
product line and, in fact, all places in between, could not be
I
right because either the fast machines would be unnecessarily
restricted in the amount of function 'and capability that they
could provide . . . or alternatively, that the slowest and cheap-'
est machines would be far too expensive by virtue of having to
provide the richness of the instruction set that was provided by
the larger and more expensive machines in the product line. II
(Tr. 7 3 52 0 • )
I

18

19 i!According to Evans, the "real challenge" of System/360 from an archi20 'I
21 II tectural standpoint was to build a compatible family with a perfcrmanc
11

range of 1 to 100 from the smallest machine in the family to the

22 !i

l!largest--it was "something that had never been done before".

*

(Evans,

23 ,!

24

I
I

:!------------------------

:1
* The 360 announcement letter stated that the processors covered
25 da performance range of 50 to 1. Evans called this a "conservative
l!state.lTtent" and stated that the performance range was 100 to 1 at
i!announce..rnent and had. since been expanded to nearly 1,000 to 1.
(Tr.
:1101177-78.)
Evans testified that IBM successfully met its challenge
~and that System/360's "performance range, unprecedented in the i~dus11 try" 1
~.vas a major factor in a ttracting customers to the 360.
(Tr.
;1101144 • )

II

-301-

L: Tr. 101057-58.)

The difficulty of this undertaking was clearly

recognized by the SPREAD Committee:
"It is not evid.ent that downward compatibility can be attained
through the whole product range. The group recommends, however, that the design requireme'nt for downward compatibility
be stated as. a firm ground rule and that development proceed
on this basis until the Phase I review. If, at that time, it
appears that economically competitive downward compatibility
cannot be achieved across the whole processor range, then the
range shall be broken into two segments with downward compatibility to be achieved within each segment."
(DX l404A,
p. 17 (App. A to JX 38).)

1

...::-

\1
'

1

!

a ;,~I
:1
-I

'i·1

s:
9

Enfield, President of The Computer Software Company and

, former IBM Product Administrator for the DOS operating system, testi-

•'0 itII

fied that downward compatibility was achieved for System/360 through

II : the Model 25.

t2.;

(Tr. 19977; see also Case, Tr. 73520-24.)

For IBM to

achieve that level of compatibility without incurring unacceptable

13 :1 expense or performance penalties at the low end of the line required a
'?

4- :

.

-

-

; "technological change in the way computer systems were built . . . in

~.

IBM" .

(Case, Tr. 73520.)

That technological change was the introduc-

It,

lS :1 tion of microprogramming or "firmware".

17

(Id.)

Microprogramming was invented by M. V. Wilkes of Cambridge

;1

I

S :iUniversity in 1951.
(JX 38, p. 5.) Case testified that IBM was the
'\
·0
~ ... :t first computer manufacturer to use firmware in the building of computers

·.1

,t
'I

ZO:I (Tr. 73222.)*

Its use required the application by IBM of "new technical

'I

Z1 ,!cornponents" (such as transformer and capacitor read-only storage) and
.J

Z2:!a new design "discipline".
'1
... _ :1

~
Z~

(Case, Tr. 73,521.)

1----------------------I

i

'i

* That use began with the experimental SC~~P built at Hurs1ey in
!1960 (JX 38, p. 5) and continued with System/360. IBM continued its
23 iinnova tions i:1 "firmware later in the decade \vi th the invention of
Ith e flo p py dis k . (Cas e, Tr . 73 22 3 . )
II

-302-

1

Through the use of firmware (rather than hardware or soft11

2 ;Iware) IBM was able to achieve a number of the design trade-offs which
I

3 l System/360 required. *

It was the "technical device . . • most
,
4 iresponsible" for the fact that IBM System/360 computers were able to
I

5 be designed efficiently for both business and scientific applications
6 ! (C~se, Tr. 73225; see also Evans, Tr. 101142-43), as well as the

7 ilmethod by which IBM was able to achieve full upward and downward
I

8 [compatibility.**

91

Some measure of the success that IBM achieved in imple-

\1

10 !Imentin g the architectural objectives laid down for System/360 may be

11 !Igleaned from the longevity of that architecture.

Compatibility and

12 IfapPlicability to a wide range of applications were characteristics
13

! (assuming

that they were effectively implemented) that would undoubt-

14 'iledlY be desirable in future systems.
15

II

16

)j

"We tried to develop the computer architecture which would
be extendable, which would be useful not only for the machines
that were going to be announced in 1964, but also for subsequent
machines as far into the future as we could plan for . . . . We
were thinking in terms of 15-20 years . . . and we would like to
have had that last even lo"nger if that were possible."
(Tr.
7J34i.)f

d
17 ;,
!I

'I

,I

18

Accordingly, Case testified:

:i

:1-----------

19
:1
20 il
* The need for such trade-offs was understood by the SPREAD Com21 llmittee, which imposed as an "engineering ground rule" the use of

l,microprograrnming controls unless "conventional" control systems could
:Iprovide a cost/performance improvement of better than one-third.
(DX
22 ;11404A, p. 20 (App. A to JX 38).)
Microprogramming was used in the
!!System/360 processor models 2020 2030, 2040, 2050, 2065, 2067 and
23 il'208S.
It was not used in the 2044, 2075, 2091, 2095 and 2195.
(JX
24 i 38, ~f 8 PP . 5, 6.)
I

I

* * As we explain la ter l i t ~Na s al so the means

:1

by

which Sys tem/ 360

25 !Ienabled \1sers to run programs written for earlier IB:1 computer systems

!I
f To lengthen the life of the 360 architecture, the 360 design
'Icrouo
chose a memory addressinq structure that provided for the eventual
!
:1

!j
!I

:1

Ii

oJ

-

-

-303-

l.: The architecture of System/360 lasted through the 370 into the 303X
I

it

Z it and

43XX lines and continues to the present time.

(Evans, Tr. 101133;

3":

see also H. Brown, Tr. 82972; PX 4505, p. 1; PX 4531, p. li DX 860,

4-1'

p. Ai DX 9405, pp. 552,

10~3.)

r

:ltthe system:::o ~U:::~::~ti::t:~::~o:o:a:::dm:::':e:::::~uction of
il
7

"One, IBM adopted a new machine architecture and a dependence on
systems programs to cause the machine to be usable to the users.
This was a large step in terms of the evolution of machine
architecture and design, and it was not immediately certain
either whether it would work well or whether the users would
accept it.

\J

a:
1

I

10 ;

"The second primary area of risk was the lack of compatibility between the 360s as announced and the predecessor IEM
machines.

I
I

11 :
1
"

"It was immediately obvious that the willingness of the
customers to reprogram from the older machines to the 360s was a
major question relating to its probable degree of success."
(Tr. 5 6 5 92- 9 3 • )

13;
i

.Ja.::
16

The disadvantage of offering a new incompatible line was

;tClearly recognized by the SPREAD Committee.
~

It was, however, a

:idisadvantage that'had to be overcome rather than avoided if the
17 :;
;lCommittee's concept for the new line was to be instituted. As the

is
•

.1

•

;j

:1-------------------

1~ ,
~I

:!attachment of 16 million bytes of main memory without modification and
2 billion bytes with only a "small" modification.
That eliminated
ione of the "major reasons" that previous architectures had been shortZ!. '\lived: the limitation on the amount of main memory that could be effecjtively used with those architectures.
(Case, Tr. 73347-49.)
The 8-bit
Z2fbyte was another factor which gave System/360 architecture greater
:llongevi ty than previous systems.
It permi tted the use of 360 in appli~ "Ications that required character sets which made those applications
idifficult to achieve on the 6-bit byte and 7-bit byte computers which
Z~ ',preceded System/360.
(Case, Tr. 73349-50.)

10 :labout

z=

,!

I

'I

!
,

i!
"

:1
.f

,~

-304-

, SPREAD Report noted, "Since [the new] processors must have capabili-

it

ties not now present in any IBM processor product, the new family of

I~

products will not be compatible, with our existing processors."

(OX

l404A, p. 12 (App. A to JX 38)', emphasis in original.)
The SPREAD Committee anticipated that the new capabilities

provided by System/360 would induce many users to switch to System/360

\1

:1 despite the need to convert their programming.

it

Indeed, for many of

these users, the very fact that they wanted to Lmplement new functions
rendered the entire question of conversion moot:
"
. While incompatibilities are a marketing disadvantage,
it should be noted that systems reprogramming will, in many
cases, be required, independent of the processor used. This will
occur whenever the user wishes to obtain the benefits of any of
the following:

-l,

j

"a.

Random access rather than batch processing

. :!

"b.

The integration of communication facilities

: if

"c.

The simultaneous operation of multiple processors

Ii

"d.

Multiprogramming to achieve efficient on-line operation."

:1

(Id., p. 12;'see also Currie, Tr. 15184-85; Withington, Tr.
57683-84.)

:1
,f

In "many cases", therefore, the reprogramming effort involved

, ;i

It

in switching to System/360 \vould be no more than a "natural outgrowth"

, ,i

;f

t

"

r

,iof the systems improvements that the user wished to achieve--improve-

I
~lments
.j
~'juser

.1 to
I

~

that would require a new programming effort whether or not that
switched to an incompatible processor.

JX 38).)

(DX l404A, p. 12 (App. A

However I the Committee also recognized that .. [s J orne
'

'!customers [would] be dissatisfied unless an alternative [was] provided

!

Ito permit utilization of [their] prior machine investnent".
I

'I

-305-

L;\ p. 39.)

IBM provided customers with that alternative in the form of

I

2.:

emulators. *

.

3:

4.\.

Other manufacturers of computer systems also recognized the
des.irability of facilitating conversion and provided users a number of
aids, such as s~ulators**' and translators,f to ease the transition
between incompatible systems. ff

As late as August 1963, IBM was still

working on software simulation as a means of providing System/360
compatibility with prior systems.

However, work on providing con-

9; version through emulation had commenced within IBM prior to that time.
(Hughes, Tr. 34047-48.)

On August 1, 1963, D. H .. Furth, Corporate

Director of Programming, sent a memorandum to Evans expressing the
t? I

view that it was "feasible" to use read only memory control (micro-

-j

13

1

programming) to achieve compatibility.

He wrote:

14. ;
.,... !;

* An emulator is a combination of hardware and software that
one computer system to execute programs written for another
-, permits
system.
p. 45.)
I

-

I

!\
'r

(JX 1,

16 :!

17

j
:1

** A simulator performs the same function as an emulator, but is
implemented entirely in software.
(Goetz, Tr. 17654.)

'1

I

15 ::
~t

19 J
:1

20 .,:

f A translator is a computer program that takes as input the source
programs of a particular computer and translates them as closely as
possible to an equal program in the same or a different language that
would run on the equipment to which conversion is desired.
(King, Tr.
14 76 9 - 70 . )

'1

. ff GE offered a 1401 simulator which permitted programs written for
a 1401 to be run on its 400 line and a 7090 simulator which permitted
Z2 t programs r.vritten for the 7090 or 7094 to' be run on GE's 600 line.
i (Weil, Tr. 7029-32.) RCA developed a simulator that allowed programs
Z3 ! written for IBM's 650 computer to run unchanged on the RCA 301.
(DX
! 561, p. 13.) Honeywell offered a LIBERATOR program ~"hich translated
IBM 1400 Series programs into programs usable on the Honeywell 200.
(R. Bloch, Tr. i578, 7588-89, 7605-06, 7886-89; Goetz, Tr. 17652-54,
18822-23; Enfield, Tr. 20052-54; DX 6661, p. 6.)
-306-

"Since such a hardware simulation would appear to be very
economical from the customer's point of view and since it would
eliminate some half dozen simulators from an already mountainous
Programming Systems load, it would appear reasonable to pursue
the realization of this feasibility as part of the overall NPL
p~ogram."
(OX 2872.)

ii

i

~!
.
I

By October that recommendation had been accepted, and Brooks wrote

I

~:l that

"We are

hope~ul

that microprogrammed simulation can add substan-

:r :\ tially to the bag of tools for aiding conversion".

,- :1
;,

(DX 2900.)

During 1964, IBM announced microprogram-based compatibility

,

a:

features on System/360 for the 1401, 1410, 1440, 1460, 1620, 709,

i\

7010, 7040, 7044, 7070, 7074, 7080, 7090, 7094, and 7094 II proces-

!

a :; sors.*

(JX 38, pp. 30, 289, 292, 334, 526; DX 14305.)

Withington

:

, ;
• . testified that System/360 was "the first major use of microprogramming

2.11

for purposes of establishing backward compatibility."** (Tr. 56606.)

3

He also testified that

i
I

"implementation of emulation using control store and microprograms, while it is more expensive [than software emulation], is
regarded by users as preferable in most cases because it is so
much faster".
(Tr. 56371-72; see also DX 2900.)

e fl
:i

The provision of emulators on System/360 afforded users a

.7 ;{

:rhardware alternative to conversion.
(PX 449, p. 9.)
It permitted
.S "
;1 them to transfer jobs to System/360 and to concentrate on new applicatio~
Q

I ....

:I~

i

I

areas without immediately having to convert their existing applications. I

;

:1

!

~,., :1
~

.1

I

'I

•• i - - - - - - - - - - -

"

I

·1

- ~

. * Case estimated IBM's cost of developing the 1401 compatibility
on the Model 30 as $200 thousand and the cost of developing
- :ithe 7090 emulator on the Model 65 as one-half million dollars.
(Tr.
t~ :! 7 4 5 57 - 6 2 • )
~:feature

-,

~;!, ,t

** Withington defined "backward compatibility" as "the use of
lemulation . . . for the purpose of allowing programs written for a
~ 'jmanufacturer's prior computers with different instruction sets to be
!executed on the newer computers".
(Tr. 56606.)
I
il

'I
I

:i

'\

i
i

.1

-307-

II

1.:

(JX 38, p. 30.)

2:

Although programs run in emulation generally ran slower

3:

than :they would' h""ve if rewritten to run in native· mode on the new

4- j' systems,* they could be run effectively enough to permit users to
,t

forego reprogramming if they chose to do so.

5 !l"
If

(Beard, Tr. 9057-58,

Eli

9956-57, 10029-30, 10318-19; see also R. Bloch, Tr. 7608-09, 7614-15,

7

7881-82; McCollister, Tr. 11287-89; Rooney, Tr. 11853, 12395-96.)

;1

s !i

Goetz testified that emulators were generally considered an "effective
means of running programs from one computer system on another".
(Tr. 17655, 18778.)

-

....'! 'T

Because 360 was incompatible with IBM's second generation

'

;

il
13]

equipment the conversion from IBM's second generation equipment to

-..

(Beard, Tr. 9058-59, 9953-60, 10324-25;

!Z

360 involved as large a task for users as would converting to

I

r J;.. :, another vendor's systems.
1=

McCollister, Tr. 11069; Goetz, Tr. 18935-36; Enfield, Tr. 200"20-21.)

I
J

...... 'l

Indeed, in some instances conversion to non-IBM equipment would have

15 .{

1.7

i!i

been easier than conversion to 360.

;r

initially "overjoyed" with the announcement of System/360 because GE

~

~S

,I

19

:i

- ' :l

-

l

weil testified that GE was

had introduced a system "designed to displace" IBM's 7090s and

J 7094s

and believed that

II

it would be easier .

• . to convert from

'0 :

.,-r

~

"

the 7090/7094 to the 600 series" than to 360.

I
:1
;

(Tr. 7060-61.)

------------

22 .\'~

*

'I

Of cour.se, such programs might very well run faster in emulation

2.3: mode than they had in native mode on the equipment for which they were

I written.

For·examole, Enfield testified that a 360/30 operating in

Z~ :1 emulation mode couid execute 1401 programs 3 to 3 1/2 times faster
.! than a 140 1 .
(Tr . 20263.)

.,=
_..

I\

.,;
i
\

'I

!
I

!

-308-

:\

J
:1
I

Jones testified that Southern Railway ran benchmarks which showed
that conversion from an IBM 7000 Series system to an IBM 360 was

, !

,

"about equal in difficulty" to conversion to an RCA or Burroughs
!

'

(Tr. 79042-

.i·machine, but not as easy as conversion to a Univac 1108.
I

,Ii 43;

Nevertheless, IBM was successful in getting users to

: :1
~

i

i

l

it Tr. 57680-81.)*

One reason for that success was, undoubtedly, the

benefits that users were able to derive from System/360' s

I

I;
I

price/performance and new capabilities.

!

L~proved

As Withington agreed,

"if [users] perceive it to be in their econo~ic interest,
[they] will absorb the cost of conversion for the future benefit
that they expect to receive from (al newly acquired computer
system" • (Tr. 57677; see also Hart, Tr. 80222-24.)

;

-;1

.;
!

l '

Hart, head of the Computer Science

~~

Depar~~ent

Motors Research Laboratories, testified that his

..

: ; a 701 to a 704 to a 7090/94 to a System/360.
•

(Withington,

convert to System/360 from IBM second generation systems.

t ;

,

see also Hart', Tr. 81936.)

i

of the General

depar~~ent

went from

(Tr. 81938-39.)

Several

11

: :! years after these changes, Hart wrote "conversion costs must be taken

r :1 into account when changing computers; however, in retrospect, the

!:I

value of each of the above changes far exceeded the costs incurred".

:1

;. :i (DX 3753 (Tr. 80193).) He explained that improvements in sheer computer

:I

J '\ speed, reduced computation costs, and the availability of "new kinds
I

1 :!of capabilities" were all reasons for changing computer systems.

,J
~ ~---*--I-t--s-h-O-U--l-d--b-e--n-o--ted

To

.:

that IBM's success in getting users to convert
- lwas not unique. According to Withington, between 1964 and 1970, some
~ '!90% of second generation equipment users converted to a non-compati,!ble computer system of either the same or a different manufacturer.
5[ (Tr. 57 677 - 8 3 • )

i

I
I

;1

'j
I

I

i

,I

1

i
i

-309-

Li decide whether conversion is justified, "you take into account the
2

costs of making the change, the benefits which are going to result

j

!
i

3 ! from the change, [and] determine whether the benefits exceed the
1

4.1 costs."

(Tr. 80222-24.)

I

I

A similar cost/benefit analysis was performed by NASA,

5'1I

I.
- :1 c~rca

~ 'I

196 5 .

7

1I

S

II equipments"·

NASA had just made a "large purchase" of second genera-

tion machines to' lower its operating costs, when a "new series of
became available with multiprogramming capabilities, I/O

9 i flexibility, memory sizes, program logic and the ability to use
remote I/O devices that made it

10

"possible to effect a consolidation of [NASA's] ADP resources
. • . into a powerful central complex without compromising
availability, quality or power available to any user. At the
same time the cost per computation of these newer machines was
considerably lower than their old second generation equivalents" .
(DX 5440, pp. 2-3.)

11
I

tZii
'I
!.3 :r

l.4-:!NASA decided to convert "at the earliest possible time" .

.- 11NASA's
~I
analysis of the conversion difficulties was:
~

'I

161
17 :1
lS :f;i
:1

19

"This conversion has created a considerable workload and has
resulted in overlapping of older and newer equipments with its
attendant increased rental costs during the conversion period."
(OX 5440, p. 9.)
It concluded, however,

.i

:f

20,:,

.1
'1
-j

"The benefits from the more complex software and the flexibility
of the new machines far outweigh any conversion cost we may
incur. II
(Id. )

:!

Z2

Despite the powerful incentives that users had to incor-

:~

lporate System/360's new capabilities, it ~eems clear that 360 would
23'

i

24. ,{

./
z5i
,I

'II

* The
(DX 5440,

ne~v

equipments included IBM 360s, Univac, CDC and GE computers.

p. 5 • )

I

'1

I

:1

:1

i

'\

.\

:

-310-

-I

have been far less successful without emulators.

.

Reference manual noted the success of IBM's emulation approach to

I :

Xerox's Competitive

I

l ; converting second generation users to 360 (PX 449, p. 9), and
!
~i McCollister t'estified that iu. was a "very widespread practice" in the

.

I'

i

!I

~

I

,

i

r il
;1

late 19605 for IBM' users to choose the option of emulation on 360.(Tr. 11287-88.)

An IBM Corporate

systems hours now being used by our Models 30, 40, SO and 65 are being

i

l:
I

Study based on a

November 1967 customer survey estimated that "more than half of the

used in emulator mode".

~:

P~ogramming

(vi)

(PX 2161, p. 3.)

System/360 S·oftware.

Prior to the advent of operating

..T:

systems, each programmer had to write instructions that would schedule

z.~

his tasks and control the various equipments he required for his

!
i

3:

particular jobs.

As computer systems became faster and more complex,

i

~;

it became increasingly important to manage efficiently the resources

I

.

~:

they provided.

Operating system software relieved programmers of the

need to incorporate scheduling instructions in each program they
wrote and, 'in effect, turned over the job of scheduling to the computer
itself.

According to Dr. Perlis, operating systems enabled users to

"take advantage" of a computer's total processing power, including
its multiprogramming and multiprocessing capabilities. (Tr. 1848-49;
see also Welke, Tr. 171l3i Goetz, Tr. 17476-77; Enfield, Tr. 2073738; Case, Tr. 73443.)
Given the complex "new market demands" and modes of use at
~!

'i

,=,!

which System/360 was being airned--i.e., "multi-terminal, on-line,
real-time, multiprogramming operation"

(OX 1404A, pp. 7, 8, 9, S4

(App. A to JX 38))--it was imperative that IBM automate as much as

-311-

l

possible the system's resource management task.

2

creation of a set of operating systems of varying complexity.*
I

l

~

IBM embarked on the
The

most complex of these, 05/360, was particularly ambitious.
05/360· was designed to let customers "make the maximum
possible use of the relatively greater speed of the . • . System/360
central processing units".

(Case, Tr. 73438.)

Since multiprogram-

ming was anticipated to be a "normal" mode of use, facilities (such

s

as an interruption mechanism) were to be included to make multi-

~!

programming "easier, straight forward and efficient".

I 73438-39.)

(Case, Tr.

In addition, 05/360 was to contain facilities that would

10. ;
I
J

11 i permit programmers to develop applications more efficiently, optimize

!2[ the utilization of peripherals and simplify maintenance.
I

(Case, Tr.

I

13 ; 73438-41.)
I

T~:

~il undertaken
..

~

JoQ

17

Within IBM, it was recognized that "no one [had] ever

a programming task of [05/360's] magnitude".

4; PX 1900, p. 8.)

:1
:j

il one

(PX 1092, p .

Dr. Perlis called 05/360 a "really major effort",

..

which "generalized every aspect of operating systems known at the

:f time and tried to in a sense build a system that would be all things

15 :i,/
19

:1 to all men".

(Tr. 1887.)

Mr. Welke, President of International

:i
'I

:t Computer Programs, called 05/360 "a major programming effort" which

za'i

1ranked

"along with . • . the great undertakings of mankind".

(Tr.

2:i
j 17313; see also Rooney, Tr. 12576.)
22 .;
:t
A_
"--------------------~.

Z~

Z:

I

* To a~count for the varying degrees of speed and complexity of
'! operation that users might desire, IBM provided ~"ith 360 a "spectrum
!of operating systems.
each of which offered a different memory/
: function trade off for the customer". (Brooks, Tr. 22759.)

l

'f,
j
t

:;
,I
I

:1

-312-

50 ambitious an

~ldertaking

entailed significant risk, and

as we shall see, 05/360 was quite costly and difficult to perfect.
; Apart from the difficulty of constructing the operating system at
:

.! all, there was the additional,risk that users would reject the multi-

"1' programming environment--an environment that was most often not used
I

I

~:,

in earlier generation systems.

. )t

(Case, Tr. 73526.)

That would mean

• J that IBM's investment in the hardware and software needed to permit
I

'I multiprogramming

~

: have accomplished little more than to make the systems less competi-

I; tive.

would be'reflected in 5ystem/360's prices and would

In addition, 05/360's "extensive" resource management, data

I

; management, languages, aids to program development and error recovery

'i

techniques did not come "without a price".

(Case, Tr. 73527-29.)

- it;,

t :'IThe use of those capabilities would take up auxiliary storage space,
'- t} main memory space and time on the CPU--an "operating system over-

_~lhead".

(Case, Tr. 73529.)

There was a significant risk that users

:r :1 would be unwilling to accept such "overhead" for the richness of
i :!
i :! function provided by 05/360.
(Case, Tr. 73528-30.)
05/360 did, in fact, run into "difficulties in design, in

.t

a ;1

]correctness [and] in completion".*
;

(Perlis, Tr. 1887.)

However,

'j

.

I
I
I
I
I

,
i

J"when the system finally worked it had properties that were beyond
j:

.!about any other operating system around".
(Id.; see also Palevsky,
!.:! .
lTr. 3180; Rooney, Tr. 12576; Currie, Tr. 15186; Welke, Tr. 17308-12.)

., ':
=,lIt

must be remembered that 05/360 was only one of five general progr~u­

.; i

:1-----------I

:!. I

I * Many other computer systems suppliers experienced similar diffi! !culties in designing complex operating systems during the 19605.
!(5ee discussion below, pp. 364-66,479,502,568-72.)
!
I

:,!
I
I
I

-313-

lJ

L~

ming packages that IBM announced in 1964 for use with System/360.

t

2

(Brooks, Tr. 22759; McCarter, Tr. 88388; JX 38,

i

i
i
4. '.

1

,r

9, p. 6.)

The

others--Basic Progranuning Support (BPS), Basic Operating System
(BOS),' Oisk Operating System (DOS) and Tape Operating System (TOS)

I

=\1' were

less complex sets, of systems software.

These operating systems

,.:;;, "worked reasonably well from the start" and were well accepted by
;\
(Withington, Tr. 58596-600; Enfield, Tr. 20947-52, 21120;
customers.

-7:,'(

a~

Brooks, Tr. 22853-54, 22862-63; McCarter, Tr. 88388; OX 1410; PX 6217,

9-:

pp. 3-4.)005 in particular, which was less complex than 05/360 but

i: still 25 to SO times as complex as the systems software provided with

1O:
11 the 1401, was highly rated by users and widely used.

II

;120299-300, 20741-42, 20088-89, 20943-48.)

t~

!

13

,I

.

-i

(Enfield, Tr.

Case testified that "if it

had not been for the operating systems for System/360 .

. • the value

i

;[of that equipment to users would have been considerably less than it

~~\Iwas
~

been a lot less than they otherwise were".

\,1

I

and . . . the orders and acceptance for that equipment would have
(Tr. 73443-44.)

16 '1
(vii)

5ystem/360 Peripherals.

1- if
.1 :t

Case testified that one of

:fthe design objectives for System/360 was to provide "a wide variety
:,
-j
~tof peripheral equipment that could be combined in a very wide range
19 :i
:Iof configurations".
(Tr. 73416.)
Prior to announcement, the "breadth"
. . 0 ;1
"
:li of 360' s peripherals were vieTN'ed within IBM as a prime motivation for.
Z!. ,! .
Jusers to re-systemize their applications and convert to 360. Thus,
.,,, 'i

1~n

!

Z~ :f

I:

25

January 1964, Brooks wrote:
"Even though present app1icatic!'ls can be simply mapped onto
System/360, many new systa~ concepts will offer substantial
incentive for the customer to re-plan his application. These
include file orientation, communication facilities, large memories,
bulk stores, etc."
(OX 1172, p. 1.)

1

'!

I

:1

!

''\I

-314-

I

-I

~S

-"
23 'I

I
I

I
i

The April 7, 1964, 360 announcement contained "many features

ai

Included in the

different from those previously offered by IBM".

i; announcement were "direct access storage devices (including the 2311

.

,,

~I

disk drive, the 2321 data cell and the 2301 drum storage device);

:1·
-,

control units, h{gh performance tape drives (including the 2400 series

~

;1

and the 734·0 Hypertape drive Model 3); visual display units (includ-

T

;1

,

.

ing the 2250); 7770/7772 audio response units; communication and data

:( acquisition equipment (including the 1070 process communication

S;

9-:
a

system); and a printer, the l403-Nl "..

(JX 38,

~r

6, p. 4.)

IBM also

announced numerous additional peripheral devices for use with System/

1

r i; 360 subsequent to the April 7 announcement--including the 2314 disk

-.
;

2..\ drive, new terminals, additional models of the 2400 tape drive, the
!I

3 !l 2420 tape drives and optical character
~4-

:

pherals as follows:

j

i

.5

equipment.

The 360 announcement letters describe some of these peri-

:

=ii

....

reCOgn~tion

1015 Inquiry Display Terminal:

:1

;~

"Used to interrogate and

receive visually displayed replies from a Systern/360, mdl 30, 40 or

.i ;
i 50."
.S :.

:l

(JX 38, p.

43.)

1070 Process Communication System:

"A

~9 ;j
• :{designed for two-way data communication between remote process loca-

m';

Jtions and a central data processing area." Applications include'~ontrol
U. 1 .
oil fields, petroleum and natu~al gas pipelines, utility'distri-

,., :10f
;~

:: }bution systems; data collection in refineries, chemical plants, steel
~

I

jmills, and manufacturing processes
Z.!. \
:i tele-processing system when attached to

23
1
:1

j

'\

I
I

,I;,
!

-315-

I

~ele-processing System,

The lOiO forms a complete
. System/360, via a 2701

I
!
i
I

I
'

L

Data Adapter or 2702 Transmission Control".

(!£:,., p. 39.)

1403 Model Nl Printer (originally announced as 2201 Mod. 3):

3-

"(p]rinted output for a System/360, model 30, 40 and 50. • . • maximum

4-.' speed, 1,100 Ipm".

(Id., pp. 84-, 198.)

1418 Optical Character Reader:
printer card or paper documents.

"

"Optically reads data from·

(!£:,., p.

1419 Magnetic Character Reader:

7

maximum rate of 1600 documents a minute."
2250 Display Unit:

10

(Id., p. 71.)

"A cathode ray tube unit for displaying

output in alphameric and graphic form for System/360. • . -. An

11

1'';'

"Reads magnetically

inscribed data from card and paper documents • . • . Documents read at

a

IZ.
13

70.)

I,
~
i

input/output unit which offers increased speed and flexibility for
file inquiry, inventory control and dynamic monitoring of computer
operations and continuous process control."

I

.. i

2301 Drum Storage:

(!£:,., p. 85.)

"High performance random access storage

for a System/360, mdl 50, 60, 62 or 70 . . .

[D]esigned for

applications such as main memory extension, programming system residence and table or index storage."

(JX 38, p. 86.)

"For fast, flexible access

2311 Disk Storage Drive:

85 millisecond average access speed . . . 156 KC/312 KD data rate
7.25 million character or 14.5 million digit capacity".
2701 Data Adapter Unit:

( Id., p.. 31 .. )

"For attachment of remote and

local input/output devices operating via. various customer or common
carrier facilities to a System/360 . . . . Accommodates a variety of
data communication and data acquisition operations.
-316I

!

II

:1I

i

Specific

I

•

II
I

!

i
I

i

!

iI
i

i

I

I
I

I
adapters enable the 2701 to communicate . . . with the following
terminals:
"1060 Data Cozmnunication System . . . .
!

,I

rtl050 Data Connnunications System • . . •

•

t

~1033

II;1

Printer • • • •

"1031 Input Station •

;1

;1

"1070 Process Communication System . . . •

11

"1053 Printer
"AT&T 83B2 Selective Calling Terminals .
"Western Union Plan l1SA Outstations .
"Common Carrier TWX Stations .
"1009 Data Transmission Units, 1013 Card Transmission
Terminals, 7702 Magnetic Tape Transmission Terminals or 7740
Conununication Control Systems . . . .
"7701 Hagnetic Tape Transmission Terminals or 7750
Programmed Transmission Control Units
"7710 Data Communication Units, 7711 Data Communication
Units, or another System/360. . . ."
(Id., p. 90.)

, ;1

2702 Transmission Control:

, :1

"For on-line attachment of

J various asynchronous input/output devices via private or commercial
'j
t

:! common carrier transmission facilities to a System/360. . . . [A]
modular unit with a variety of features to meet a customer's data

, ;r

r :1,I

i communication needs with a System/360".

(Id., p. 93.)

. :1
;j

~

J

Multiplexor Channel:

"[P]ermits simultaneous operation of

. ,} I/O units on time-sharing principle . . . primarily designed to
~

'i

i
~ '1
i
.!

handle rnul tiple terminals and low speed I/O uni ts . "
The combination of those and other peripheral product

I

:1

.j
,:

-317-

I

I

1 \

announcements and the announcement of six central processing units

2;

with a wide range of memory options was "unprecedented in the

3:

industry" ·

( :Evans, Tr. 101134; JX 38, pp. 14-25;- see also PX

4829, pp. 16-18.)*
_ i'
:i
~

This range of peripherals was important to

customers when considering System/360 against competitive systems
because it greatly expanded their ability to change or add to their
systems as their requirements changed and "played a large part" in
customer decisions to go to 360.** (Evans, Tr. 101134; see also PX
4829, p. 18; Withington, Tr. 56770-71.)
The broad range of peripherals announced with 360 promoted

10 i

., ~I
J.._

two of the SPREAD Committee's primary objectives--the creation of a

i

single system able to perform all applications and one that would

12. il
t

lSJ
~

address increasingly important new applications (i.e., multi-terminal,

I

.

on-line, real time applications).

The announcement of new disk drives

tape drives, communication controllers, card and printer I/O, ter-

* "[T]here has never been a time when any of the general purpose
competitors to IBM have offered more variations on peripheral equipment, the total breadth of applications and systems program functions
and the total number of alternative processors" being offered by
IBM.
(Withington, Tr. 56770.)

p~riPherals

'

I
I
I
I

I
I

** We do not mean to imply here that all of the
announced I
with 360 were successful. A number were soundly rejected by users.
I
For example, the 2321 data cell was a "major product failure" which
!
failed to achieve success because of unreliability; IBM had to supersede the 1015 terminal with the improved 2260 because the 1015 was
!
simply not competitive; and Hypertape tUfned out to be a "failure" even l
though it was judged within IBM to be technically superior to com;
petitive offerings.
(Case, Tr. 74205-06, 72787-88; Nithington, Tr.
!
58534, 56475-76; JX 38, 9P. 346-47; PX 6671, pp. 15, 26; PX 2990, p. R3~
DX 13949.) As we discuss below, IBM acted quickly to shore up areas
!
in the product line which were not judged to be superior to competitive'
offerings.
(See below, pp. 390-95.)
-318-

L

mi:lals, audio re·sponse equipment, magnetic and optical character

Z.

readers and paper tape and process control units meant· that users

!
~

~

could build configurations spe·cifically tailored to their application

I.

I requirements--,;.;hatever those. requirements.

.,= ,

Dr. Gibson testifi.ed that

j' one of the featux-es of 360 that permitted it to be used for both

i

5;

scientific and business applications and "erase the previous distinc-

7:1 tion"
a.

~I

was "the very wide range. of input/output equipment easily

attachable. through a common interface, • • • [which] made it relatively
simple to configure a commercial system . . . or one- optimized for
scientific computing".

.a

p. 1; PX 4829, p.

(Tr. 2948-49; see also JX 38, p. 28; PX 3638,

l8~)

In addition, the variety of remote I/O and communications
3

equipment offered with
i

; applications.

·:il
-

;1

.0

!.

Systa~/360

underscored 360's emphasis on new

Weil of GE wrote that System/360 "has major strength

in a variety of new mass storage devices and a whole new array of

' .. [lremote terminal equipment . . . • It has many of the features which will

:t make possible its' application in direct access systems." (PX 320, p.
.7 ;,
tt13.) Displays, remote data collection equipment, remote process
.3·!
:icontrol equipment, communications controllers, data communications
'Q .'

.. J equipment and on-line banking equipment were all made available to

:0 ::
• }perrnit users to bring the power of 360 to bear at the point of trans-.
:r" ~l
- j a~tion--in real time. The ability of a System/360 to communicate

,.,;

- ,iwith other ~omputers or terminals "opened up a whole new gamut of
23

,~

:i

I
l'~cat~ons
,
,
.lapp
~n industries, airline reservations industries, modern

:

ibusiness, so that remote stations could have access to the enormous
25

1

'1
••

r

.;

.i

:

II

-319-

.I
I
I
I!
i
i

,
I

i!
!

!!

data in a central computer and do so in real time".
101136.)

(Evans, Tr.

The ability to do such applications resulted in sales of

systems that otherwise would not have been sold.

(Evans, Tr. 101135.)

The importance of System/360's peripherals to the success
I

:!fOf the product line cannot be overestimated.

a

As Mr. Norris of CDC

testified, the speed, performance and price of peripherals are "impor-

\1

7 ;1 tant considerations in determining to acquire one system or another".,
;1

gi (Tr. 6019-20; see Withington, Tr. 56239, 56246-47.)

Thus, even a

single peripheral device--such as a disk drive, terminal or printer--

1a , which

is sufficiently better than competitive offerings can swing the

11 iltotal system decision.

i~
o

:112048-49: DX 13949.)

(~:

Currie, Tr. 15495-96: Rooney, Tr.

In this respect, of all the peripherals offered

.:..... it

1With System/360, the 1403 Nl printer and the 2311 and 2314 disk

: drives were most critical to 360's success.
1':" ;
1403 N1 Printer . We discussed earlier the importance of

.-

,

~,

the 1403 printer to the success of IBM's 1401 computer system, and

!t

16

~I

;thow that printer gave IBM a "tremendous advantage" in the marketing

17

:1

;Iof systems until competitors began to offer "satisfactory alternatives"

T3, .i

•

ri
;\by
1963 or 1964.

19

;i

(See above, p. 143.)

In 1964, IBH announced

'(the 1403 N1 Printer for use with System/360.

The 1403 N1 ran at

10,!

'lalmost twice the speed of its predecessor (1100 lines per minute
1! 'I

~~compared

22 !;

.t1403 ·
2.31

to 600 for the 1403) and cost only about 15% more than the

:38, p. 207; OX 573, pp. 4, 6.)

"",of

I

.

(Evans, Tr. 101137; DX 3617; see also Enfield, Tr. 20266; JX
At the time of its introduction IBM's

"'~ I

:!competitors did not offer a printer t!1.at matched the 1403 Nl in print

Z= :\
'i

,t
'r

:1I

,i,

i!

-320-

it

quality, price and speed.
72881.)

(Evans, Tr. 101137; see also Case, Tr.

IBM's competitors recognized and acknowledged the excellence

of IBM's printers.

Eeard (former Chief Engineer of RCA's Computer

System 'Division) . testified that RCA began offering t.l-).e 1403 with its

.

i' Spectra Series because. there were applications for which customers
I
I

~ desired print quality "of a very high standard".

Such customers

:J "insisted" on "1403 chain printer type quality" and "after resisting

il these

requests some period of time" RCA acquiesced and "put the 1403

into the RCA computer line".

(Tr. 10322-23.)

The 1403 N1 was particularly important to System/360's
ability to perform certain business applications.

For a customer with

applications such as payroll, billing, accounts receivable and invent
• I

tory control, the ability of a computer system to do his work is

!

determined "in large measure" by the speed, quality and reliability
• :1

.; of the printer.

: II Withington,

(Evans, Tr. 101137; see also Currie, Tr. 14971-72;

Tr. 56253.)

Currie testified that XDS was at a "disadvantage" to IBM

· \1
!I

I ;(With respect to its line printer for customers that wanted to do "any

:\ significant amount of business data processing".

(Tr. 15459.)

As

L "

, :1

late as 1969, XDS was only "marginally competitive" in peripherals and

•I 'II

, its

:1

line printers "were not acceptable to some of our users If

•

Those

jprinters lacked the range of "speed/performance" that some customers
)

'f

.. :!

· -lwanted and did not produce as high a quality print as a chain printer
)l

:tor a train printer.

· '(
-

I

(Currie, Tr. 15006-08.)

CDC also experienced "substantial problems" in marketing seme

.,
(
.;

:;

-321-

i
[

L: of its computer systems because they incorporated printers that "lacked

2

sufficient reliability to meet normal customer expectations" and had

l.1 Ita poor print quality, in terms of wavy print".

To help solve these

4- . problems CDC acquired the Printer Division of Holly Carburetor in 1966 ..
I

=!

(G. Brown, Tr. 5152.8-29.)

CDC ultimately developed a "1403N-l type"~

~.! printer of its own r but it had to be "reworked and re-developed" in,

~ ;1

7Jthe 1969-70 time'frame in order to effect reliability improvements.

ailThe changes resulted in a design that was "more like the original IBM
design" •

9-

(G. Brown, Tr. 51541-46.)
While CDC attempted to copy the 1403 Nl design and RCA sLmply

LO

incorporated it into RCA's product line, Grumman Data Systems took

II

advantage of the 1403 NI's superiority by offering to attach it to a
!Z. :,
if
13 :fnumber of non-IBM computer systems. As late as 1975, an advertisement

~t for Grumman Data systems stated:

14-

i

....
1-

;

I

I

-;

!

15 J

11

II

"The IBM 1403 has built an extraordinary record. Highly
reliable, high speed operation. Unusually consistent, clearly
readable printouts.
(No wavy lines so typical of drum printers.)
Type fonts your operator can readily interchange. And, of course,
it handles form changes easily.

1S \[
•

"For years people have been trying to imitate the IBM
1403. Unsuccessfully. Now, with the Grumman Printer Controller
you can connect your present computer to an IBM 1403 and give
yourself the best printing in the business.

:i

1_1:t
a

za ':

"With the Grumman Printer Controller you can improve your
printing quality, speed, and reliability. All at an attractive,.
and perhaps, money-saving price. Speaking of price, you can buy
our controller or rent it. We provide maintenance of course.

:1

Z!.:!
·i

22 :\
23 '\
I

I

"With our printer controller you can connect the IBM 1403
to your present DEC, Xerox, GE, or CDC computer. We'd like to
hear from Burroughs, Univac and the other computer users, too."
(OX 94B.)

Z4 '\
I
Z5 :iGrumman later offered the 1403 N1 for attachment to Burroughs, Data
I

'r

:1

J
:(

J
:1
:1

-322-

General, Digital Scientific and Univac computers.

(DX 2782A:

ox

7984~)

The 1403 Nl was also offered wi.th Computer Machinery Corporation
computers.

(DX 11665.)
Gordon Brown testifi,ed that the quality and reliability of a

printer is "an extremely important criterion in the selection of a
I

I

:1 computer system".

it

(Tr. 51528-29.)

The 1403 N1 was a real boon to

the acceptance of '360.

~I

Ii

System/360 Disk Drives.

As we discussed earlier, IBM's

superiority in direct access storage technology during the 1950s and
early 1960s contributed greatly to the success of IBM's first and
second generation systems.

IBM maintained

that superiority with the disk drives introduced for use with System/

I
•

(See above,' pp. 91-95, 14~:'3.)

tI
i

360.

;t

Both the 2311 and 2314 were substantial improvements over IBM's

1earlier
·:1 success

disk drives and both proved critically important to the
of System/360.

These disk drives were more than just superior

,lito competitive offerings, they were unique in the industry:

there

,.ISimP1 Y were no similar competitive offerings for several years after
I

.I their introduction.

Thus, they gave IBM a competitive advantage in

:1

,\the marketing of 360 systems that competitors were unable to match

f .i

'f

]until the late 1960s, and even then, competitors were able to do so
I

I

., only by adopting, in one way or another, IBM's disk technologr.
I

·j

IBM announced the Model 2311 disk drive on April 7, 1964.

1 ':

- ,~The 2311 had approxL~ately twice the access speed, twice the data
i

.Irate and two and one-half times the storage capacity of the 1311.
~

'!

i (Case,

Tr. 72741-42; JX 38, p. 86; PX 4252, p. 1; OX 3554D; see also

l '\

!I

:\

'f

:l
!t

!
:1

-323-

L Enfield, Tr.

20264-65; Haughton, Tr. 94998.)

IBM announced the 2314 disk drive on April 22, 1965.

The

l'

2314 had a faster access speed, double the data rate and almost four

4--

times the storage capacity per spindle of the 2311.

= .72142-,43;

JX

(Case, Tr.

38, pp. 86, 439; DX 3554D; see also Haughton, Tr. 94998.)

Beard testified that the 2311 represented a "technological
advance" over prior random access storage methods.

7

only • • • fast access time but it provided . • . for the first time, th

S

degree of reliability that was required of random access devices

9-

. • [I]t was really the first very reliable disk file that.

10

was offered by anyone".

11

(Tr. 9048-49.)

Beard also called the 2314

an "advance over prior random access devices", adding that his comments

IZ
!.3.

"It provided not

on the 2311 applied "perhaps more importantly" to the 2314 because
!

the 2314 offered greater storage capacity and a more "practical cost"

I

!'4-li

for random access storage than did the 2311.

15;

I that the 2314 was

• ~ :t

"[v]

McCollister testified

ery definitely" an advance over prior disk

J..Q" !I

;·1'

drives because, for example, "it had a capacity in a pack of approxi-

17 ;
!lmate1y 28 million bytes as compared with 7 1/4 million bytes in an
15 ,I

- :tear1ier model".
(Tr. 9597.) Withington agreed that both the 2311
T9 .
• :land 2314 were unmatched by comparable competitive products during the
ZOi

'1

'linitial years in which they were marketed.
:1

~.;

~j

.

(Tr. 58800, 56240-41.)

IBM foresaw and depended upon the widespread acceptance of

22 .\
.{disk drives as a key factor in the ultimate success of System/360.
Z3 "
iIBM
Vice President Knaplund testified:
i
14. 't
"An important element of the System 360 forecast t.;as the antici./
'i
pation
that disk files would be used extensively, both in applicaz=1
:\

,I

'\

:I
:1

'j

I

:1

ij

-324-

tions that had historically utilized magnetic tape or punched
card storage and in the development of new communications
oriented--or 'teleprocessing I --applications. ..
(Tr. 90506.)

!.

: However, the demand for the 2314 disk drive ttturned out to be very
f·

I

i surprising in the rate that customers found use for it".
\'72743.)

(Case, Tr.

IBM "totally underestimated the demand for such devices" and

I

I
~

"we [in IBM] found ourselves hard pressed to deliver the devices as

~I

fast as customers were demanding them".

I

(Id.)

It is important to

I

note that the use of disk drives was not conunon on second generation
computing systems.

According to Case, fewer than twenty percent of

computer systems prior to 1964 used direct access storage devices.

!!

(Tr. 73527.)

Nevertheless, IBM "gambled" that System/360 would be

\ widely used in "operational-type" applications (as opposed to batch.i
type applications) and that disks would playa "pivotal role" in such
I

I

applications.

(Evans, Tr. 101139.)

System/360's more advanced

~! operating systems. were designed in a way that required a direct
:
I ltaccess storage device for their successful operation.

The higher

, It performance and greater function necessary to achieve such operation
l

'I could
1\

:1

t

not have been provided with magnetic tapes and the use of drums

.
wou Id sl.l!lply
have made the cost of storage too expensive.

(Case, Tr.

:i

i

IBM was therefore betting that users would be willing to

!

'I trade-off the expense of disk drives for the increased efficiency of

I

;i73451-53.)

, 'I

• :1

..1

'

~operation

, ;\

and the additional function that a disk-based system would

~ lbe able to provide*--that users would accept widely an approach to

l

\------------------------

I

~ 'l * The "significance" of the disk drive was that it provided a
: ifunctional capability of having information on-line and readily
1available.
(Rooney, Tr. 12142.) The random access capability of
,
I

.!
;!

I
\

II

~

I

-I
I

-325-

i

I
i

L

computing that had not been widely accepted before.
In hindsight, that bet was a good one.

1

As Case testified,

today IInobody thinks of developing a wide range of computing equipment

4. . or a family of computer systems wi thou-t having a direct access stor-age,
:

device as a prerequisite for the operating systems".

[\0

-!

73452-53.)

=
11
7:1

(Case, Tr.

Back in 1964, however, nobody but IBM had that thought or

acted upon it as· forcefully. *

As a consequence, the tremendous

I

S ! acceptance of IBM's disk drives swept before it all of the other
approaches to random access storage then being

II

"During that period the entire industry and the users began
to appreciate the importance that disk drives were going to play
in the great majority of general purpose computer systems.
Before that time, alternatives were being experimented with, such
as particularly magnetic card devices, and also I think no one
realized the degree to which the transaction processing mode of
use was going to prove popular. I believe only IBM among the
major competitors at the time offered an alternative between
magnetic card devices and disk drives, with developments proceeding along both lines. A number of the other manufacturers
committed themselves almost entirely to the magnetic card devices,
sometimes also using magnetic drums.

,
i

I.2. 1,
13

;t

l.4.

;f

.

t

I
--- ;:
I"

--f
15- ~!

11
1

•

"When it became apparent that the class of magnetic card
devices was not going to be successful in the marketplace, for
reasons of reliability, and that the disk drive was a critical
product, many of IBM's competitors were left for a while without
a satisfactory option."
(Withington, Tr. 56240-41.)

:1

s Ii~t

1 ct
ill.

offer~d:

it

~f

---------

zcr

}disks "permitted a new and more effective approach to doing customers'
:\ work It, particularly in real-time applications such as those performed
11 -,by banks and airlines.
(McCollister, Tr. 9591.) System/360's emphajsis on disk drives made possible more efficient use of CPU, main
.,., :; memory and peripherals i increased the range of functions and services
--tthat could be provided by the operating system; and made possible a
2:3 ., "more valuable" mode of operation (random processing of transactions)
rthan the sequential access mode of processing that was common prior
Z~ 'Ito the emphasis on disk drives.
(Case, Tr. 73468-70.)
2: 'I
* As we discuss below NCR, Burroughs, Sperry Rand, Honeywell and
"\' RCA all offered different ~ppro~ches to random access storage, and
:, all of those approaches fa~led J.n the face of the tremendous user
:la:ceptance of disk drives.
(See below, pp. 94,383,473-74,549-50,
',6 :J 9 . )
I
l

'I

:1
.I
1!

-326-

L·

Both the level of performance and the attractiveness of

i
I

, ; System/360 were substantially dependent on the 2311 and 2314 disk

i!

drives.

(McCollister, Tr. 9370, 9591-92; Rooney Tr. 12122; Kn.ap1und,

I

~

i Tr.

::1

90506-07; Evans, Tr. 1011?8.)

The 2.311 was "far more" important

I

to the marketing of System/360 than the 1311 had been for IBM's earlier

:; ; systems, because the 2311 "offered an improved price/performance . • •

-I

r\lwas supported toa greater degree by systems programs • • . and,

3 !ltherefore, was easier to use, and • • • was more reliable".

9[

ton, Tr. 56246-49.)

And the 2314 was, if

~nything,

(Withing-

even more impor-

a ! tant. It provided "a functional capability very much needed in
, I of price/performance in the competitive marketplace and without
I

terms
that

.

-!

Z. ~ capability you were in a weak competitive situation against IBM".
1\

~

: (Rooney, Tr. 12193.)

.l:

Within IBM the 2314 was recognized as a "catalyst

i

: to make many systems sales for previously undeveloped application use

4.;,

51 of

computers" and as a "door opener that beats competition".

(PX 1967,

;

I

S aPP .

~

1, 3, see Page, Tr. 33122.)

According to Case, IBM's emphasis on th

lluse of disk drives with System/360 contributed to the objective of

, II

'f growing the market for IBM products in particular and computer system

S :,
:\
:i products in general.
Q

HIIJ

.;
;

~

(Tr. 73468-70.)

Not surprisingly, other systems suppliers wanted the kind

·1
."
. . . .'j1

:Iof "catalyst" for systems sales that IBM already had. Eventually, they
.
Jeither acquired them from OEMs or from IBM itself or they undertook to
.:
~I
1manufacture them themselves. As we discuss below, the acceptance of
~!.!

...

:1
,":

,

~~

I

!5

·1

360 spurred the growth of peripheral equipment manufacturers, some of

Iwhom supplied IBM 2311 and 2314 type disk drives directly to IBM end

.11

!
I
i

"I

:1

:
I

.\

.1
'j

-327-

:!

II

1. \ users'.

Z:

During the latter part of the 1960s, however, these manufac-

I

turers served as a prime source of disk drives for many systems

i

3! suppliers.

4-!'

(See pp. 753-59, below.)
!1emorex was the first of the PCMs to offer IBM plug-compatible

!!'disk drives, in 1968.

(See p. 770, below.)

During the years

I

:: 1967-70, Memorex hired almost 600 former IBM employees, three of whom
7

became Memorex Vice-Presidents.

\1

a II
9-

(JX

34, pp. 1-2.)

In 1967,

~1emorex

hir'

a number of disk drive engineers from IBM, including ROy Applequist,

l who had designed IB'M's voice coil actuator.

10 : Gardner, Tr. 38585, 39143.)

(Guzy, Tr. 32858-64;

Applequist designed the voice coil

II i actuator for Memorex's 630 disk drive, which, according to an indepen-

l2. ! dent engineering assessment, was "directly derived" from IBM's 2314B
13

~I (333 0) and .. not the resul t

l~~

a f coincidence".

(Gardner, Tr. 39143;

1418, p. 151; see also Spitters, Tr. 55259-61;

OX

2572.)

D.

OX

J. Guzy,

!
I

15 ; former Executive Vice President of Memo rex , testified that the hiring
I

.

-

15 ;!of Applequist and other IBM engineers was important to the success

17 :Ithat
Memorex
It

aChi~ved

with the 630; and that the 630 and 660* were

18 :!stYled and intended to be, respectively, 23ll-type and 23l4-type disk
19 ] drives.
(Tr. 32316, 32776, 32899.) Memorex marketed the 630 and 660
,t
20 inot only directly to IBM end users, but also to a number of different
-I

i

11 :\systems manufacturers, including RCA, Univac, DEC, Burroughs,

Hone~vell,

\

If

Z2 :;SEL, Hewlett-Packard, Siemens, Phillips and Iet. (Guzy, Tr. 33168;
f

23\I OX
Z!

1302, pp. 1-3;

OX

1308, p.

1.)

:!

I
,'----------f

15 '\
* Memorex did not begin volume production of the 660 until the
'!second quarter of 1969.
(OX 1268, p. 17.)
I

-328-

I
I

ISS was formed in December 1967 by twelve former IBM employ

1

2

ees who had resigned from the San Jose Laboratory, where they were
!

3 I responsible for disk drive development.

A number of this so-called

I

4

I "dirty

dozen" had worked on IBM's Merlin (3330) program.

(Whitcomb,

i

5! Tr.

34555-56; DX 4756B, p. 96; DX 4739: Wilmer, Tr.

I
6;tl 4741:

Yang, Tr.

(Telex) 6116.)

(Telex) 4266; DX

Like Memorex, ISS manufactured 2311-

7 II type and 2314-type disk drives, the 701 and 714, which were marketed
8
9

I

i by

Telex to IBM end users beginning in 1969.

i 4242,

(PX 4732A, p. 12; DX

p. 8; DX 4250, p. 7; DX 4756A, pp. 36, 72.)

I

ISS also marketed

10 !ldiSkS OEM to Hewlett-Packard, Itel and storage Technology corporation.\
II

11

! (OX

12

il type

13

1

I

86A, p. 2; OX 4113: Terry, Tr. (Telex) 3310-12.)

The ISS 2311-

drive was similar to IBM's 2311 except for the acdition of a

!

voice coil actuator, and the ISS 23l4-type drive was functionally

Ii

14 l,equivalent to IBM's 2314, again except for the addition of a voice
'j

15 II coil actuator.

il

(Page, Tr. 33072-73; Ashbridge, Tr. 348l2-13.)

ISS

16 i!was eventually acquired by Sperry Rand (in 1973) for its advanced
:1

17 !\disk technology, technical capabilities, highly qualified personnel,
18 :jPlant facilities and highly profitable OEM customer base.

19

ljPP.

1, 4, 5; DX 87, p. 12.)

(OX 86A,

After the acquisition, ISS became the

II

20 ji developer and manufacturer of disk subsystems for use in Univac

21 ilsystems, but continued marketing 23l4-type disk drives to IBM users
~I

22!jand to OE~ customers.
23 ;i

(Eckert, Tr. 988-89; McDonald, Tr. 4060-63.)

CalComp also offered 231l-type and 2314-type disk drives,

i

24 !manufactured by Century Data Systems, to en~ users and on an OEM

i

25

il basis.

(DX

10735, pp. 10-11; see pp. 776-777, below.)

CalComp

Iishipped its first plug-compatible (231l-type) disk drive in June 1969

II
II
iI
II

I

-329-

I

l.:

(PX 5324, p. 46; OX 4756A, p. 8), and later became the "first company

~:

to produce and ship a 2314 equivalent".

3

p. 10.)
such

as

(PX 3707A, p. 38; OX 10735,

Century Data marketed these disk drives to leasing companies'
Randolph and to other systems suppliers such as Nixdorf,

,
I
! j. Burroughs and Univac (PX 3l46A, p. 1; PX 5581, p. 10; PX 5582, p. 7;
I

I

DX 1886, p. 7; DX 12194.)

E'I

Similarly CDC manufactured and marketed 2311- and 23l4-type

- !I
I

II

disk drives, both end-user and OEM.

Sl

CDC's OEM customers included

Honeywell, GE, Siemens, RCA, XDS, ICL, SAAB, CII, Burroughs and

9-!i

(G. Brown, Tr. 51056-57, 51080-81, 51095-96; see pp. 682-84,
I Telex.
10 i'
i 1074-77, below.)

111

RCA did not even wait for PCM's to copy IBM's technology, but

!2.l!

,,-

I

went directly to the source.

;

"It was apparent [to RCA] that this

WI

i
T ,i

~.

capability which was offered by IBM was going to be required by RCA

:

:

in order to successfully market its products."

15

!

"This capability at the time was not available from any other
source.
So, therefore, when we announced the Spectra 70 family
or series, which came out about eight months after the !BM 360
announcement, we announced as a part of the RCA product line this
particular Model 2311 disk pack file capability and we obtained
these files by buying them from IBM, the sarne as any other
customer would buy them from IBM."
(McCollister, Tr. 9370.)

16 :1

17
18
19
20

il
:f
:i
:1
:1

:{

Although RCA had its own disk drive development program, RCA

:1
:1

·f

subsequently contracted with Memorex to

:j

s~pply

disk drives for use with

Zl :1

j RCA computer systems because Memo rex , development program was further

-,
.,~

:\

... _ ;1

ahead than RCA's "which was going to be about a year later than

~'i Memorex' s" .

Z4.

RCA went to Memorex at a time "when

,I

i we had in parallel our own development going on" because RCA was "under

..,

""=
~

(Beard, Tr. 8575.)

i
I

i

a handicap in selling the Spectra 70 Systems" due to lack of "a com-

\

'\

.!
,f

,t
I

-330-

parable product to the IBt-'! 2314 at the time".

RCA "couldn't afford

in the marketplace to wait that additional year" necessary for RCA's
development program to produce the required disk drives "[b]ecause
I' we were losing too many sales for the lack of it" to IBM.
I-

(Id.)

GE, on the other hand, attempted to build an IBM plug-

i

:

compatible 2311-type drive.

:1
11

;If 51536-37; Spain, Tr. 90227.)

(Ashbridge, Tr. 34812-13; G. Brown, Tr.
But "it

m~t

with limited success and

arrived to the marketplace much too late to meet market, or customer
requirements".

(G. Brown, Tr. 51536.)

GE entered into an exclusive

contract with Greyhound Computer Corporation to sell the device, but
Greyhound ended up having to take a significant write-off on its
investment in the GE equipment and even sued GE.

i

• if

(Spain, Tr. 88753,

88755.)
Not until the very end of the 1960s had IBM's disk tech-

.' nology been sufficiently spread around the industry for some of

a IBM's systems competitors to have pulled even.

1970 Phase III Level Forecast Assumptions for IBM's soon-to-be

, 'I
I

announced Merlin* disk drive reported:

;t

a

,t

, .:
;j

, :f
I

_I

,I

-r

· -!
~

~ 'i.
~

I

•

Thus, the January 5,

,!

.!
I
I
'i

I the
I

"System Manufacturers
"From the announcement of the 2314 in 1965 until late in 1968
IBM had significant competitive advantages in this product area,
as no competitor cquld offer a direct access device with the
price, capacity, performance, and interchangeability characteristics of the IBM 2314. The situation today, however, has changed
radically as most system manufacturers now have announced devices
which are virtually identical in specifications to the IBM 2314.
The chart below tabulates the status of the ten major system

* As ~ve shall see, the Merlin (3330) drive put IBH right back in
lead in disks.
(See below, pp. 898-902 .)

:i

I

'j

I
f

:i

of

;

-331-

:1

manufacturers in this regard.

t

Mfg. By

Burroughs
CDC
DEC
GE
Honeywell
IBM
NCR
RCA
SDS
Univac

Burroughs
CDC
Memorex
IBM
Honeywell
IBM
NCR
RCA
Memorex/CDC
Univac

No
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes

Media
Fixed Disc
2316
2316
2316
2316
2316
Strip
2316
2316
2316

Status
Delivered
Announced FCS 2Q70
Imminent Delivery
Announced
Announced FCS 2Q70
Delivered FCS lQ67
Delivered
Announced FCS lQ70
Imminent Delivery
Announced FCS lQ70

"The rental prices offered by CDC, GE, Honeywell, RCA, and Univac
are within a few percentage points of the IBM 2314.
(CDC and
Honeywell discount by approximately 10% for three to five-year
leases.)
Burroughs and NCR use radically different approaches
and price comparisons cannot be weighed properly due to the
lower performance levels of their devices. To date, competitive
system manufacturers have not had any significant price advantage in the file facility environment."
(OX 7858, p. 2.)

~l
.0

2314 Type

Marketed By

i

il

II :1
r~
il
~jI

(viii)

!

!3:

:
!,4.:

Standard Interface/Modularity.

IBM adopted a

"standard interface" for the peripherals in the compatible 360 line.
This meant that (with some exceptions*) the same peripherals would

\

!.S;

* Such exceptions as existed came about as a result of design
trade-offs. Some peripherals such as the 2301 and 2303 drums with
high speeds, for example, were not made attachable to the slower
models of System/360 (such as the Models 20, 22, 25 and 30) because
those smaller CPUs could not accept the high data rates of these
peripherals.
(Case, Tr. 73449-50.)
In some instances (such as with the 360/25) peripherals were
attached directly to the CPU rather than through the standard interface because designing a "native attachment, closely integrated with
the computer", provided "somewhat greater performance at somewhat
lesser cost".
(Hughes, Tr. 71941; Case, Tr. 73450; see also PX
2209A, pp. 15, 17.)
In such cases, of course, the cost/performance
improvements were achieved at the expense of some of the configuration
flexibility that was afforded by the standard interface.
(Hughes,
Tr. 71941-42, 71995.)
The dilemma of when to make such trade-offs
was a difficult one both during the development stages of System/360
(see Gardner, Tr. 38387-88, 38958-61, 39110-13; OX 1656, DX 1657,
DX 1658, DX 1659) and thereafter.
(See Haughton, Tr. 95019-24;
OX 1662.)
,
"

:I
I

I

i
"
:j

I

-332-

il
:1

1:\ attach to all processors in the line and would do so in the same
2 it way.

The standard interface,

toget~er

with compatibility, helped

;

3:

maximize the benefits that customers could derive from the broad

t

~f

range of peripherals offere~ with 360 and the compatibility across

,

5 \1 the entire line.

6:1
7!1
,I

It helped give System/360 a configurability that

was unmatched by competitors and permitted customers the u~~ost
flexibility to optimize their data processing systems by piecemeal or

8;

modular changes.

~i

through economies in development and manufacturing.

At the same time, it enabled IBM to reduce costs
Others

LO

undoubtedly recognized these benefits and also moved toward more

11

modular product lines--but not until well after IBM had done so.

12

i (Case, Tr. 73446, 73474-75, 73523.)

U

:1

The requirement for a standard interface for the New Product

14-:·, Line was implied by two of the architectural and engineering "ground
I

rules" set out in the SPREAD Report--i. e., that "all channels shall

15:

appear identical" to any I/O device type and that ."the I/O gear shall
not need to be changed
slower one.

tl

when one processor is substituted for a

(DX l40"4A, pp. 19-20

(App. A

to JX 38).)

. I

Case and

Hughes testified that the standard interface became a "design objective" for System/360.

(Hughes, Tr. 34102-03; Case, Tr. 73446.)

:1

22 :.

:\

23 :!

!
'"'
... :lj
~..

I

explained:
"[W]e had as an objective to design a number of different peripheral devices that would each be able to plug into central
processing units of ~~e whole System/360 family. We wanted to
do this in a way which would maximize the degree of choice that
customers would have in selecting peripheral devices to go with
central processing unit models, and to do ~c in a way which
would minimize IBM's development expenses in designing those

-333-

,

Case !

./

21:\

II
I
I
/

I

I
i

I
t

I
I

1.:

peripheral devices, and do it in a way which would help us to
reduce our manufacturing costs of the peripheral devices by
achieving as large as possible a production run of each particular device.

i

2:

"The technique that we chose to accomplish these objectives
was called the System/360 channel to control unit interface,
often abbreviated with the words 'standard interface'''.
(Case,
Tr. 73446.) *

I

I

a...

1

I

I·

5!
I

The standard interface, together with compatibility, provided
IBM with a number of development and manufacturing advantages.
8'

g.:

"It

reduced the design time of many groups" who would otherwise have
spent time designing their "own pet means of attachments".

(Hughes,

i

i Tr
ta .
.

u
tZi

--

'" .·1
-~

t4. I:
I

71939)
·

Instead, the CPU and peripherals designers were able to

concentrate on building "the best products they knew how" and on
"advancing the state of their art as far as possible".

(Case, Tr.

73447.)

The standard interface, together with compatibility, also
helped IBM reduce'development costs by reducing the number of circuits
that had to be designed to permit each peripheral to attach to each
Cpu.

Prior to

Syste~/360,

peripherals that attached to the central

processing unit did so by means of a unique interface.

As a result,

a separate design effort and set of circuitry was required for each
such attachment to the central processing unit.

With much of System/

360, only a single design effort and set of circuits was required

15

* The control unit to peripheral device interface was not standardized, however, which meant that each device required its own control unit. The objective of the New Attachment Strategy in the 1970s
was to standardize the device to control unit level interface and
thereby achiev8 benefits similar to what had been obtained with the
standardization of the control unit to channel interface in System/360.
(Case, Tr. 74079-83; Haughton, Tr. 95010-32.)
-334-

because of the standardization of the interface between the centrol
unit and the channel of the central processing unit.

(Case, Tr.

73446-48.)
The standard interface, together with compatibility, helped
~,I_I

sLmplify and cost reduce IBM's manufacturing process.

:l

higher quantity production runs of the peripheral

:1
:1

same peripheral-device and the same attachment, or plug-in circuitry,

"[I]t led to

devices since the

I

was associated with the interface to any of the CPU models".
Tr. 71939-40; Case, Tr.- 73448.)

(Hughes,

Because of this conunonality, similar

economies were achieved in the testing process.

That was particularly

important to IBM in getting 360 ready for announcement.

Hughes

testified that
"since we had a multitude of I/O devices and a prescribed time
to get it done, (compatibility and the standard interface] helped
us a great deal in both our engineering and all aspects of
testing . . . to get the total job done".
(Tr. 7l939-40i see
also Case, Tr. 73533.)
Case testified that a related objective of the 360 Advanced

I

:1

!I

Systems Group was to develop "elements of a computer system which

:1 could be put together, or configured in a wide variety of ways" .
.1
:j

'~

:il

(Tr. 73416.)

That objective, which Case called "modularity", was

promoted by the standard interface because it allowed users to plug

I

I

any peripheral device into different 360 central processing units

·1

~without changes in the central processing unit".

1 see
I
I

(Case, Tr. 73448;

also Hughes, Tr. 34109.)
Not only did IBM achieve the modularity objective set for

_i

'i

System/360 (Case, Tr. 73420), it did so to an extent that other manufacturers were unable to match fer

al~ost

i,

.:

I

-j
_I

-335-

a decade.

Among the manu-

L:

facturers and marketers of computer systems from 1964 to 1972,
"IBM was the leader in providing . . . modularity. [*] With the
announcement of the System/360, IBM provided the first line
offering anything like the degree of modularity which has since
become available from all the major manufacturers.

2:
1

3:

"During the 1960's, all of the manufacturers, including IBM,
evolved their product lines further in the direction of making
them more modular, but • . . it is fair to say that throughout
the period • • • IBM's product line remained the most modular
of all the general purpose product lines available".
(Withington,
Tr. 58268-69.)
Accordingly, System/360's modularity provided benefits to users that

a

were unavailable from competitors and provided an incentive to acquire
360s that did not exist with respect to competitive systems.
testified:

u'

"The achievement of the modularity objective was . . . very
helpful to IBM in enabling the computer products produced by
IBM to be chosen by customers in a way that would optimize
the price/performance of their installation, and in a way which
would provide for convenience and small accepted changes in
the installation as the requirements of the enterprise changed .

r? ;

-;1
\

13;

.--

"That is an important benefit to customers for two reasons:

1-'

tS .\

17

As Case

;!,t

lsi:1

"First, . . . they can most accurately adjust the capabilities of their computing installation and, hence, the cost to
.
them of their computing installation to their real needs.

r

"Second, . . . they are able to change the performance or the
capabilities of their configuration to match their changing
requirements • . • without changing the entire installation, but
just adding or subtracting parts, or boxes from the installation." !
(Tr. 73427-28; see also Navas, Tr. 41394-95; Withington, Tr.
56193.)
i

Zl '~

I

19!
:1,

20 ,
i

Z2

!
I
II

:!"

1

*" [AJ

modular line of computer systems is one in which every element!

13 'f of the system, including processor, storage, peripheral equipment, and

I

: systems programs can be independently exchanged for a compatible larger .
z~1 or successor module in such a manner that over time the installed computer system may evolve to a much different or a much larger or a much '
more capable one without any particular point in time being identifiablel
! as one in which the entire system was converted from one to another."
I (Withington, Tr. 58268, see also Tr. 58269-i6.)
I

z=

-336-

'I

IBM's achievement of modularity for System/360 "helped
to remove limitations on the use of computing equipment that had previously existed" because it relieved users of the need to make "system"
,:

changes.

~~

(Case, Tr. 73435-37,_)

IBM, more than any other firm,

*

reaped the benefits of user demand for modular acquisition alterna-

:f

'I tives:
:\

"Because the achievement of the modularity objective was useful
for customers, it was of benefit to IBM in that, it tended to
increase the value of IBM products as compared to the products
of others, and with an increased value, our sales tended to
increase and that was important in the achievement of the total
success, or the total order rate for System/360 computers and
the peripheral devices that were part of those computing systems."
(Case, Tr. 73428.)

;J
I

There were, however, risks associated with modularity and
~

I,
'I

the standard in terf ace.

The design trade-offs necessary to create a

system which could be assembled in a wide range of configurations,
might have resulted in a design that was not optimal for any particular

f;( configuration, at a cost higher than it need otherwise have been .
.. :1
J I

Development of the standard interface entailed a similar risk "that

, :I

no one

attac~~ent

or no one plug-in capability [would bel optimal for

i ,I
;1

.., '\

,;

*

Other companies followed IBM's lead in making their product lines
For example,

'j more modular, but were not as advanced or fast moving.

" 'I
~

~

z.
....
!

-

,I
i

a)

Modularity "was beginning to appear" in Honeywell's line
by approximately 1966, but it "was still far less than
available in the IBM line" and did not "span the range
of available modular options that IBM's line did" through
the 1960s;

b)

By 1977, Univac's line was "probably still deficient"
compared to IBM; and

c)

"Burroughs' modularity was restricted by the narrowness of
its product line . . . through most of the 19605".
(Withington, Tr. 58271-75.)

!

i
i
i

-337-

1.:

the particular device involved".

(Case, Tr. 73531-32.)

Thus, the

2:

question of separate control units versus native attachment of peri-

I

i

3':

pherals became a matter of some controversy

~I'

important dissenters (such as Haanstra) from the stand-alone control

!:

unit method of attachment which was finally adopted for most of 360 •

~ithin

IBM, involving

I.

.. I[ (See

a;

;t

DX 1656; DX 1657; DX 1658; DX 1659.)

There was risk to IBM of another type as well.

360 l s

7 :1
8: standard interface and modularity of design, together with its wide-

ranging compatibility, presented an attractive target for competitors.

9

The new, modular environment in which 360 would be offered created

LO

ll! the prospect that other manufacturers would produce "modules" that
I

tli would be marketed in direct competition with comparable IBM products.
13

t

The standard interface of System/360 offered others the same advan-

i
I

t+1 tages it gave IBM*--and more.

As Case testified,

"It reduces their design costs as it did for IBM, and it allows
them to achieve higher production runs as it did for IBM, and
it allows users to conveniently plug in peripheral devices of
their manufacture just as it allows the convenient plug-in
of devices of IBM manufacture".
(Tr. 73474-75; see also Navas,
Tr. 41395-96.)

!.S'

s ~I
~7 'I
T

15 ,I

Moreover, such competitors would have the further advantage

19:1\ ______
za _,

* That was particularly true because IBM published a number of manu... Ials which were readily available "at a nominal charge of a couple of'
~ '!dollars" and which described the mechanical, electrical and logical
~ ~characteristics of IBMls interfaces in a way that permitted rnanufac" ' :l! turers of peripheral devices to design "workable and safe" attachments
_ : of their devices to an IBM channel and which permitted CPU manufac~Iturers to attach IBM peripherals to their own CPUs in a like manner.
,,(Shoemaker, Tr. 30867; Case, Tr. 74125-50; Peterman, Tr. 99441-43; DX
2~ !7590, P~rkins, pp. 21, 24; DX 7591, Hilyer, p. 15.)
IBM's OEMI
! (Original Equipment Hanufacturers Information) Manual for System/360
15 :\was first made available in 1965.
(Case ~ Tr. 74145.)
i .
I

-338-

of being able to copy IBM's designs and use IBM's software without
:1 having· to invest in developing either.

As a consequence they could

be expected to have lower costs than IBM and to offer their products

J

at lower prices than IBM

init~ally

charged.

(Case, Tr. 73523; Cary,

Tr. 101333-37, 101339, 101374, 101629-31; see also Wright, Tr.

il 13236-38;
"

.1

Enfield, Tr. 20765-68; G. Brown, Tr. 51812; Powers, Tr •

:1

:1 95376-89,

il

95412-13, 95475-82; PX 3312A, p. R14; PX 3594A, pp. 4, 26, 36,

40; PX 368lA, p. R-l; PX 4880, p. 3.)
The prospect that others would be able to "tap" IBM's
support and offer compatible products in competition with IBM was

\1

. :1 foreseen by the SPREAD Committee 'and others within IBM prior to 360 IS

, il

announcement.

(Knaplund, Tr. 90497-98; DX 1404A, p. 40 (App. A to

• ;1

~: JX 38); see also PX 3908A.)

..
I

That prospect became a reality in the

late 1960s and in the 1970s--with numbers of competitors offering

:

f~ replacements for each and every box in IBM's systems.

IBM could not

.l :.;tkeep to itself the advantages of comoatibility, modularitv and the
I

-

r:i

standard interface.*

.

On the other hand, IBM really had little

11

) !--------------:j

_ .\
* John Navas of Memorex explained the benefits for a manufacturer
: ;jof plug-compatible products in being able to attach a single disk
,idrive model to a variety of 360 processors:

J .,;

-

·1

T .!
;

,- 'f
I

·f

.~

-:!
- !
!

S

"From the standpoint of a company such as Memorex, it would
tend to reduce product cost to minimize the number of models of
a given type of disk drive which we would be producing. That
would result in a higher production volume for each type of
unit, and would result in less development expense associated
with developing the various models . . . .
"If Hemorex had had to produce unique models of its 630 for
each of the various models of IBM System/360 . . . it ~v"ould have
probably increased the development exp~nse, caused an increase
in manufacturing costs, and increased the difficulty and administrative expense associated with lease base management".
(Tr.
41395-96.)
-339-

!I
il

!I

L;

alternative but to provide such features if 360 was to succeed.

2:

was a matter of responding to "a competitive necessity".

3"

user demand, "the manufacturers attempting to compete were forced to

It

Because of

~ . maintain continuous developments of different modular types of equip-

:- l

ment that could be configured together l1

•

(Withington, Tr. 56174.)

However, the great modularity of System/360 meant that IBM
would have to 'price each and every box in the system carefully.*
According to Knaplund, IBM had to make those prices attractive on a

9

i

box-by-box basis because users made box-by-box performance comparisons

iI

'0'
between IBl-1 and its competitors; because System/360 was susceptible to
•
!
\

.,
!
J._ ; such a wide range of configurations that a single box price that was
~!,

out of line could make the whole system unattractive; and because

13; competition was ant.icipated from suppliers of plug-compatible perii

1.4- : pherals and CPU's who would attempt to replace IBM's products on a

.1_- \II

box-by-box basis.

.1c:

I"articular, made competitive box prices for System/360 "critical".

-ll
:1
.1

(Knaplund, Tr. 90496-98.)

That last reason, in

..t (Id. )
J.j :\
,t

1.S ;1!

19J,
·1

'0'
~"T

:1
i

!
.1
:1

-!

--------.,., :f - -*-IBM
has always priced
.~

- - :1

,,~

its products on a box basis, with each

~~it

:! of EDP hardware (such as a CPU, tape drive, disk drive or terminal)

-- loffe=gd at a consistent price regardless of the type or number of
Z~ !boxes that a user combined to configure his system.
(Knaplund, Tr.
90495-500; Akers, Tr. 96665, 96675-76; Cary, Tr. 101386-87.)

!

2= "i

!
i

,

.\

.j
'j

I
!

I

.,i

I

.~

-340-

;1

Appendix
Examples of System/360 Uses
The following are some of the diverse applications for
which'System/360s have been

~sed:

By a French research and consulting firm to study ways of
increasing the power output of large hydroelectric dams (OX 13677,
p. 16);
By a petroleum exploration company to prepare seismic
reports (id., p. 14);
By a manufacturer of animal feed concentrates for feed

II

formulization '(OX 13678, p. 9);

, 'I
~:I

By the Oeutsches Elektronen Synchrontron in Hamburg,
Germany, to evaluate photographs of bubble traces left by invisible

:t elementary particles in an electron accelerator (DX 13679, p. 20);

~l

By a Japanese steelmaker for automatic control of the

: ;1
, :1
• 'I
2 :i

steel manufacturing process (id.);
By Swissair for automated message switching and automatic

r :1
:1

't

• ,j

...
,

passenger check-in and weight-and-balance calculating (id.);

.I

:\

By a paint manufacturer to signal corrections for

'l

t\

.. :l

d.eviations in ingredients and production cycle (id., p. 10);

oJ

1

By scientists in New England to simulate and study the life

'j

,!

cycle of lobsters (id.);
By African Ivory Coast harbor authorities to compile and
analyze
!

-

statistic~

on tropical wood exports (id., p. 13);

By a Swiss chemical manufacturer to operate an automated

-Al-

L: warehouse (DX 13680, p. 28);

2:
1

By BOAC to calculate tariffs, management statistics and

l flight plans (id.);
By Japan's national broadcasting company to maintain
schedules and budgets for 640 television shows and 1,200 radio

~ ii"l

programs, and to control actual broadcasts (id., p. 16);

a !.if

instruction (DX 3364, p. 9);

~

r

I:i

By IBM"s Field Engineering Division for computer assisted

7 ~l

By an air freight company for instantar.eous tracking of

9

daily shipments (id., p. 22);

10

By the architectural department of a county council in

u'

r., ; England to design municipal buildings (id., p. 24);
1

-il

By a supermarket chain to calculate unit prices (PX 57h',

r.zJ
T~

;tp.13);

'f

~!I

By American Airlines (360/65) for airline reservations
(Welch, Tr. 75385-86), field maintenance reliability applications

;1

16 :1
~_ \i

(O'Neill, Tr. 75848-53), crew qualification and takeoff power assist

~/:I

.

(~d.,

:r

18

Tr. 75909-10), flight planning (id., Tr. 75928), and calcula-

I.

:i tion of estimated time of arrival (id., Tr. 75976);

.Q

'

za

By Aspen eomputype, Inc.
'\
.!
.\,j (DX 6078, McCaffery, p. 9);

l ••~

2lt

(360/40) for

By Autocomp, Inc., (360/40 and 360/50) for typesetting

,j

Z2. .;

(DX 4039, Kendall, pp. 7-8);

'f

I

23!

I
I

By AVeO Computer Ser"{Ti.ces in Wilmington, Massachusetts,

~

-....
4~

typeset~ing

ti

'i
'!

I
I
1

I

:1

.I

1

(360/75) for:

-A2-

:1

~!

"
q

!,
:'jl

11

:!:1
I

:!

drafting applications

structural ring and
frame analysis

FORTRAN flowcharting

antenna pattern
prediction

geometric design

communication link
analysis

mathematical functions

plasma attenuation
analysis

frequency distributions

drag coefficient
analysis

movie making

aerodynamic heating
analysis

perspective plotting

heat transfer
analysis

trajectory analysis

thermochemical
equilibrium analysis

financial analysis

flow field analysis

production control

boundary layer
analysis

statistical analysis

penetration aids
analysis

mathematical analysis

decoy model analysis

applied statistics

radar cross section
analysis

19

structural load analysis

finance applications

,t"\
_v

structural shell analysis

manufacturing
applications

1

2

:1

3

;j

4

il
I,

'.
5 ,I:1

II

6

.1

:1
:!

7 :iI;
ij

8 II
9

;1

10
.:

d

11

11

..

!I

12

1/
:.

i,

13

:l
d

.1

14

"

;1
"

if

15 ii
16
17

;t

18

21
:.

(OX

6816, pp. 3, 10, 12, 13);

22
By Bowne Timesharing, Inc.,

(360/40 and 360/50)

for time-

23

sharing text editing (DX 6090, Abrams, pp. 9-10);
By Carnation Corporation (360/40) for
25

-A3-

teleco~munication

L: applications and linear programming (Navas, Tr. 39177-78);
[

1

2;

By Computone Systems, Inc.,

3

(360/50) for architectural

design and mathematical modeling (DX 4069, Robeson, pp. 16-17);

~

By

Con~inental

I~linois

National Bank & Trust (360/50) for

:I'on-line credit authorization (OX 4756, p. 7);

al
I

7

By DP&W, Inc.,

~apPlications

(360/30) for business and engineering

(OX 4076, DiPietro, pp. 8-9);

By the San Francisco Federal Reserve Bank (360/50) for

s

message switching (Withington, Tr. 57540; DX 2667, p. 3);

90

By the Fluor Corporation (360/50) for project planning and

t

1Q :

!control, process simulation, process analysis, refinery simulation,
11 '
;structural design, piping design, electrical design and mechanical
!Zi
idesign (OX 4023, Neher, pp. 11-12, 17);
I

13

1

By General Motors Research (360/50) for timesharing (Hart,
I

-

1:;-

",.
1Q

;Tr. 80505-08);
By the New York Police Department (360/40) for automated

!I

:1

;r'

ispatch and identification of police vehicles (DX 4756A, p. 58);

17 l
18 :r

By the Orange Coast College District in Costa Mesa,

:~alifornia

19

:i

10

I

(360/50) for computer assisted instruction, grade report-

:fing and student registration (King, Tr. 14761-62);

-'I

By Pacific Southwest Airlines (360/65) for passenger service

I

11. -\

....,

.
applications (O'Neill, Tr. 76019);

.j
"

~-!

1

... _ :1
~!

By Proprietary Computer

Systems~

Zo1;,
25

i
\

i

I

'\

(

'I

'I

'It

-A4-

Inc.,

(360/65) for:

~I

..

i

banking services

thermal analysis

accounting

linear programming

manufacturing control

CPM analysis

three'dimensional COGO

PERT analysis

stress' analysis

Monte Carlo analysis

digital signal processing

Markov analysis

reliability calculations

integration

electrical engineering

differentiation

fast fourier transforms

non-linear equations

matrix analysis

regression analysis

chemical engineering

descriptive statistics

;

graph plotting
iJ

transducer calibration

il

i

(DX 3960, Barancik, pp. 11-12);
By Pyramid Industries, Inc., (360/40) for time: she-.ring
(DX 4 756 D ,

:\

il
:!:i

P•

23);

By Southern Railway (360/50 and 360/65) for on-line
monitoring of railroad cars (DX 4756D, p. 42), (360/50) for peripheral

It processing (J. Jones, Tr. 79848, 79413-14), (360/30) for card to tape,
tape to card, and tape to print processing, and peripheral processing
"

'\

.\
.!

'j

J

(id., Tr. 79243);
By TBS Computer Centers Corporation (360/30 and 360/40)

:1

I

·i

i

:

for data communication, remote teleprocessing, accounting reports and

I
~

statistics, inventory, cost analysis, market research, production

!

control, accounts receivable and payable, t=affic studies and order

-A5-

L

analysis (OX 7134) ;

Z';

By Union Carbide (360/30) for message switching (McGrew,

!

l:

Tr. 77271).

i

System/360' s uses within the Federal government alone

4. i"
~l'

illustrate graphically the broad range of applications performed by

I

a;i 360 users.

For example, 360s have been used:
By the Headquarters,

u.s.

Marine Corps (360/20), for

"Automated Communications Processing System" (OX 2992,* pp. 619,
1123-1125);

9!
\

By the Veterans Administration, Austin, Texas (360/20),

La ;
i

for "Patient Care" (OX 2992, pp. 1073, 1158);

I

ll!
r~

By the Veterans Administration, Washington, O.C. (360/20),

:

!3:f
-iJ

for "Facility Planning and Construction" and "Fiscal Accounting"

I

(DX 2992, pp. 1078, 1158);

!.~

;

..J.,=

!.

15

~

"7
J..

i!It

~

By the Veterans Administration, Philadelphia (360/20), for

.

"Insurance" (OX 2992, pp. 1076, 1158);
By the 'Defense Nuclear Agency, Headquarters, Field Command

18:r

(360/20), for "Logistics - Supply" and "Stockpile Management" (OX

:1

19 :t 2992, pp.

.

,I

za

:t

546, 1121; DX 4593, p. 133);

~

By the Department of Air Force, Air Force Systems Command,

t

.~ Los Angeles, California (360/20),

for "Telecommunications" and

21.. ,-

., 1 "Command

....

and Control" (OX 2992, pp. 452, 1120; DX 4593, pp. 103, 104);

"

~.!

!

:1

_ _ _ _ _ _ _ _ _ __

23. :~,r

* DX 2992 is the Stipulation and Amended Response of Plaintiff to
'\ IBM's Interrogatory 5(e). Examples of applications taken from DX
It 2992 are described here in the same terms in which they are described
15 I in OX 2992.
I

Z~

I

'j

f

,i
(
'\

J

I

i

-A6-

By the Atomic Energy Commission, Division of Technical
Information (360/20) for "Operations Control and Support" (OX 2992,
pp. 118, 1113; OX 4593, p. 72);
By the Atomic Ene·rgy Commission, Oak Ridge Office (360/20),
for "Scientific ·and Engineering It· (OX 2992, pp. 91, 1113; OX 4593,
p. 61);
By the· Department of Commerce, Office of the Secretary
(360/20), for "General Administration"

(OX 2992, pp. 149, 1117;

OX 4593, p. 74);
By the Department of Commerce, Bureau of the Census (360/20)r
for "Statistical Programs" (OX 2992, pp. 157, 1117; OX 4593, p .. 77);
By the Department of Air Force, Air Force Systems Command,
1
~,

. !, Eglin AFB (360/20), for "Research, Engineering" (DX 2992, pp. 442,
1120; OX 4593, p. 101);

i
I

By the Department of Air Force, Air Force Communications
Service, Offutt APB (360/20), for "Weather, Environment"-

(OX 2992,

pp. 411, 1120; OX 4593, p. 94);
By the Marine Corps Headquarters, FMFLA1'iT (360/20), for
"Automated Communications Processing System" (OX 2992, pp. 631,
1123-25);

By the Department of Navy, Naval Intelligence Command
·(360/20), for "Intelligence Data Handling System"

(OX 2992, pp. 733,

1123-25; OX 4593, p. 156);

By the

Oepar~~ent

of Navy, Naval Research Laboratory
/

(360/20), for "Laboratory Support Systems"

....
-A7I

'I
i

·1I
i

I

(OX 2992, pp. 610, 1123-25);1

By the Department of Navy, Commander Naval Reserve

L
Z

(360/20), for IINavy Manpower and Personnel Management Information

3..

System" (OX 2992, pp. 657, 1123-25; DX 4593, p .. 138);
By the Department of Navy, Pacific Fleet Commander in
Chief (360/20), for "Air Logistics Support Systems" (DX 2992, pp.
722, 1123-25; DX 4593, p. 152);

.-'
~i

By the Defense Supply Aqency, Lemoncove, California
(360/20), for "Communications" (DX 2992, pp. 802, 1126);

By the Export/Import Bank of the u.S.

I

gi
i

10;
11

"Payroll and Personnel", "Accounting" and "General Administration"
(DX 2992, pp. 818, 1127);

\

!
i

!Z

(360/20), for

By the National Aeronautics and Space Administration,

if

Goddard Space Flight Center, Greenbelt, Md.

(360/20), for

13 ;1
"Scientific" and "Engineering" (DX 2992, pp. 907, 908, 1144);
14.
- !
By the National Aeronautics and Space Administration, Jet
15:
Propulsion Laboratory, Pasadena, California (360/20), for "BusinessI

I

r

1S

:!

Conunercial" (DX 2-992, pp. 937, 1144);

17 ,I
18

By the Department of Treasury, Office of Treasurer (360/20)

J:,

:\ for "Administration of Government Finances"

(OX 2992, pp. 1066, 1155;

19 j

za

l DX 4593, p. 194);

:l

'1

By the u.S. Defense Communication Agency (360/20 and

-,,,\.i
!
:i 360/30), for communication control and as terminals (DX 7524,
22

:~

.i Levine, pp.

ZSr

34-36, 57);

By tht': Atomic Energy Commission, Brookhaven National
Laboratory (360/30), for "Personnel Management" and "Operations

\

I

:l
i

!

.,i

,
I

-A8-

Control and Support" (DX 2992, pp. 6, 1113);
By 1:.."le Civil Aeronautics Board (360/30) for "Traffic
Capacity", "World B.enefit Study", "Air Cargo" and "Payroll, Manpower
Distribution" (DX 2992, pp. 134, 1116);

i
"I

By the Depart."l1ent of Army, Air Defe·nse Board
i

(360/30),

for "Research, Engineering" (DX 2992, pp. 174, 1120);

I

:1
, ;1

By the Department of Air Force, Air Force Finance Center
(360/30), for "Finance, Accounting",

11

and "Payroll, Benefits" (DX 2992,

I

pp. 279, 112,0);
By the Department of Air Force, Air Force Systems Command

i
,

t

(360/30),

for "Research, Engineering" (DX 2992, pp. 433, 1120;

OX 45 9 3, P . 99);
By the Defense Communications Agency, European Area
~ !

(360/30), for "Commll."lications Control and Management"

i
I

(DX 2992, pp.

i

-i

550, 1122; ,OX 4593, p. 133)

I

r il

i

By the Defense Nuclear Agency, Headquarters Field Command

i a
r \1

(360/30), for

"T~st

Command", "Accounting and Finance", "Communica-

tions Processing" and "Data Automation" (DX 2992, pp. 546-47, 1121;

!I

I
I

)

~!

:

':il

DX 4593, p. 133);

:1

By the Department of Labor, Bureau of Labor Statistics

,I

,I

j ;

(360/30), for "Statistical and Economic Survey Appl."

"

t

(OX 2992,

:1

:1

pp. 884, 1142; OX 4593, p. 175);

:~

'i

~1

;) I
.. ,i

.. I

I

By the National Aeronautics and Space Administration,
Johnson Space Center (360/30), for "Scientific" and "BusinessConunercial" (DX 2992, pp. 971, 1144);

= II

..

I

I
t

"

'I.\

'!

,I

l

.\

!

-A9-

L

By the National-Aeronautics and Space Administration,

Z

Goddard Space Flight Center (360/30), for "Mission Control" and "Data

l

Reduction" (DX 2992, pp. 907-8, 1144);
By

4-!

=!

th~

Tennessee Valley Authority, Computing Center Branch

(360/30), for "POwer Supply and Use", "Fertilizer and Munitions

I

aI

Development", "Financial Management" and "Personnel Management"

7;1

2992 I pp. 1068, 1156; OX 4593, p. 194);

I

i(
S!

By the Securities and Exchange Commission, Office of Da·ta
Processing (360/30), for "Mq.ss Information Storage and Retrieval",

9

"Statistical and Economic Analyses" and "Administrative Processing

10

_:

rT

(Personnel, Payroll, etc.)" (DX 2992, pp. 1025, 1151, DX 4593, p. 191);
By the Department of Transportation, Transportation Systems

I

!2

(DX

If

13;

Center (360/30), for "Financial Administration", "Inventory, Supply

i

,

and Logistics" and "Planning, Rand D" (DX 2992; pp. 1034, 1154;

i

DX 4593, p. 165);

r~.J;. i;

15:

By the Social Security Administration (360/30) for real
time claims tracking and real time tape library control (DX 5792,
pp. 17-18);
By the Department of Navy, Marine Corps - COMCAB West
(360/30), for "Automated Conununications Processing System"

(OX 2992,

pp. 571, 1123-25);
By the Department of Navy, Chief of Naval Operation (360/30),
for "Space Surveillance System" (OX

299~,

pp. 669, 1123-25; DX 4593,

141) i

By the Department of Navy, Ordnance Systems Command (360/30),

-A10-

II
I

for "Ordnance Support System" (OX 2992, pp. 694, 1123-25; OX 4593,
p.145);
By the Defense Supply Agency, Assistant Director of Plans
I

;

,,

(360/30), for

'

,

.. t

pp. 812"

j"

i i

1126;

"Loq~st~cs

OX

Depot Level" and "Communications" (OX 2992,

4593, p. 135)

i

I

,

By the Defense Supply Agency,

Ass~stant

Director of Plans

(360/30), for "Headquarters Management" (OX 2992, pp. 815, 1126;
OX 4593, p. "1'36);
By the Federal Deposit Insurance Corporation, Division of
Research (360/30), for "Economic Research", . "Fiscal Accounting",
"Bank Liquidation" and "Bank Statistics" (DX 2992, pp. 823, 1130;
OX 4593, p. 171);
By the Department of Health, Education, & Welfare, Food and
Drug Administration (360/30), for "Disease Prevention and Control" and
"Consumer Protection" (OX 2992, pp. 855, 1137; OX 4593, p. 173);

--. .

By the Atomic Energy Commission, Albuquerque Office

~

(360/40), for "Material Management", "Facilities Management",
"Operations Control and Support" and "Scientific and Engineering"
(OX 2992, pp. 35, 1113; OX 4593, p. 46);
By the Department of Commerce, National Oceanic and
Atmospheric Administration (360/40), for "Mapping, Charting and
Marine Description" (OX 2992, pp. 148, 1117; DX 4593, p. 74)
'.-

,.

i

.!

t

-t

By the Department of Commerce, National Oceanic and

,_ t
~'

I Atmosphere Administration
I
;
I

~ ...

.~

...-

.

(360/40), for "Environmental Prediction

and Warning" (DX 2992, P9. 150, 1117; OX 4593, p. 74);

-All-

I
\

I

I

By the Department of Commerce, Office of Administration
Z: Domestic International Business (360/40), for "Statistical Programs",
i

3' \ 'tEconomic Analysis" and "Industrial Mobilization n

(OX 2992, pp. 157,

i

41,1117; OX 4592, p. 46);
i

By the D'epartment of Army, tJ., S. Army Munitions Command

51
i

I

: :1 ( 360 / 40 ) , for' "Research, Engineering" (OX 2992, pp. 169, 11.20; OX 4593,

7

p. 126)

\f

il
S:
9l

i

By the Department of Air Force, Air Force Logistics Conunand
(360/4,0), for "Supply, Inventory Control, Cataloging" (OX 2992, pp. 273,

10 ( 1120; OX 45 9 3, p • 87);
\I

By the Department of Air Force, Aerospace Defense Command

11 :

IZ \ (360/40), for "Telecommunications", "Command and Control",
i
13: "Intelligence" and "Tracking" (OX 2992, pp.4l8, 1120; OX 4593, p. 96);

By the Department of Air Force, Air Force Systems Command
._' (360/40), for "Research, Engineering" (OX 2992, pp. 428, 1120; OX 4593,
J-7

il p.
:.1

15 :!

'7
..

98);

By the Department of Transportation, FFO Aviation Adrninistra-·

:i
"

'!tion (360/40), for "Inventory, Supply and Logistics" 1 "Mission

is
';i
-

:tSupport, Operations" and "Planning I

19

R

and Oil (OX 2992, pp. 1039, 1154;

:~

,lOX 4593, p. 166);
20

I

"

By the Office of Economic Opportunity, Office of the
i
2!. ,! '
jComptro11er (360/40), for "Payroll Accounting", "Personnel Accounting"

.

Z2:!

land "Research and Development It (OX 2992, pp. 1015, 1146; OX 4593,
Z3 '\
191);
24. 1
By the Securities and Exchange Commission, Office of Data
i

IP.

25

r

I

t

I

'\
'f

j
I
I

-A12-

'j

Ii
1 :j Processing (360/40), for "Mass Information Storage and Retrieval",
;/

2 ;! "Statistical and Economic Analyses" and "Administrative Processing

~

rI

(Personnel, Payroll, etc.)

11

It

(OX 2992, pp. 1025, 1151; OX 4-593, p. 191);

By the Veterans Administration, Department of Data Manage-

411
"

01
I
'I

ment (360/40), for "Loan Guaranty" and "Facility Planning and

5 :!
:1

6 :\
q
7 i

Construction" (OX 2992, pp. 1073, 1158; DX 4593, p. 195)7
By the Veterans Administration, Department of Data Manage-

'j

9

:1
:1
,I
II
:1

10

li

8

p. 196);
By the Department of Navy, Director of Naval Laboratories

d

11 !I

12:!
I:

'3
:IiI
~
!l
0;

14

ment (360/40), for "Patient Care" (OX 2992, pp. 1078, 1158; DX- 4593,

(360/40), for "Laboratory Support Systems"

ox

(OX 2992, pc
.... 685, 1123-25;

4593, p. 143);

By the Department of Navy, Air Systems Command (360/40),
for "Air Logistics Support Systems" (OX 2992, pp. 565, 1123-25;

11

:'

:1

15 '\

ox 4S 93, p. 139);

II

By the Federal Deposit Insurance Corporation, Division of
16

Research (360/40), for "Economic Research", "Fiscal Accounting" and
17

"Bank Statistics" (OX 2992, pp. 823, 1130; OX 4593, p. 171);

I

I

18
19

I!

By the Government Printing Office, Assistant Public Printer I
,

20

21

22
23
24 "

I

(360/40) , for "Inventory Accounting and Control" and "Electronic

I

Printing" (OX 2992, pp. 834, 1135; ox 4593, p. 171);

I

By the Department of Health, Education and Welfare, Food

II
I

I

I

and Drug Administration (360/40), for "Disease Prevention and Control"!

i

(OX 2992, pp. 855, 1137; OX 4593, p. 173);

By the Defense Nuclear Agency, Headquarters, Field Command

-A13-

I
II
I
I

I
II
i

Ii

I..i

(360/40), for "Accounting and Finance", "Nuclear Weapons Materiel Con-

Z:

tro1", "Stockpile Management" and "Test Command" (DX 2992, pp. 546,

3

i

i 1121;

OX 4593, p. 133);

i

~l

By the Department of Navy, Marine Corps (360/40), for

5"1

"Manpower Management System" (OX 2992, pp. 615, 1l23-25; DX 4593,

•

I

p.159);

a :1

By the Department of Navy, Pacific Commander-in-Chief

7 ;1

(360/40), for "Intelligence Data Handling System" (OX 2992, pp. 753,
1123-25; OX 4593, p. 163);

By the Air Force Aeromed Installation (360/40) to simulate

I

10

~

i bombing equations, radar signal acquisition and airborne computers

II :

IZ

(DX 5640, Mayer, p. 34);
11

it,

By the Army (van-mounted 360/40s) for maintaining a running

lS :f

account in the field of supply and demand of field support services
(Wright, Tr. 13394-95; OX

By the u.S. Army Strategic Communications Command (360/40)

l6 :1

17 "

9~3);

for message switching (Wright, Tr. 13412-13);
By the Atomic Energy Commission, Chicago Office (360/44),

lS :1,I

ret ;, for "Material Management", "Financial Management" and nScientific and

_.

'.

,I

~a :f
"

.,or

"

Engineering" (OX 2992, pp. 84, 1113; DX 4593, p. 60);

r

By the Department of Air Force, Air Force Systems Command

I

.~

- j

~

Z2 .;
.\
Z3

(360/44), for "Research, Engineering" (DX 2992, pp. 284, 1120);

.

By the Department of Air Force, Strategic Air Command
(360/44) for "Command and Control" (DX 2992, pp. 319, 1120; OX 4593,
p. 80);

25 ;
-Al4-

By the National Aeronautics and Space Administration, Office

z:

of Manned Space Flight (360/44), for "Simulation" (OX 2992, pp. 984,

I! 1144; OX 4593, p. 188);
By

the'Nat~onal Aeronaut~cs

and Space Administration,

I

:!

Advanced Research' and Technical Office (360/44), for "Test Data.

I

Acquisition" (OX 2992, pp. 904, 1144; OX 4·593, p. 177);

:r :1
I

By the National Aeronautics and Space Administration, Flight

:J

~l

Research Center, Edwards Air Force Base, California (360/50), for

8:

"Scientific", "Engineering", "Data Reduction" and "Business Commercial"

9O.

(OX 2992, pp. 905, 1144);
!

,

By the Railroad Retirement Board, Data Processing and

.1;

, Accounts Bureau (360/50), for "Research and Actuarial Services",
21
J
:3 :1 "Proc;ess of Unemployment and Sickness Benefits" (OX 2992, pp. 1021,

:l

1149; OX 4593, p. 191);

.+ !

-

,S

By the Tennessee Valley Authority, Computing Center Branch

.

(360/50), for "Resource Development and Management", "Power Supply and

i

:i
~·I

Use ", "Fertilizer. and Muni tions Development" and "Personnel Management ".

,7 :

J (OX

2992, pp. 1068, 1156; OX 4593, p. 194);

,S ..

i~

By the Department of Transportation, Federal Highway Adminis-

9 .,

, J tration

(360/50), for "Inventory, Supply and Logistics", "Planning,

~a .1

., R and On and "Mission Support, Operations" (OX 2992, pp. 1050, 1154;
.1

1'r

.1

I';

---

,:I

-

:1

By NASA ts Flight Research Center in Edwards, California

~

I (360/50),

for reduction and analysis of flight data, scientific

... ,4

.i

-lox
4593, p. 170);
:1

,_ i
~-

.,theoretical

calculations and administrative data processing (DX 5308,

.- .!
:.':

1

:1'0
i .. •

1)·,

:j
i

.\

l

-A15-

By NASA's Kennedy Space Center (360/50) for real time

L:

Z ! inventory management, integrated launch. vehicle modification status,
I

1

payroll and remote file inquiry (OX 5256, pp. 6, 63);

t

By the U.S. Coast Guard and Geodetic Survey_ Office (360/50)

! I: for developing aeronautical charts, analyzing satellite data, providI

e : ing
T

tidal data, locating earthquakes and assisting in geomagnetic

l! studies

(Wright, Tr. 13410-12; OX 13678, p. 9);

By duPont's Savannah River Laboratory Plant (360/50) for

a:
~!

neutron thermali%ation and reactor kinetics (H. Brown, Tr. 83244-49);

!

By the Department of Navy, Commander-in-Chief Pacific Fleet

10 l
11: (360/50), for "Intelligence Data Handling System" and "CINCPAC Support

; Information System" (OX 2992, pp. 752, 1123-25; OX 4593, p. 162);

I2.f
13.

-

T4-

lS
1S

~_
J.j

By the Department of Navy, Commander-in-Chief Pacific Fleet

1,'
I

; (360/50), for "Material Management Information System"
:
;
;pp. 714, 1123-25; OX 4593, p. 148);

!I
a

By the Department of Navy, Facilities Engineering Command
(360/50), for "Ordnance Support Systems"

'1°

(OX 2992,

(OX 2992, pp. 717, 1123-25;

,

:rDX

is '

~g:1

4593, p. 148);

By the Department of Navy, Air Systems Command (360/50),

• '!for "Air Logistics Support Systems
20.

It

(OX 2992, pp. 658, 1123-25;

'\ OX 45 9 3, P • 138);
Z!.., .
By the Federal Deposit Insurance Corporation,
:i
~.,

't
1

:IDivision of Research (360/50), for "Economic Research",
~

,

!"Bank Merger Analysis" and "Fiscal Accounting" (DX 2992, pp.
~

"...

.j

-- :8 23, 113 0; DX 4 5 9 3, p . 1 71) ;
,j

25

.1

I

!
I

"

-A16-

.

By the Government Printing Office, Assistant Public Printer

'

(360/50), fbr "Payroll, Earnings and Leave Accounting", "Electronic

~:

~

Printing" and "Inventory Accounting and Control" (DX 2992, pp. 834,

1

I

~ \ 1135;

DX 459·3 I P • 1 71) ;

I

\.

By the Depa'rtment of Health, Education and Welfare, Food

fi

I

I

:. i,and Drug Administration (360/50), for "Disease Prevention and Control"
• ;1
r ;1 and

"Cons·umer Protection"

;1

DX 4593,

p. 173)

i

By the Atomic Energy Commission, Albuquerque Office (360/50),

! ;

t: for

l!

"Facilities Management", "Operations Control and.Support" and

"Scientific and Engineering" (OX 2992, pp. 35, 1113; OX 4593, p. 46);

Ii

.,
f

(DX: 2992, pp. 855, 1137;

By the Department of Army, White Sands Missile Range, New

I

,;MeXico (360/50), for "Research, Engineering" (OX 2992, pp. 177, 1120);
-[

..

By the Defense Communication Agency, NMCS Support Center

.

~.

i

, (360/50), for "Gaming, Modeling, and Systems Development", "Command
. I
:::!and Control" and "Damage Assessment" (OX 2992, pp. 551, 1122; DX
IS. ,

.

;

!145 9 3, p . 13 3) i

Q:

By the Department of Air Force, Sacramento Air Material

_ \1
,

it

S ,fArea, McClellan Air Force Base, California
9

;fand "Education" (OX 2992, pp. 273, 1120);
'j

:i

By the Department of Air Force, Aeronautical Systems Division,

I

!l

fI

.

1Wright Patterson Air Force Base, Ohio (360/50), for "Research,

.! ,I

jing" (DX

~·I
:II

I

,I

Engine~r-

2992, pp. 282, 1120);

By the Department of Air Force, Pacific Air Force (360/50),

~Ifor "Command and Control" (DX 2992, pp.
'A
~~

(360/50), for "Personnel"

By

'!S6, 1120; DX 4593, p. 105);

the Department of Air Force, Strategic Air Command

1=
- 'I (360/50), for "Intelligence" (DX 2992, pp. 322, 1120; DX 4593, p. 80);
I
:1
"

!

!

-A17-

1..

By the Atomic Energy Commission, Savannah River Office

2-

(360/65), for "Material Management", "Financial Management" and

1-!

"Scientific and Engineering" (OX 2992, pp. 1.15, 1113; DX 4593, p. 71):

I

By the Department of Army, Safeguard, Whippany, N.. J.

4. i-

,

~t·

(360/65), for "Research, Engineering" (DX 2992, pp. 165, 1120):

_ !l

By the Department of Air Force Ogden Air Material Area,

;!!Ogden, Utah (360/65), for "Payroll, Benefits", "Procurement, Contract

a :1 Administration"

By the Department of Air Force, Air Force Systems Command

g.;

. lC!

I (360/65),

for "Researcn, Engineering" (OX 2992, pp. 438, 1120; OX

4592, p. 67);

11

By the Department of Air Force, Aerospace Defense Command

lZ.!
13

and "LaW Enforcement" (OX 2992, pp. 275, 1120);

!' (360/65) ,

for "Command and Control" (OX 2992, pp. 418, 1120: OX 4593,

1

!p.96);

1.4- .

By the Department of Air Force, Air Force Systems Command
15,
16 :1 (360/65), for "Intelligence" (OX 2992, pp. 428, 1120; OX 4593, p •.97);
17 :1
•

By the Defense Communications Agency, NMCS Support Center

:I(360/65), for "Gaming, Modeling, and Systems Development", "Command

18 '.
:land Control" and "Damage Assessment" (OX 2992, pp. 551, 1122; OX 4593,
19 ;i

:jp. 133);

zal

By the Department of Navy, Marine Corps Automated Service

:t

:1

Z!.:I

-

JCenter, Kansas City, Missouri (360/65), for "Manpower Management

Z2 .;

'iSystem" and "Personnel Accounting System'" (OX 2992, pp. 628, 1123-25);

~

.I

"',4

J

""- .\

By the Department of Navy, Naval Air

Develor~ent

Center,

~~~arminster, Pennsylvania (360/65), for "Laboratory .:3upport Systems"
,;::

I

i

-- ':!(DX 2992, pp. 568, 1123-25);

I

,I

I

'I

.\

.
,

.\

-A18-

i
I

I

:!

,

.j

i

I
j

By the Department of Interior, Geological Survey (360/65),

Z:

for "Recreation Use and Preservation" (DX 2992, pp. 877, 1140;

3.; OX 4 5 9 3, P • 174) i
~.:

By the Department 9f Labor, Departmental Data Processing

I

:

Center (360/65), for "Accounting and Payroll Services" and for

:,,1

~

"Statistical Data Gathering" (OX 2992, pp. 883, 1142; OX 4593, p. 175);

il

By the National Aeronautics and Space Administration,

- ',I

:1

I

8:
i!

Goddard Space Flight Center (360/65), for "Scientific" and "Engineering" (OX 2992, pp. 908,

~ ~

By the National Aeronautics and Space Administration,

I

., :
.....

Goddard Space Flight Center (360/65), for "Data Reduction" (DX 2992,

"" ; p P •
-;,

~

1~44);

:'1

9 07, 1144);

By the National Aeronautics and Space Administration,

I

~4-!

Johnson Space Center (360/65), for "Simulation" (OX 2992, pp. 983,

,_ ;1 984, 1144);

~:l
l6 ~l
'7 (360/65)

'I

•

By
I

t~e

Tennessee Valley Authority, Computing Center Branch

for "Power Supply and Use" I

for "Fertilizer and Huni tions

II

I Development"

fg ,
•

:j

--

!a

and for "Employee Health and Safety" (DX 2992, pp. 1068,

1156; DX 4 593, P • 194);

~I

j

;

·1

By NASA's Johnson Space Center (360/65) for Skylab
I
2C l
:: simulation (DX 7536, Woodling, pp. 23-24);

....

I

~t

- . e. . i
'"

I

z:z.

~

By the Navy Computer Sciences Department in San Diego

,I

·t (360/65) for processing complex scientific and management type data
ZJti
land fo~ time sharing (DX 5100, pp. 17, 28);
Z! iI
By the Air Force Eastern Test Range (360/65) for mechanized
"""':

:,'

i

-A19-

i

I

I

I

l.;

range scheduling, radar data reduction, trajectory measurement, optical l

2. i

infrared system data reduction (DX 5023, pp. 1-4);

I

l

!

By the California Institute of Technology's Jet Propulsion

4.\ Laboratory

~ il

(36·0/75)

for real time mission control, simula-

tion and real tune telemetry (DX 5296, pp. 4, 6, 7);

a:1

By the Naval Electronics Laboratory Center in San Diego

S:

By the Department of Air Force, Air Force Systems Command

7\1 (360/65) for interactive time sharing (DX 4334, pp. 1, 5);
I

~l

lO!

11

i
1

!.2.1,
13

:I

(360/67), for "Telecommunications" and "Command and Control" (OX 2992,
pp. 451, 1120, DX 4593, p. 103);
By the Defense Communications Agency, NMCS Support Center
(360/67), for "Command and Control" and "Damage Assessment" (DX 2992,
pp. 551, 1122; OX 4593, p. 133);
By the Department of Navy, Post Graduate School (360/67),
for "Management Information System for Education and Training" (OX
2992, pp. 588, 1123-25);
By the National Aeronautics and Space Administration,
Ames Research Center (360/67), for "Scientific" and "BusinessCommercial" (OX 2992, pp. 888, 1144);
By the Atomic Energy Commission, Idaho Office (360/75), for
"Material Management", "Financial Management", "Personnel Management"
and "Operations" (DX 2992, pp. 77,1113; DX 4593, p. 58);
By the National Aeronautics and Space Administration,
Goddard Space Flight Center (360/75), for "Scientific", "Engineering"
and "Mission Control" (DX 2992, pp. 907, 908, 1144);

-A20-

1.;

By the National Aeronautics and Space Administration, Jet

2i

Propulsion Laboratory (360/75), for "Data Reduction" (DX 2992~ pp.

3!

946, 1144);

I

I.

:!
t

i

5,;
7

i
;!

S:

;;
a;

-

1

, i
,

.4- :

-

=:.

-A21-

1

35.

The System/360 Commitment.

21i undertaking" involving "fantastic risks".
:

System/360 was a "fantasti
~Cary, ~r.

101359; see

3

also Brooks, Tr. 22868; Case, Tr. 73561; Evans, Tr. 101126.)

4

"vastly diff.erent" from a·nything IBM had previously undertaken in

5

I

360 was

terms of "magnitude, complexity and functional characteristics", and

I

I

6 I' was "fundamentally new and different" compared to competitors' EDP
i

7

I
I

offerings as

wel~.

(Knaplund, Tr. 90515; Evans, Tr. 101126; PX 1092

8 I· p. 1. i OX 11 7"2, pp .1- 2. )

9

It was clear from the outset that no half-

way measures would suffice to carry out the SPREAD Committee's plans-

10

and non was taken.

11

"corporate resources" to the successful implementation of System/360

12
13

I
II
I

IBM committed more "skill and energy" and

than to any previous undertaking in its history.

(PX 1900, p. 4.)

Virtually the whole IBM's EDP operations were involved in

14

I

the development and manufacture of System/360.

15

II

tude of the undertaking required a worldwide, interdivisional effort

16

I!

on IBM's part.

The scope and magni-

"From its inception, System 360 was designed, dev-

i

I

17 i eloped and tested for worldwide use, and was in fact used worldwide".
I
I

18

I (McCarter, Tr. 88377; DX 1404A, p. 8 (App. A to JX 38) .)*

19

!

20

*The 360/30 was developed in Endicott and was manufactured in
Endicott, Sindelfingen, Germany, and Mainz, Germany.
(Dunlop, Tr.
21
93647.)
The 360/40 was developed in Hursley, England, and manufactured in Poughkeepsie, Essones, France, and Montpellier, France.
22
(Id.; Hughes, Tr. 33921-22.)
The 360/50 was developed in Poughkeepsi
ana manufactured (assembled) in Poughkeepsie, Essonnes, and Mont23
pellier.
(Dunlop, Tr. 93649.)
The 360~20 was developed in Boeblingen,
Germany
and
manufactured
(assembled)
in Sindelfingen, Vimercate,
1
Italy,
Sa~ Jose, and Boca Ratan.
(Id.;
Hughes,
Tr. 71942-43.)
System
I
360's SLT circuit packaging was designed in Endicott and East Fishkil ,
25 I and manufacturered in East Fishkill, Endicott, Essones and Sindelfingen.
(Dunlop, Tr. 93649-50.)
The 2401 tape subsystem was developed in Poughkeepsie, and manufactured (assembled) in Poughkeepsie,
Essones, Montpellier and Boulder. (Dunlop, Tr.

I

241,

I

-341-

Within IBM, it was recognized that achievement of SPREAD's
,,: recommendations would require "great effort" to "control and
I

! ! coordinate the work of several divisions and that of the IBM World Trade
I

~.i

Co,rpor a tion II •

(Knaplund, Tr. 90470-71.)

At the time of SPREAD there

I

:: I'were

15-20 engineering groups gener'ating processor products in IBM.

I

ii;1 (OX
I

1404A, p. 7 (App •. A to JX 38).)

These groups resided in four

7!lprinCiPal areas--OSO, GPO, FSO (Federal Systems Division) and WTC (World

6 i!Trade Corporation).

(OX l404A, p. 49 (App. A to JX 38).)

If a single

9" : compatible line of processors was to be achieved, design control. had to
be centralized in a single location.*

o

Accordingly, the

SPREAD

Committee

recommended the establishment of a systems architecture group that would

.1 ;

;be charged with formalizing the design objectives for NPL and providing

.z. !,

logical specifications for the hardware and software.

1

3 '
.~

:i (App. A to JX 38).)

:

-... i formed in early 1962,
,

Such a group--the NPL Architecture

(DX l404A, p. 49
Co~mittee--was

and served in the role of "advisor" to the various

'

-

~S

I

i

!I----------

~1 :193650.)

The 1403Nl printer was developed in Endicott and manufactured·

I

'rin Endicott, Raleigh, Sindelfingen and Vallingby, Sweden.
(Dunlop,
~S :,Tr. 93650-51.)
The 2311 was developed in San Jose and manufactured in
I
;'San Jose and Sindelfingen.
(Dunlop, Tr. 93651.) The 2671 paper tape
!
~9 Jrecorder was developed in LaGaude, France, and manufactured in Essonnes
Jand Montpellier.
(Dunlop, Tr. 93651.)
I
,01
;1
* Centralized control of worldwide development efforts made good
!
,.,!sense from another standpoint as well. The SPREAD Report projected
I
- :ia'very rapid increase in the growth of computer usage outside the United I
,~ iStates during the 19605; whereas the average domestic growth rate was
!
-- 'I'projected to be 15%, the foreign rate was projected at 37%.
(DX l404A,
,~',p. 11 (App. A to JX 38).)
So large an element of demand obviously
--lcould not be ignored in t~e development of new products, and the
Z.. ilCommittee recommended that the needs of users world"llide be taken into
~ ,Iaccount in
all phases of NPL development.
(DX 1404A, p. 49 (App. A
25 '; to JX 38).)
Ii

.i

I

'\
'I

:I

'\

i

·1

,I
i
'j
I

, .J

-342-

1.

NPL engineering groups.

~
;.

(Case, Tr. 74487-88, 74492-9.)

They held

Z; "dozens if not a hundred or more meetings I' relating to NPL.
1

(Case, Tr.

744·69.)

On the. manufacturing side, too, a number of disciplines were

4-

: I' imposed

to assure that there were no major discrepancies among the

I

.:; ~Iproducts produced on either side of the Atlantic.

- :l

7\~WOrked

IBM's plants

"very closely" together to develop "worldwide manufacture

S (plans" and employee training plans.

(Dunlop, Tr. 93651-52.)

IBM also

:

~! introduced, for the first time with System/360, the concept of

! "single engineering control".

lO.;

I
t

U!

(Dunlop, Tr. 93641, 93646.)

Under this

concept any laboratory responsible for designing a part, component or
product was also responsible for releasing that design to all the

!2..

plants, worldwide, that were going to manufacture that part, component
lSI.
i
:or product.
(Dunlop, Tr. 93641.) By introducing this concept, IBM
1~1

-

Iwas able to:

r= .
.

(a)

achieve a "high level of confidence" that all parts,

wherever in the world produced, would perform in a comparable
fashion;
(b)

achieve the ability to exchange parts or assemblies

or products among manufacturing locations in times of technological difficulty or great demand;
(c)

avoid duplication of engineering effort, since there

was no need to design the same product or component twice in
two different places.

(Dunlop, T,. 93642-43, 93645.)

Apart from the need to impose new disciplines, it was

-343-

I

1.1 apparent that a "substantial" segment of IBM's "new product deve1op-

,! ment resources

in the electronic data processing (EDP) area"

\

I! would be required to announce the New Product Line in the first quarter
I

4.: of 1964.
~

(Knap-lund, Tr. 90471.)

Brooks testified that the original

\' es·timate for 3-60 programming was between $100 and $200 million.
I

".! (Tr. 22706.)

cl

711

(~~)

That estimate was exceeded by

bett~r

than $25 million.

Brooks r staff in DSD alone grew from "20 or 30" in June 1961

8 lito "several himdred" by February 1964.

(Brooks, Tr. 22669.)

A presenta

tion made to IBM Chairman, T. J. Watson, Jr., in November 1964 showed

9-1

! that IBM's annual research and development expenditures rose from

.a;

I approximately

~~

$175 million per year in 1961 to $275 million per year in

\ 1964.
(PX 6671, p. 6.)*
Zit
!
More investment still was needed to meet the requirements
.3. !
: for SLT components. The 1961. decision to manufacture SLT in-house
i

~~

1

....

i

.. \ required

-

~6

a rapid buildup in manufacturing facilities and resources .

'

~aplund, Tr. 90546; E. Bloch, Tr. 91562.)

j

it

I

To meet the projected volume4

;'Ifor 360, IBM had to become "in a very short time, the largest component.
'1 :
~ :Imanufacturer in the world".
(PX 1900, p. 9.)
In 1961, IBM established
.8 "
:la Components Division to "focus all of its resources in terms of both
rg ::

• :tmanufacturing and development on that goal of making SLT components."

I

I

II
I
I

i

.:

!

•• '1

!

~O

,1"----------'I

I

~:~ '* It is interesting to note that, in the 1959-64 period, IBMts
22 1research and development (R&D) expenses were not only absolutely higher
:ithan some of its major competitors (Burroughs, NCR, Sperry Rand and
~ '~DC), but were more than double the expenditures as a percentage of
!revenue for Burroughs or NCR or Sperry Rand. Each ~f their ratios
~f R&D to revenue remained about level over that period.
Among the
-- ,if.our, only CDC, which was developing the highly succes s ful 6600,
,~ '~howed an increasing R&D to revenue ratio.
(PX 6671, pp. 5-6.)

'A

••

.1

I
"1

I
i

:1
!
'I
I

I

'I

-344-

L;

(E. Bloch, Tr. 91562, 91891-92.)

In 1963, the Components Division

2 ; opened a new plant in East Fishkill, New York as a manufacturing
I

I

3'

development site for System/360 components.

4-

91891-92.)

i' people"

!

(E. Bloch, Tr. 91563,

Prior to the 360 announcement, IBM hired "a large number of

and "started to build additional buildings" in order to meet the

I

6

anticipated SLT' requirements.

It

In addition, IBM's Endicott location was

7 ;1 enlarged to help produce packages for mounting SLT modules (E. Bloch,

a :1 Tr. 91892 )
9: "component
i Tr. 91893,

and part of a plant in Essonnes, France, was converted' into a
facility" to help meet "worldwide requirement(s]". (E. Bloch,

91563-64.)
La :
i.
Perhaps as significant as the magnitude of IBM's investment
1..1 !
l,in 360 was ~~e fact that all of those resources were being put into a
,

T? [

--:,tsingle project:

13:

IBM was "putting a lot of eggs in one basket . . .

: and the success of the company was in many ways to be determined by

!,4. :
I

: the success of that one project".

(Case, Tr. 73561; Evans, Tr.

15\

I

i 101128.) If 360 were rejected by customers there would be few alterna- I
15 :\
._ :{ tives around for IBM to offer and none that was thoroughly funded or
-I
"

,f

(Case, Tr. 73562.)
• ",covered a very large part of the product line.
lS '.
:iThus, once the die had been cast and the decision made to go forNard
19 .1
:1 wi th the SPREAD Commi ttee' s recommendations, IBM's fortunes became
·1

ZQ :

:t" inextricably

21

tied up with the NPL project".

I
I

I
I

Within:

1

I

f

JIBM and without, the 360 project came to be known as the "you bet

2.2 ,t
~_ ,\your company" venture.
~

(Case, Tr. 73562.)

I

.

(Friedman, Tr. 50378; Case, Tr. 73561-62;

,

iEvans, Tr. 101126.) If that venture had failed, IBM would have
.... '" ':
~- \become a "radically different company, if even in the computer
I

1S t\business" .

I

(Evans, Tr. 101128.)

i

I
'I

I

.\
I
I

'i

..:1

II

-345-

I
I

J

I

:1

:1

. 'I
J..

Despite the risk, IBM decided to develop the 360 line

:1

z:

because ~'[V'Jethought that the System/360 development was the best way

l : to more rapidly grow the- market, more rapidly expand demand for our

.

4- 1· products rI' •

(Case, Tr. 73606.)

It was the sort of risk that IBM was

~\~forced to take by' competition if i t was to succeed ..

.

Seemingly safer

I

aila1ternatives to 360 continued to be advanced within IBM right up to

7 J the time that 360 was announced..
8

~PX

1090.)

(See, e.g., Case Tr. 73589-92; PX 1074

As they had rejected the 8000 series, IBM management rejected

o : those alternatives because they would not have given IBM the kind of
~

!

.

long range solutions that it needed in the competitive environment of

~a

~l

the day.

(Evans, Tr. 101277; see also OX 4806.)
System/360 represented a price/performance improvement over

r., !

-:1

L3

~!

IBM's existing equipment which Learson described as "a price reduction

t4-i Of

30-50%."

:s 1 announcement"
16 ~time".

(DX 1525.)

Within IBM, it was recognized that no "single

had ever "obsoleted so much existing equipment at one

(PX 1099A.)

IBM was forced to make such an announcement.

I

I
i

• ilThe SPREAD Committee had set as an objective the creation of a plan
. I,
..1 ;,
:fthat would "optimize the conflicting demands" of "market need" on the
;S '
1
~ ~ione hand and "impact on present installed processors" on the other
~9 :.
i
,n :I(DX 1404A, p. 7 (App. A to JX 38»--but IBM had to impact its own line 1

I

...... ~:or stand by and '/latch others do so.
~ :!
~
In an effort to blunt the impact of System/360 on IBM's
Z2'i
_ 'texisting product line, IEM Treasurer K. N. Davis recommended that 360 be
,~
loffered for sale only. Davis made the suggestion because technology and
I
I

Z.! 'I

.jprice/performance were "changing and improving so rapidly" that

,..,.

_
"' __

.
I

:1
,1

'j

'l
'I
.\

':

j

iI

;!
;1

.1

-346-

!

!i
I

:

I
l

i

L

~

he believed it might be in IBM's interest to transfer to customers

2~

some of the risk of technological obsolescence.

In addition, System!

l : 360's price/performance on a rental basis was so superior to existing

4.i

IBM systems on rent that customers would rapidly displace those

I

_ !. sys·tems with 360s·.

:

i'

(Knap1und, Tr. 90511-12.)

The recommendation

e:

was rejected because "IBM had to continue to offer a rental option

7

in order to remain competitive":

~
I

customers foUnd it desirable.

8

competitors offered that option and

(Knaplund, Tr. 90512-13.)

In this

respect, IBM's experience was no different from its competitors.

For

I example, McCollister testified that RCA offered its systems on a lease
10\

I

basis because the customers insisted upon it and because all other

ll\

manufacturers in the industry offered it.

(McCollister, Tr. 929B-300;

!2!
~ see also Palevsky, Tr. 3145-46; Spangle, Tr. 5531; Oelman, Tr. 6160.)
13:

Indeed, customers as well as IBM could perceive that technology was

i

14- :
! changing and would not have been willing to accept the risk of obsolesI

!.S
I cence.

15 :i
j
17 ~I

Competition ensured that they did not have to do so.
As Withington agreed, IBM had to introduce a product line

;Ircomparable in performance and function to System/360 if it wanted to

13 '

· it stay in business because its existing line would have become "obsolete"

19'
.
·!and unmarketable.
(Tr. 56524, 56539.)
Thus, IBM Vice President and
20
:!Group Execut~ve Learson wrote to C. J. Bashe, Manager of Technical
I

Z1.

•

I

.

~

fDevelopment, GPO, and T. C. Papes, Manager of Systems Development, GPD,

,I

A., ·1

~ :\in July 1963:
23,
I
I

I

Z! \
.,~

t

-- .,

I

'\

"The 101 [announced as the System/360 Model 30] must be
engineered and planned to impact solidly the 1401.
"I know your reluctance to do this, but corporate policy
is that you do it.
It is obvious that in 1967 the 1401 will
-347-

be as dead as· a Dodo bird.[*]
(DX 1406.)

Let's stop fighting this."

Hughes testified that this letter was passed down to him
through the management chain to emphasize the importance of the 360/
30 program and the company's policy with respect to that program.

He

understood that the 360/30 would make the 1400 family obsolete--and
had to do so.
1964!

IB!~

(Tr. 33965-66, 33972-73.)

he.d ship!?ed thousanc:4s of

1~01

Despite the fact that by

syste~s,

of

Tt 1

hich 75-80

percent were still owned by IEI-! and on lease to custoners, it was per
,:eived that

It

[i]

f we didn't obsolete it and replace it, sOr!eone else

(Hughes, Tr. 33962-63, 33965; see also Tr. 34062.)

That

saMe view was echoed in a letter written by a Staff Vice President to
the President of Southern Railvlay in A,Pril 19F.4!I., recoI""I"'.endins- the
acquisition of 360/30s to replace Southern's

l40~s:

I

I

14 II

II

15 II

II

16 11
:1

17

!!

18
19

i!
II

"This will reduce the IBM rentals by $4,000 a month i!'l
Atlanta. There is also a good possibility that we will be
able to eliminate the 1401 computer in Washington, using
computers in Atlanta by tape to tape control from Washington.
This ~lould also save us $4, 000 to $5,000 per month rental in
Washington. Price~ of computers have been coming down while
the computer capacities are being increased tremendously.
If IBM does not bring out new computers at reduced prices,
their competitors take the business."
According to John Jones of Southern Railway who helped draft that

I' letter,
21 il IBr1 and
2211 peti tors
20

it reflected his view of competition in 1964--i.e., that if
others did not bring out new products to meet competi tion, co (
would take their business a\vay--the kind of competition tvhich

1\

23

!,------------------------

24

II away the largest number of any systeM type that IBr1 had ever shiPged

ij

*By year-end 1966, IB11 had installed over 10,000 14015, far and

25 Ilat that tiMe.

(PX 1900,

p. 7.)

jl
II

II

1/

II

II

-348-

1.

had increased "tremendously" since then.

(J. Jones, Tr. 78991-97.)

It was a view that was shared by IBM's competitors as well:
"There is no looking backward in our industry (the compu;t.er' business]' as you undoubtedly know.
If one stops to
ponder the past and be self-satisfied, the more aggressive
competitors ~ill qu~ckly charge past."
(Hindle (DEC), Tr. 7447;
OX 517, p. 2 J..

,
5: :\'

a [land
"'It was our finding that the life of a family of computers· was quite limited . • • and that you did not bring
out a family of products that simply met the price/performance characteristics of the then existing competition. You
had tQ bring out something that would exceed the price/
performance of the existing competition because you knew
full well that they were going to be moving ahead of you.
It is a constant leap frogging game."
(R. Jones (GE), Tr. 8867)

7 :1
\t
S'

9

10 \

..

•• !
J.J.. i
i

..

One gets "to a point in which the price/performance i.s
so improved over equipment of days of yore that it is
clear that . • . users are going to move to new equipment,
and either (one is] going to provide that new equipment
or [one's] competitors are going to provide it".
(R. Bloch
(Honeywell/GE),Tr. 7761-62; see also Hindle (DEC), Tr. 7448;
R. Jones (GE) , Tr. 8865; Hangen (NCR), Tr. 10423-24,10431;
Currie {XDS) Tr. 15175-76; Brooks, Tr. 22705, 22795-96; Nithinaton,
Tr. 56560, 56565; DX 426, pp. 7-8.)

13;
I

IS'
r6 ~,1.
•

17

..

.

'I

As we have already discussed, it was the recognition that

15 :[competitors would supplant IBM's installed base if IBM took no action,
:1
:l
19 :;as
reflected in the SPREAD Report's "product survival charts", which
:i
20 ',lhad triggered the NPL project to begin ~Nith.

The SPREAD Committee's

Z!.\prediction that IBM t s highly successful second generation line would be
,i
Z2 ',\superseded
by competition starting in about 196 5 ,turne d out to be

1

Z3 !accurate as to substance, but overly optimistic as to time.

As

I
t

Z~ '~ithington testified,

the indust=y was in a state of "technological fer-

j

2':

'~ent during the p.eriod 1956 through 1964", with "new technologies.

,I
,!

I

f
"

I

!
r

-349-

-; new types of components • .

,.':
iii .

[and] significant software products . . .

being inv.ented and employed at a rapid rate" and new models of computer

~

l. ~

systems superseding older computer systems at a "rapid rate" and

L!

achieving "relatively rapid success in the marketplace".

I·

II

(Tr. 56459-60.

In 1963 and early 1964, the "leapfrogging" which was "characteristic"

I

~:IOf

the computer industry (R. Jones, Tr. 8846)

had occurred.

In July

i JOf 1963 Learson could say that "in 1967 the 1401 will be as dead as a

3 !\OOdO bird" (DX 1406) because it was already being surpassed by newer
models of computer systems.

:i
1

Indeed, at the highest level within IBM there was concern

at
I

!

1
_

:i

that the System/360 might not be enough of an improvement to recover

2.

i

its costs.

Thus Watson, writing to Learson in June 1963, stated

J ] concerning the New Product Line:

~ !it

.
_

..-

,6

.

0

'I
·1

.d
,S

J

"I think it important to note, however, since we seem
to have suffered for a few months or even years because our
machines predated the effective competitive machines now in
the marketplace, that we now make these [System/360] machines
good enough so they will not be just equal to competition,
for I am sure that once they are announced our competitors
will immediately try to better them. This is all to the good
and I am for competition, but I want our new line to last
long enough so we do not go into the red."
(DX 4806.)

:j

I Similarly, writing in November 1963 to a group of IBM executives,
.9,i
·1
.!,Watson said:
~a
~~

:1

.I

~l

.~

"There is a great deal of running about and extra effort
being expended in all areas of the IBM company now because
once again we have allowed ourselves to become somewhat noncompetitive without recognizing one simple obvious fact.
In
bringing new machines and devices to the marketplace, our
competitors in today's market are simply not going to stand
still. We should recognize tha~ in every area, they will
take the best we have and immediately start working in a
tough, hard-minded fashion to produce something better.
"We find ourselves in our present position because we
seem to assume our competitors will stand still in certain
-350-

.,

.,
I

I
~
i

i,

I
I

. II

j

i

;/"

areas after we announce a superior product . . . .

Li

I

!

"I believe that whenever we make a new machine
announcement, we should set up a future date at which point
we can reasonably assume that a competitor's article of
greater capability will be announced. We should then
target our own deve·lopment program to produce a better
machine on or before that data."
(PX 1.077, PI? 1-2.)

2)
...

;
'

~:

t

4.\,
~ II"

Charts·

pr~pared

by

DSD

Market

Eva 1 uation

Manager, J.

C.

a ~ Wick, comparing the price/performance of the New Product Line to com:1

7i[petitive products in February 1964, showed that 360's price/performance

a ; was
~.~

superior to. that of recently announced machines from RCA,

Burroughs, CDC, Honeywell, Univac and GE, but also showed quite clearly

I
I

to ; that those competitive machines had a price/performance advantage over
I

!

LL : the earlier announced IBM machines of the 1400 and 7000 series.
~1,1099A,

pp. R2-R3.)

(PX

We discuss some of the competitive announcements

13 !tWhiCh created this situation in the histories of these competitors
f

L~

[ during the early 1960s.

However, some of the announcements merit

I

15 : particular attention here.
,

In October 1963, DSD President G. F. Kennard wrote to T. J.

16 !i

11 ;fwatson, Jr., and
..

II

18 :f3301.
•

A. L. Williams:

"RCA has recently announced the

· . • Initial performance specifications indicate that the 3301

.j

19

il has

zo

'!at a comparable price.

about 50 percent better processing capabilities than the IBM 7010"
(PX 2952.)

In November, 1963, it was

·1

Zl ilr~ported within IBM that GE was discussing in public a new series of

-.,

.,., 't machines planned for announcement before the end of the year.

"In one

,lcase GE stated, system cost would be approximately the same as the
Z3t
Z4-! IBM 1410 but would be 40% faster." (PX 3624, p. 4.) GE announced the
.1
I

25 :
I
I

:1

I

.\

:1

I

I
i
i
i

I

!

1

-351-

J
:1
;1
;

i
400 Series in December 1963,* and at the same press conference revealed
~:

the future availability of its 600 family.**

~:

OX 490.)

i

(Weil, Tr. 7181; OX 488;

The 400 series offered' a 1401 simulator which permitted IBM

1401 programs to' be run on o::c converted "easily" to the 400.

~I

It was

I

aimed

t !f
~

(Weil, Tr. 7031-34.)
The CDC 6600, which CDC began discussing with customers

;t
:1

r il before announcement, (Norris, Tr. 5937-38) in 1962
I

(JX

10,

,r

4), caused

I

5 ~ IBM Chairman watson to ask "why we have lost our industry leadership

J! position by letting someone else offer the world's most powerful

J: computer".
1.

CDC's 3600, which had been announced in May

1962, was viewed witJ.~in IBM as "technically superior to the 7094".

1

(PX 1026A.)

~i

~

(PX 1045.)

By April 1963,

'a.

M. Scott, IBM Vice President and Group

I

Executive, was reporting to Watson and others that "3600-type corn-

\1

.l'
i

: petition" was creating a "serious situation" and that such competition

4--;

-

(from CDC's 3600 and 6600 and from Philco's 212) was able to offer

: 11
Q :I

"one-and-a-half to two times the performance of the 7094 at a lower

7 !Iprice".

(PX 1025;)

Scott added ~~at the 501 (360/70), as planned,

:rwould enable IBM lito favorably compete with the CDC 3600".
(Id.) On
S "
:iApril 23, 1963, Watson determined to "just sit tight" and stay with
,9 ~f

the 501 approach "unless the roof falls in", but wrote that IBM had an

;1

~cr :1
:1
t1

active program in DSD called the "7094

B'

;:>rime"' which t·!as suf'ficieritly'

:\

-- j

advanced to be announced in June 1963.

:,- j---------------------

(PX

2807.)

Within two weeks,

:,

,! "
I

I

* GE announced the Models 425, 435, 455 and 465. The 455 and 465
Iwere never delivered.
(Weil, Tr. 7181; DX 490, pp. 1-3.)

~'

. 'j

** The 600 family was actually announced in the su..TtUner of 1964
(Weil, Tr. 7197-98; DX 491, p. 1) and was aimed at IBM 7090 and 7094
'!users.
(Weil, Tr. 7033-38.)
'I,
,
:,
-352';iI
'I

'!

,I

L

cascading losses to CDC's 3600 caused a reevaluation of that decision,

2 : and Watson asked Scott to advise him when the situtation got "out of

3

control".

t

(PX 3619.)

One week later, Scott reported back that IBM

I

4ajwas rep'eatedly "being beaten" by CDC's 3600, 6600 and 1604, Philco's
I

=- II' 212

and Remington' Rand's 1107.

a! 7094-B'

He recommended announcement of the

"at the earliest possible date".

(PX 3620.)

I~ anno~ced

7 J the 7094 Mod. II on May 16, 1963 (DX 13158), but this extension of the

a :1 7090

series still "could not meet either the performance level ur til ..

9 !price of a comparable CDC 3600."

(PX 320, p. 15.)

j success with the 3600 continued unabated.

10 :

As a result, CDC's

(PX 320, p. 15.)

With

i'virtually all of IBM's development resources tied up on 360, IBM was

11 :

; simply unable to respond effectively at that time--all of IBM's eggs
!2.f
;lwere indeed in the 360 basket. *
(See Case, Tr. 73589, 73561; Evans,
13 :1
;lTr. 101128.)
In the meantime, CDC was able to achieve success "by
TJ;.. 'l

~_~lconcentrating on an area of IBM price weakness,and by showing a major
~I

j!price performance advantage to !,otenti'al custome.rs·'.

(PX 320, p. IS.1*'*'

16' il

Perhaps most important of all, however, was the announcement

~si
-

17 "
~t

19 ;t

:!

*

At just about this same time CDC's chief development engineer

ZO 'lfor the 6000 Series, Vice President Seymour Cray, at CDC's June 1963
:'corporate planning meeting, urged that CDC announce the 6600 and a
Z!. ,lsuccessor in order to "slug" IBM because he speculated that IBM had
J "rradea mistake in putting all [its] eggs in an integrated circuit
2.2:;basket".
(DX 13526, Forrest, pp. 748-50.)

23

J

*'*' No competitor was able to offer such an advantage once 360 was
(PX 320, pp. 4-14 )

1,announced.
I

24. :\
!
"

25 ,\\
.1 '1

II
"

./

.j

-353-

iJ

L:of the Honeywell 200 in early December 1963.

ox

2:PX 1079;
!

167)

1 : performance" over

(McCollister, Tr. 11367;

This machine offered substantially improved price/
t.~e

1401. (McCollister, Tr. 11237; Knaplund,

4a. Tr. 90475; Evans," Tr. 101188; OX 167.)

It also offered a conversion

:- "program called the "LIBERATOR"" which made the H-200 to a
~"

l degree

compatible with IBMI s 1401.

considerable

(R. Bloch, Tr. 7605-06; McCollister,

7 ~I Tr · 11237; Goetz, Tr. 17652; OX 167;" OX 4 a8 • )
8

Within IBM the H-200 announcement was viewed as "even more

11

91 difficult

than we anticipated".

(PX 1079.)

Within two days of the

!announcement, Learson wrote to T. J. Watson and A. L. Williams that

.0'

the 101 (360/30) would have to be announced "as soon as possible"* and

~

priced at its "lowest projection" in order to be competitive.

:21

,_ ! IBM

I

(Id.)

s marketing force regarded the H-200 as a real challenge (Evans,

...l'

Tr. 101186) and at least one person in IB!1 called it "the most severe
. _ threat to IBM in our history" .

(PX 3912.)

By February of 1964, the

.:: !Isales Division was "reeling from losses" to the Honeywell 200 and

,!I
~= '
l7

:,',' "wanting a more competitive answer".

(Evans, Tr. 101196.)

Because of

!

;ithe H-200, IBM's Data Processing Division continued and intensified
'S ;f
• :fits pressure for the earliest possible announcement of System/360,
TQ "

- Jearlier still than even the then-planned mid-March announcement date.

,Q J,
:1
·1
-"t "J
.\~

(Knaplund, Tr. 90475;

JX

38, 1r 16; PX 1095; DX 2983.)

.-

,.,

.

As competitive pressure mounted, the debate whether to go

-- ;l'forward with 360 as planned or to announce extensions to the existing

,-

'

~"\1 _____________________

....... J

~~
25

:l

"i

,I

* The target announcement date at that point in time was March 1964.
(PX 1079.)

"

I

't
~

i
I
!
t

i
·1
I

i

'Ij

:,

-354-

product lines was rekindled.
easier:

it would not be as "revolutionary" as 360 and would therefore

run a lower risk of user rejection.

,

i

:!I
4-

The latter approach would be safer and

Evans-, Tr. 101127.)

(See, e.g., Case, Tr. 73590, 73512;

Moreover, it would not require users to convert

I

their existing applications programs.

In November 1963, IBM's

J

a;

Corporate Staff advanced the position that "new marketing developments" .

7

required a change in IBM's processor strategies.

\j

8!if

They recommended

the announcement- in May-June 1964 of "several improved current line

9 i systems--such as the 7074X, 7010X and 7094X".

In their scheme of

iI

lO! things the NPL announcement was to be put off for 6 to 12 months.
I

11;1 (PX 1074, pp. 2-3.)
I

!2il

The Honeywell 200 announcement provided perhaps the sharpest

!l :f temptation to depart from the System/360 plan.

l~Ja

In early 1963, IBM had

1401 built out of SLT circuitry to establish the feasibility of using

!

15 ; S LT in the New Processor Linell

16 ~l Tr. 88394 i JX 38, 1f 7; DX 4800.)

('Hughes-, Tr. 33952-53:; McCarter,
The Honeywell 200 prompted

17 !!sharp debate within IBM whether a new technology (SLT) version of the
18

'l 1401

•

:1

(called the l401S) should be brought out and the 360/30 announce-

-tment delayed or cancelled.
(Hughes, Tr. 33953-54; Evans, Tr. 101188,
·9 :J101195.) The chief proponent of this new plan was GPO President John

~

za ,!;

I Haanstra,

Zl:!
j
22 '!

.

who had been Chairman of the SPREAD Committee.

t-----------------------------

Haanstra

23 '\
* Th~se new developments included the announcement of competitive
lprocessors offering easy conversion to IBM customers and other new comZ~ \peti~iv7 offerings w~th improved price/performance as well as "the
~_~S ,\cont~nu~ng unattract~veness of programming conversion and associated
\expense to our customers".
(PX 1074, p. 2.)
'\
-!

:!

I

'I
,I

.!

-355-

1.,

believed that the 1401 was a "fundamentally sound" approach to meeting

2:

..
~

user needs and that the 360/30 approach was "improper" because it

i

i
,

created the exposure of requiring customers to convert:
"We must have a position which sticks to the 1401 as a
fundamentally sound andproper [sic} I!tethod for cOnmlercial data
processing.' I do not believe that we should in the GP small
machine area imply in any fashion whatsoever that the 1401
approach to problem solving is out of date and that people
must change.
II

". • • [I] n the final analys is wel'!\US t sustain ~?Qs i tion
of 1401 as a right programming approach now and into the
future. An approach which implies that we must convert is
basically improper."
(PX 3913.)

9[
.0 ;
,
i

The Data Processing Division, however, regarded the 14015 as

J.:

only a fallback position in the event that the 360/30 was not ready
soon enough or was not good enough:
"The best solution . • . is a 101-H machine with a
competitive price to the H-ZOO and a performance equal to
or greater than the H-200, ready for announcement by midFebruary • • . • This system would not only compete head
on with the H-200 but offer the customer the opportunity
to grow in the NPL line, which is the direction we want
them to take.

-

.:; :

,-.,.. :f::

:~ J

..... :j

'I

19 :1
jO .\

-

"

.,

.I

"The 1401S machine, which has been discussed, is a
second choice to the system described above and has been
supported by us only because we have not received a
commitment that the 101-H machine could achieve the performance desired or meet an early announcement schedule."
(PX 1090.)

I

Ii
I

I

--., I
~ ,; Evans was sure that it was a mistake to produce the 14015 instead of
·i
12 jthe 360/30, and that it would not make sense to do both. As early as
1

2:3 ,September lq63 he had inveighed against "continual competition with
,
1~
~-

~:

.1

I temporary

machines" because they would "only dilute [IBM's] already

I! overcommitted

resourcss and ability to meet the NPL challenge".

I

'\

.!

,i
I

I

r

-356-

(OX

II
I
f

!t

l.

2983.)

2

if not killed" the 360/30 and "wreaked havoc with the costs of the rest

1

of the 5ystem/360 line It •

In his view, if the 14015 had proceeded, it would have "delayed

(Evans, Tr. 101195-96.)

In addition, Evans

.regarded a decision to produce the l401s as relegating the NPL more to

~

51·the scientific area and. s.ignal1ing "a discrete scientific line, probably
I

I

5 ilal.ong the 709{) philosophy particularly if competition does the H 200

7 \1 type of thing to the 7090 family".

He felt this would erode the bas is

.

s.

for NPL and lead to a processor policy of "discrete l400-type commercial,

g

discrete 7090-type scientific, plus various custom units for new

iapplication areas", as "the inevitable conclusion".
(Evans, Tr. 10127510 ;
,
II !.76; PX 6668 (DX 14514).) As we shall see below (pp. 379-81), GE

!2

!~as

in fact at:tempting to do "the H 200 type of thing to the 7090 famil!'.

13 :'Evans was riqht.
i

Although contingency plans were laid for a possible February
1964 announcement (PX 6202), IBM decided not to proceed with the

15

1.14015. Evans testified that the 14015 was ultimately rejected
16 ;1
"[b]ecause the evaluations and conclusions of senior management
were
that it was not an advanced system that would solve the
11 ·1
applications of the future as we then saw them--that . . . it
was a machine that would not have long life and would not be
18 J
Ii
competitive for more than a short period, and that the 360
'1
family plan with all of its advanced features and functions
19 :i
and
capability and the unusual power it brought the users was
:i
substantially
better plan".
(Tr. 101277.)
a
20 '1

I

- I
t

II
,I

:!

Z!. '\ Il1- short, the 360/30 was expected to be "a better overall performing
j

........
·:system than the 1401 had been or could have been, had we extended its
~.!

,

23!life'"

24. .\

II

(Hughes, Tr. 33953-54.)
a.

I

Preoaration
for Announcement.
.

.1

It was clear by the end

.,:;. :Iof 1963 that announcement of System/360 was required for IBM to remain
--- ,iI
:1

'\
'I
:1
I

i

. I
I

-357-

L; competitive.

(Knaplund, Tr. 90475.)

We have already discussed how,

!

,: beginning in 1961, IBM began. applying massive resources to the NPL
,
I

3:

project.

~t

crash basis

~

! of 1963

Evans testified that the "whole 360 program had been on a
• since almost inception" and that by the latter part

.

it had become an "enormo.us program with its own inertia" •

.. l
~ :1 (Tr. 101190, lOl198~99.)
ai

In December of 1963, development of the line

_ i,l
I i

was "on or ahead of the schedule called for two years earlier in the

8:\

SPREAD

report"

(Knaplund, Tr. 90477),· and 'two of the prime movers of

~ilthe project, Evans and Brooks, were recommending announcement of the

I entire family

,0 \

in the first part of 1964. **

~ ! ------------*

A PERT chart (OX 1405), prepared by Ernest Hughes in October 1962,

Z! laid out the job to be done in order to accomplish the Model 30
i program. (Hughes, Tr. 33933-34, 33947.) The chart showed that the

3· : Model 30 would be ready for first customer shipment on August 1, 1965,

if the sequence of events identified on the chart were "successfully
completed".
(DX 1405; Hughes, Tr. 33947.) According to Hughes, all
\ of those tasks were completed "close" to the dates projected for their
5: completion back in 1962, and the first 360/30 was actually shipped in
! June 1965. (Tr. 33947-49; see also JX 38, ,r 24.) This was so despite
~5:lthe fact that IBM's Product Test organization was of the view that the
:'lsystem/360 Model 30 central processing unit was farther behind in their
'7 f testing procedure than any of the other System/360 central processing - I
~ [I units announced in April 1964.
(PX 1107, p. 7 . ) ·
I
!

A-I

I

.8 ~i
** By the time 360 was announced, engineering models of all the
!9 :iprocessors had been built (Brooks, Tr. 22695-96); full instruction set
I·
~ ~tcompatibility across the five processors had .been achieved (Brooks,
,nj.Tr. 22785); a c.omplete processor had been built usinq SLT tech..... :1/10loqy and demonstrated. to establish the feasibili tv of the
" Jnew circuitry (Hughes, Tr. 33952-55; JX 38, , 7, p. 5; DX 4800) J
- :imany thousands of SLT modules had already been produced (OX 4796, p. 8); I
~? ~most of the processors and some of the peripheral equipment were in
!
:.- .'the early stage of product test (McCarter, Tr. 88383; JX 38, ,r 19);
~
~_ :1 all, or almost all, the memories had undergone technical evaluation
~ ·jtesting (Brooks, Tr. 22699); microprogramming and multiprogramming had
~4 !been tested on the Model 40 (McCarter, Tr. 88382-83); and four esti~- lmating, forecastlng and pricing cycles had been completed (DX 1172, p •
.. _ 'r 2).
Product Test had been involved with the development from the
~~ Ibeginning (McCarter, Tr. 88375J DX 1165):
by the time of announcement,

I

I

:!t
',I,

,\
I

I
i

,I

:\

i
I

-358-

In September of 1963, Evans wrote to DSD President Kennard:

L

"NPL is good--it is simple and powerful--it is ready enough
--proven enough. IBM should go forward with . . . full
anno'uncement in the first or second quarter of 1964 with.
proqramming systems committed."
(OX 2983.)

1
4-

, . Al though the SPREAD Report had not recommended announcing the entire
I,

~t'NPL family at once, by December 1963 it was plain that there were
i

a iipowerful

reasons for doing so.

On December 27, 1963, Evans proposed

7 if that the NPL f'amily be announced as a group in March 1964:
!

8;

,. IT] he customers must better understand the abilities
of the architecture and conversions necessary. It would
be unwise of us to announce systems sporadically in an
effort to optimize market penetration or profit. It is
proper that IBM announce all the systems in a group so
that our customers have· the benefit of the family and
can properly plan."
(OX 4815; see also Evans, Tr.
101072-75.)

LO
L1 ,

tz.;

u

il Less

than one month later, Brooks wrote to Gibson, Haanstra and

!Kennard, stating that the equipment was "technically ready for

to+.. :

!announcement" and recommending announcement on April 7.
(OX 1172.)
15:
!He emphasized that System/360 "must be announced at one time" (id.,
l6 :\

17 '.,
18

lrP.

:1

'i

19 'I

3l:Piecemeal announcement would utterly confuse and misguide
the customer in his planning. He could not make the best
selection from the available models until all the models
are announced."
(Id.; see also Knaplund, Tr. 90486-88;
Brooks, Tr. 22782-84. l

20 ;
"

'1----------------------

Zllil thousands of tests had been made and "literally hundreds of problems

___., iand potential problems" had been identified and resolved. The compon'.It entry,
systems and product testing program already completed was more
~_ iextensive than the entire program IBM had previously undertaken for
~!any system.
(McCarter, Tr. 88390-93; Evans, Tr. 101065-66, 101082;
jDX 1172, pp. 2, 5: see also OX 4815.)

~

2,;! I

•

~_,;S

RCA, Honeywell and GE all
:,Iparison, in an embryonic stage

announced systems that were, by comof deve10pmen t.
(See Spangle, Tr.
,14997-99: Weil, Tr. 7232-35; McCollister, Tr. 9635-41.)

,!

'I

:!

,
,,

,i

'j
I

!
'I

-359-

Knaplund testified that he "understood that simultaneous announce-

• i

1

, : ment .. . • would place an unprecedented load on the development of
manufacturing resources of the product divisions"

~ ~

I

e-

However, the

'.

, I
-: advantages outweighed the risks.

Since IBM was unquestionably

4

r \ going
,

f~
,

to produce

a compatible

line, only by fully informing

customers as to the full compatible range, including prices and

r ~lfunctional specifications, could they evaluate properly IBM's
! lloffering.

WIt was my business judgment that partial announcement

by IBM would result in customer confusion, superseding orders

i

J , following subsequent IBM announcements, and churning of the order
i

l ; backlog in IBM's production schedules .. "

(Knaplund, 'l'r. 90486-88.)

The March or April announcement dates recommended by
_ :IEvans and Brooks were virtually mandated by the first shipment

~

I

; dates planned for the 360 processors, which ranged from June

,.;.:1

_ \ 1965 for the 2030 to January 1966 for the 2070.

(See JX 38,

=!

6 ll~ 24.)

It was "generally industry practice on most computer systems

,1 i!at that time to announce a system at least a year, and frequently as

:Imuch as two years, ahead of the actual first delivery" . "

(Weil, Tr.

,S :1:!

:17064; see McCollister, Tr. 9635, 9641, 9646; Hangen, Tr. 10761-62;
oS ;i
~tKnaplund, Tr. 90483-84; PX 355, pp. 33-36; PX 2226A,pp. 13, 19, 27;
~l

JPX 2432, pp. 19, 22, 28; DX 573; DX 4769; DX 4774; OX 8962.)
...

·1

~:!

I
.. ~ ~----------------------

,,,

- 1- ..
~

z!
Z5

There were "practical reasons" for this procedure from both the
:,manufacturer's and the customer's viewpoint, each of whom needed time
Ito prepare for delivery and installation.
(Weil, Tr. 7064-65;
:\Withington, Tr. 58738-46; J. Jones, Tr. 79034-36; Akers, Tr. 96537-40;
IDX 3726.)
'j

I

:\

I

.i

,
I

!

'1

.\

- -360-

t

Such lead time was particularly important in the case of

2.

1

System/360.

3:

I

System/360 and. the number of innovations, particularly in gross

~

Thus, Brooks wrote in January 1964:

"The breadth of

~·i systems concept, will require substantial lead time between announce1

! ,- ment and proper insta~lati.on."

(DX 1172, p. 1; see also DX 3726;

•

I

e L DX
7

4815.)
(1)

:1

a,

That time would be necessary to:
permit customers to replan their applications and take
advantage of 360's new concepts such as file orientation,
communications' facilities and large memories;

(2)

10 :

ii

permit customers to assimilate the "sheer amo un t- of new
abilities, new options, new specifications, and new prices

UI

!

ll

that 360 would provide and select the best configuration of

I

equipment to perform their applications;

0· ;
i

(3)

I

r 4.

i

-

!

prepare them for proper installation and maintenance

lSiI
i

15

of 360;

a
(4)

17 \1

Jii
•
19 ~t
:f
:t
20 ,:.,

(5)

I

permit customers to determine the need for and submit
RPQs for special requirements; and

(6)

:1

permit IBM to avoid deferred installations and consequential inventory build-ups;

18

.... 'f

permit IBM and customers to educate their personnel and

permit customers to prepare their physical sites for 360

~;

installation.

~

22. :\

. ._ ~t
~

(Withington, Tr. 58738-46; J. Jones, Tr. 79034-36; Knap1und, Tr. 90483-

t

J88; Akers, Tr. 96537-41; DX 1172, pp. 1-2; DX 3726; DX 4815.)
24. I

2:

As

!Southern Railway's President was advised by his EDP staff in 1964,

'~

I

'I

:1
;1
I
f

,I
'I

",!

-361-

~:

"there is always a year to 18 month delivery' lag from ordering to

~;

delivery.

This amount of time is uS'ually • . . required for planning

f ; and programming".
i

L!,
:'1 proposed
.

(DX 3726.)

.

Over the course of the NPL development, there were numerous
announcement dates considered by various IBM personnel,

I

il ranging

from mid-1963 to mid-1965.

(Brooks, Tr. 22796; JX 38, , 15,

7 \1 p. 8; PX 1079 r PX 1092; OX 1404A, pp. 57, 70, 119 (App. A to JX 38);

ailox
:1
•

4782; OX 4786; OX 4790; OX 4814; OX 4815.)

l Knaplund_wasassigned

r~sponsibility

In December 1963, Paul

for assembling the technical

t

! evaluations, forecasts, cost analyses and profit projections that IBM
a;i

-

top management would need to address the 360 announcement decision.

I

1 ~

.

Beginning in January 1964, he conducted weekly meetings with IBM line

j

?i

~!land staff management to identify and assess the magnitude of outstand:ling problems and outline programs to solve those problems, so that he
.~;,

-

iand they would be prepared to make judgments and advise top management

=:~
:

; on the advis'ability of proceeding with the 360 announcement.

(Knaplund,

,S :\

rr. 90474-77.)

.7

'I

On March 18, 1964, IBM Chairman T. J. Watson, Jr. made the

,S '.

:\final decision to announce all of the models of the new line simul-

'Q ,j

.... Jtaneously on April 7, 1964.

IBM's Product Test Department did not

~a:

• :lsupport the April 7 announcement--all other departments whose effort
''Tj

-

,.,

~

lwas required to provide the products, features and services offered in

:;~

1the System/360 announcement did support it.
!Brook~,

ZA

(Gibson, Tr. 22648;

Tr. 22799-800; Hughes, Tr. 34003; Knaplund, Tr. 90483, 90493;

i

'i

.. jE. Bloch, Tr. 93311; JX 38,

~r~f

18,22; OX 1165; OX 9161.)

2:
-362-

I

i
I,

I,

,,
i

i

Evans, Brooks and McCarter explained the organization and

1..\

2:

role of' the Product Test Department, in addition to all the other

~

tes.ting that was done at the time within IBM; how IBM management

4. . used the Produc.t Test position to isolate problems and challenge
I

:!'

the product development personnel to determine how they would solve

I

I

6:; those problems; and how Product Test, after it took its non-support

il
7\1

position, later supported the shipment of System/360 to IBM's

8;

customers.,

9,;i

22786-88, 228S0-53; Evans, Tr. 101065-66, 101083-9S, 101174-78;

La:i

(McCarter, Tr. 22568-70, 88362-93, 88434-55; Brooks, Tr.

PX 2126, pp. 2-5, 3S-37; PX 4005; DX 1165; DX 1172, pp. 2, Si DX l409i .

(

11'I DX 4815; DX 8083.)

"It did not follow from Product Test's non-support of
March 16, 1964, that IBM could not or would not deliver what
it committed to customers • • • • To the contrary, Product
Test',s input was one of the mechanisms, like internal targets,
designed to ensure that it would."
(Tr. 88404.)**

!Z!!
1:3.

As G. B. McCarter* testified,

~l

:1
1.4-.[

In fact, the processors announced on April 7, 1964, were

lSiI

I

lo

it

17

;1 announcement, except that the 2060 and 2062 on the one hand, and

all shipped on or before the dates estimated for shipment at

18 :r the 2070 on the other, were superseded by faster memory versions
iJ

19

J

~

;1

'I

_ _ _ _ _ _ _ _ _ __

* McCarter was DSD Manager of Product Test, and was the person who
presented the position of the Product Test organization for all IBM·
Z! :; divisions to IBM management prior to System/360 announcement.
(McCarter!
:1 Tr. 8 8 3 7 3, 8 8 3 8 0 - 81. )
I

~

;1
:'1

I
I

'.

I

"., :\

i

~:i

** Prior to 360, there had been numerous occasions on which

IBM

23\ announced products without Product Test support, including the 1403
.! printer; 1302 disk file; the 709, 7090 and 7074 systems; and more than
24 I two dozen software programs.

(McCarter, Tr. 88371-72, 88602-05; Evans,
:\ Tr. 101093-94; DX 4768; DX 7680; DX 9005.)

15

:1

.,
'I

'I

.\

,j

I
:1

:\

-363-

i

1

called the 2065 and 2075, respectively, which were delivered on or

2

before the dates planned for their predecessor processors in April
1964.

3

( JX 3 8 ,

,r

24.)

Those first shipped systems, as planned, we~e

!

4: : made availabl.e wi.th the simpler operating systems offered with 360 •.

5

(Brooks, Tr. 22853.)
"significant

However, as we mentioned earlier, there

schedu~e

slippages in 05/360 software",

~vere'

(the most ad-

vanced operating system for 360) which meant that some customers
"received the full announced capabilities later than originally
9

planned".

(JX 38,

l' 2Si OX 4740: Evans, Tr.

(T'elex)

3933-34; Welke,

10

Tr. 19410, 1963lt see also Enfield, Tr. 20947-48i PX 4834, p. 23.)

11

The problems with 05/360 occurred even though Product Test "cUmula-

121 tively did more testing of 05/360 than we ever had before for any

I set of programs
141 and despite the
13

i

15

fact that IBM's

(HcCarter, Tr. 88390-93),

progra~~ers

believed prior to April

7, 1964 that they could produce 05/360 "in the way that it was ori-

I

ginally intended".

iI,l

5609.)

16

I'

17

I

18 II

19

for a particular system"

I

(McCarter, Tr. 88390-93; Evans, Tr. 101119; DX

IBl1, like the rest of the industry I * misjudged the "enormous

complexity" of developing complex operating systems.

(Perlis, Tr.

1320, 2001-03; Spangle, Tr. 4997-99; Weil, Tr. 7215-21; HcCollister,

20

9696-98; Welke, Tr. 19281-82; Brooks, Tr. 22762-63; Withington, Tr.

21 I,

55914, 56729-30: McCarter, Tr. 88390-92: Evans, Tr. 101119.)

22lj
23
11

24 iI
25

!
i
I

*Withington testified that "all manufacturers attempting the most
advanced systems programs in that time had difficulties".
(TR 56729
30.)
For example:
(a)

Burroughs announced but never delivered the 38500 anc
B7500, in part because of software problems.
(Perlis,

I

I

II

II

II

·-364-

!

II
In a way, the modularity and standard interface of the

l.

a

System/360, which made hardware testing easier, as already discussed

Tr. 1320-21, 2001-03; Withington, Tr. 56599-600.)
(b)

. (c)

Oi

Univac' was compelled to delay the introduction of
its EXEC 8 operating system for two to three
years.
(Perlis, Tr. 2001-03.) Earlier, Lawrence
Livermore Laboratory was compelled to rewrite "completely" the software that Univac had provided with
the LARC computer because the Laboratory was "not
s.atisfied with it".
(Fernbach, Tr. 517-18.)
Xerox "had difficulty producing the UTS (operating]
system that [it] had announced". UTS was delayed
for several years, costing XDS several millions of
dollars in revenue.
(Perlis, Tr. 2001-03; Currie, Tr.
15303, 15352-54.) XDS also experienced delays
in its XOS operating system.
(Currie, Tr. 15704.)

(d)

The MULTICS operating system was never delivered
by GE, even though GE, MIT and Bell Labs believed
it could be feasibly designed. Honeywell finally
completed the development three years behind the
original schedule.
(Weil, Tr. 7232-35; Wright, Tr.
13373-76; Withington, Tr. 56730-31.) GE also
had difficulty in making GECOS perform to their
customers' satisfaction. Three different versions
were eventually constructed, and none ever met the
advertised capabilities. Because of those difficulties GE withdrew its Models 625 and 635 from
the market for a year or two in late 1966 or early
1967.
(Weil, Tr. 7215-21; Withington, Tr.
56730-31. )

(e)

The Honeywell 8200 was unsuccessful, in part,
because of software development difficulties.
Honeywell had to spend "large amounts of money,
more than we had planned" to develop the soft.ware.
(Spangle, Tr. 4997-99.) Honeywell also
took longer than anticipated to develop its
Series 60 line because of "difficulties in
developing software and microprogramming".
(Spangle, Tr. 5008.)

;

i

i

(f)

RCA's TSOS was delayed "on the order of six to

i

!

'I

'I

i

,I
::
I

I

-365-

:1
11

II

!

I
i

., (see above, pp. 360-62), made software testing harder.
~lcustomers

It allowed

great flexibility in the range of configurations which they

t could choose, and that, coupled with the wide variety of ways in which

.

I. 05/360 could be us.ed, led to "a very' complex hardware-software system"

: I whic1h

was literally impos'sible to test adequately.

(McCarter, Tr.

I

As Enfield testified:

: :188544-45.)

i :1
:1

;

a;
~ ~;

a:

,

•

.,.i
~.

i
I

"Systems software by its nature cannot be adequately tested
in a single environment but must in fact be tested . . .
in a user environment in order to establish the many
different types of configurations, the many diffe·rent types
of generation. options, the many different types of operating environments.
If

"If you were to take the various permutations of the
options available to the user, the number of different
tests that would have to be performed (in testing systems
software] would exceed the time available for testing •
I am talking about millions of different permutations and
combinations of features that can be selected by the users.
To test in each of those environments would preclude the
issuance of first release of any operating system . . . •
[b]ecause as soon as you got around to testing the 999,000
somebody would come out with another option and you'd have
to go all the way through it again."
(Tr. 20294-97; see also
Perlis, Tr. 1347-48.)
Only by expending "considerable internal efforts" was IBM

twelve months, possibly more", and performed poorly
and unreliably.
(McCollister, Tr. 9694-95, 9707-08;
Rooney, Tr. 12132-34.) RCA's VMOS also experienced
delays, which were estimated to constitute a "potential problem" of some $2 million in monthly rentals from
lost accounts plus a loss from delayed installations of
$3 1/2 million.
(Rooney, Tr. 12335-36, 12349-50, 12358;
Conrad, Tr. 14088-89, 14133; DX 872, p. A.) The
difficulties with and instability of TSOS/VMOS
"endangered [RCA's] position with any-customer who
had equipment on order and who planned to use this
operating system".
(McCollister, Tr. 9704-05,
9710-11. )
-366-

L

able to remedy the problems with OS/360--but IBM did so and provided

2 ; customers a "very sophi.sticated, very complex software system, a
.!

software system tha,t perIni tted the customer a, great deal of flex-

3

ibility · • • the customer could do a great, deal with a minimum amount

4;..
I

- :'IOf

:- !

eff, ort"" which' in turn caused System/360 "to show steadily in-

I

,. ! creasing performance relative to competition and remain saleable

a:

7\i10nger".

at! Currie,

(Perlis, Tr. 1887-88; Palevsky, Tr. 3180; Rooney, Tr. 12576;
Tr. 15186; Welke,- Tr. 17308-13; McCarter, Tr. 88389; PX 1900,

pp. 3-4, 8; PX 4833, p.l6; PX 4834, p. 23.)

9
b.

360's Success and Impact on IBM.

System/360 was

10
launched on April 7, 1964, and the internal doubts about its reception

II
,were soon dispelled.

(See Knaplund, Tr. 90515; OX- 4740: Evans, Tr.(Telex)

!2, !

l' 39 3 2 - 3 3 • ) Orders for the systems "far exceeded IBM's forecasts"
0;
!I (Gibson, Tr. 22636-37; Case, Tr. 73258; Knaplund, Tr. 90547; Evans,
r,," :

-. : Tr. 101123; Cary, .Tr. 101780-81; JX 38, 1r 28; PX 1900, pp. 7, 10;
IS:
lox 9331) and exceeded by thousands IBM's production plans which were

lo

;1

:!based on those for.ecasts:

ld
is
-

:i

19

:t

Estimated and Actual Production Versus
Gross Orders Booked for System/360 Models
Announced on April 7, 1964

'f

it
:r

ZOI

Estimated

~I

'}

Z! '11965

589

668

22. :\1966

2,897

3,132

3,486

3,800

,~

23:1'\1965
"'.4 ,;

,- I

1966
(combined)
&

,i
25 1
'i
:1
'i

:!

'i
;1
:1

Gross Orders
Booked

Actual

-367-

4,487
·

4,526
9,013

!
. ·1

·-;1 (JX

38,

,r

28 • )

By October 1966, IBM's 360 order backlog represented

,• ,I:~

an income of "almost three times

r

annual sales of all products,fI.

[IB~~ f· s

then -curren t,] wo-r ldwide r

(PX 1900, p. 10.)

As we discussed earlier, IBM management authorized sub-

II

:11'

stantial increases in plant capacity prior to 360's announcement in

i:

order to meet anticipated production and delivery requirements--

1

7 J including

a

;1
it

the establishment of an SLT manufacturing plant in East

Fishkill, N.Y., and the addition of a new building at IBM's Endicott,

i: N.Y., plant site for the manufacture of SLT cards and boards.

(See

,

0.;

above, pp.344-45.) It was management's judgment that these manufac-

i

-

I

turing capacity increases "adequately provided for the component

'1 :
;

z:

and box production volumes required to support the Systern/360

I

:3

II

announcement together with planned future announcements". (Gibson, Tr.

~i

22635-37; Knaplund, Tr. 90545-46; E. Bloch, Tr. 91895-96; DX 7691,

--

p. 4; DX 9333.)

I

I
'
'

,

i

_!I

.e'l

.7

II

.s;1
'I

However, because the total orders were far beyond

what was forecast and because larger size processors and more memory

and peripherals than anticipated were being ordered, the )::!emand for
SLT modules also far exceeded IBM's expectations.

(Knap1und, Tr.

:1

~9 ;:
~n
_lei

90547; E. Bloch, Tr. 91899-906; Dunlop, Tr. 94774-75; DX 9331; DX

.1

:! 9332; DX 9333; DX 9334.) By May 1964, only a little more ~~an one
,I
,j month after announcement, the proJ' ected "~ximum ~nual l-bdule Fe-

U. :\,
~

,., 'j

quirements" had increased from 70-90 million to 130-190 million.

-j

(DX

"19331; see also E. Bloch, Tr. 91899-900, 91905-06; Dunlop, Tr. 94i74-

~
,
.....j

Z~

175; DX 9332; DX 9333.)
i

It was plain that the manufacturing capacity planned at

-368-

L

2

announcement would be insufficient and IBM began moving to meet the
increased demand.

,

By the third quarter of 1964 additional component

1 ! p'ro~uction capa.ci ty was approved as an addition to IBM

I

S

Burlington,

j

4-\.vermont:, plant site, and plans were initiated for additional assembly
I

~llplant locations.

S

!I~xpansion

of

By the end of 1964, IBM top management had approved

the.Fe~eral sys~ems

Division's Owego, N.Y., plant "to

7 lll.ncrease manufacturl.ng capacl.ty for

a I the

SLT cards and boards"; and in

first part of 1965, two new plant sites in Boulder, Colorado,

and Raleigh, North Carolina, were approved "to increase IBM's

9

overall EDP manufacturing capacity".

10

(Knaplund, Tr. 90547-48; E.

Bloch, Tr. 91905-08; Dunlop, Tr. 93670; PX 5771, p. 28; OX 9038.)

ll;

i In addition, IBM provided special tools and training to Texas InstruIZl
'lments employees so that Texas Instruments might serve as an additonal
13i
source for SLT components.
(E. Bloch, Tr. 91908.)
I

.

r

~:il

By October 1965, IBM announced that it was "completing more

.... llthan three million square feet of new manufacturing space" to meet
16 H
requirements for System/360--including plants in Boulder, Colorado;
17 I
:,'fRaleigh, North Carolina; Montpellier, France; Vimercate, Italy; and
:.:.1'

15
19

za
2!.

~lexpansions of existing facilities in Owego, Fishkill and Endicott, New
:i

:IYork; Burlington, Vermont; and San Jose, California.

'!

~Iplants

(OX 9038.)

New

were later added in Boca Raton, Florida and Brooklyn, New York.

;1

J(Dunlop, Tr. 93670.)
22 't
.. _ J
IBM also began hiring substantial numbers of new employees.

~ :iBet.ween year-end 1964 and year-end 1967 IBM inc~eased its work
24

1\

iforce by approximately 50%--adding more than 70,000 new employees.

A:I

~-

.\

.\
:1

:1

.1I

-369-

I

I!
I

I
(PX 5771, p. 1; DX 13680, pp. 3-4; see also Knaplund, Tr. 90549-50;
1
2 I: Dunlop, Tr. 93670; DX 4740: Evans, Tr. (Telex) 3934.)
Evans testiI

:
I
3 : fied that it was "an enormous job" to get the supply of parts flowin,J'

41!

hire the people and train them in order to meet 360 commitments.

51:

At one point, IBM "even rented a circus tent to temporarily store

6 II parts" until more permanent facilities could be secured.

(Knaplund,

1

71

Tr. 90549-50; DX 4740: Evans, Tr. (Tele·x) 3934.)

81

In January 1965, IBM combined all product division manu-

91·

facturing functions in a single manufacturing division.

It was

I;

10 ! believed that "by unifying responsibility for scheduling and product

I

11

I

121

ing all the principal System 360 equipment, . ' • . manufacturing efficiency could be increased and information flow accelerated".

I

13

(Knapl~~d,

Tr. 90548-49.)

The Systems Manufacturing Division (SMD)

1

141 was thus created, with former GPD President C. E. Frizzell at its

151
16

head.

(Id.)

By June 1965 Frizzell reported to IBM management that

II the production buildup would enable IBM to meet product shipments

r

17

II committed to customers.

18

!I see also E. Blqch, Tr. 91915;

191

(Knaplund, Tr. 90550-51; DX 1154; DX 1155;

Within a few months,

DX 9333.)
hO~lever,

an "unforeseen" technical

1

difficulty developed in the production of SLT technology.

20

21 ! Tr. 90551-52; E. Block, Tr. 91915-18.)

22i
23

II

(Knap1und,

The problem took about three

months to sold, despite intensive efforts by IBM to de so, and the

!I delay put

IBM several months behind the schedule for SLT production

I.

'I

24 II

needed to sati3fy existing customer commitments.

(Knaplund, Tr.

I

25

I
f

90551-52; E. Block, Tr. 91917-19.)

i
i

!i
11

\1

II

-370-

This was reported to IBM

Chair~an

L!

Watson, who immediately informed IBM's Board of Directors and issued

2;

a public statement advising that "during 1966 most System/360' s

3:

wj.l~ be delivered 60 to 120 days later than originally scheduled".

!

I

4-

(Knaplund, Tr. 90551-52; OX 9038,.)

t

Knaplund testified that, -but

I

unanticipa~ed

:1.1'

for the

~

that point

il

nwou~d

-, II 90552-53.)*

production problems, System/360 shipments at

have continued on the committed plan".

(Tr.

In the end, although many 360 hardware deliveries were

a 1\

made as scheduled and committed, there were some significant schedule

9!

slippages despite all of IBM's efforts to prevent them.

10! Knaplund, Tr. 90849-54; JX 38,
11

!
~

~

(See

25.)

The production, delivery and installation of System/360

i required a massive effort on IBM's part, which placed a severe
-ir
13 strain on the corporation.
(Cary, Tr. 101359-60; PX 1900, pp. 4, 8;
r-1

il
14-1t

!)X 4740: Evans, Tr.

(~'elex)

3932-34; OX 8386, pp. 107-08, 111: OX 13677,

I

,

r::: : p • 5 i
.....,
i

,

o;~

13678, pp. 6-7.)

In NoveI!'J)er 1965, t'latson wrote to all

I

l6 ;t IBI! managers:

17

"l'le're carrying out an assignment that in many

J respects is one of the largest and most complex ever given to an

,f industrial electronics organization--almost a complete replacement
13 :1'rj.
19 J of our principal product line".
(OX 8 8 8 6, p. 107.)
It was a task

;,,

za 'ri

that some in IBM likened to "trying to swallow an elephan't".

"'1

(Cary, Tr. 101359.)

,I

-'~

'\

'!
~

,., 'i

-

:t

ZS

i; that*

As we have discussed, IBM had to build new facilities and

l ----------------------

Despite ~~e problem, IBM's SLT
planned in April 1964; IBM was
! increase of production in 1966 over
2S;i E • Bloch, Tr. 91917.)
In May 1966,
,I shipped.
(JX 38, ~r 27, p. 10.)

Z!

output for 1965 was higher than
also able to achieve a 74%
1965.
(Knap1und, Tr. 90943-46;
the 2,OOOth System/360 was

'I
'\

"

I

'i

'j
:i
'I

-371-

·: hire and train roany new employees.
r

.

•.

I

i

The size of the job was com-

pounded by the software di.fficulties with 05/360.-

IBM placed a

I

~; "top priority" on the solution of those problems and, at its peak,

i
~: had over 1000 pea.pIe working .on 05/360..

Some 5000 man-years went

f!

into its design.l construc.tion and documentation between 1963 and

i !I

1966.

r

(Telex) 3932-34.)

if
11

:t
•

:1
~I

i

(PX 468,

p.- 31; DX 13677, p. 7; see also OX 4740: Evans, Tr.

The breadth and complexity of System/360 together with

~~

the new, advanced applications for which it could be used required

J

IBM to provide "the mO'st extensive total programming systems support

-.
'1

i

'jl

ever developed".

(DX

13677, p. 7.)

It also meant that IBM would

have to provide customers more assistance than ever in installing,

3 i understanding and applying 360 and all its revolutionary new concepts.
i

(Case, Tr. 73590: Evans, Tr. 101127-28; OX 1172.)

..- :!
~

::

The need to expand quickly to meet the unforeseen exp10sion in demand for 360, to hire and train new employees and to
support customers' in their installation and use of the new systems
placed "tremendous capital demands" on IBM.

(Cary, Tr. 101525-26;

DX 8886, p. Ill; OX 13677, p. 5; OX 13678, p. 7.)

During 1964 IBM

had prepaid $160 million in debentures and promissory notes.
5771, p. 36)

(PX

As a result, it did not have sufficient money on hand

to finance the required expansion and had to raise it.

In 1966 IBM

raised approximately $371 million through an equity offering, the
first such offering since 1957.

(OX

1388S, p. 20: DX 13678, p. 39.)

IBM Chairman T. J. Watson, Jr., explained to IBM's stockholders:

-372-

"Because of the plant construction program and the
System/360 production build-up, 1966 required a
worldwide investment. of approximately Sl.6 billion in
rental machines and parts, factory, laboratory and
office equipment, and land and buildings. To help
finance this expansion in our business, additional
capital stock wa.s o·ffered to stock holders last June.
$371 million of new capital was raised in this
manner. fI* '(OX 13678, p. 7.)
In 1966 and 1967 IBM raised its lease prices and decreased purchase

7 li prices by 3 percent.
11

at

(PX 4481A, p. 1.)

A "major consideration"

for the change was "to encourage purchase, and thus, increase the

I

i

amount of cash needed to finance higher-than-anticipated demands

i

for the 360". (PX 6153, p. 2; Cary, Tr. 101525-·26.)

~!

10 :

IBM's multi-billion dollar investment yielded fantastic

II

rewards, changing the face of IBM and of the computer industry for
all tioe.

Chairman T. J. Watson, Jr. called 360, at the time of

announcement, "the most important product announcement in company
history" .

(PX 1900, pp. 7-8.)

He could not have been more right.

System/360 was a "phenomenal success", perhaps the greatest "in the
history of American industry".

(Cary, Tr. 101781.)

As we have

already seen and as IBM's current Chairman, Frank T. Cary, testified,
"customers loved it", and "ordered it in quantities way beyond

* In 1965, IBM had reported that "the plant expansion program
and System/360 production required a record worldwide investment of
Sl.l billion in 1965 for rental machines and parts, factory and
office equipment, and land and buildings".
(DX 13677, pp. 6 -7 .)

-373-

anything that we had anticipated" ..

(Tr. 101781.)

360 shipments

exceeded by more than double the estimates made prior to announcemente

(Case, Tr. 73258.)
The effect on IBM was profound.

At year-end 1963, when

4

ment had nearly doubled--to 258,662.

(DX 3364, pp.

3-4 .. )

Over

that same period, IBM's manufacturing floor space in the United
Sta.tes climbed from just over six million square feet to more

L!

than fourteen million square feet--more than double.
DX 13964 , pp. 1-3.)

~

(DX

13963

At year-end 1965, before volume shipment of

;

r;1
- II

360 had begun, IBM had worldwide revenues of $3,572,824,719 (DX
13677, p. 5); by year-end 1970, IBM's worldwide revenues ·had
increased more than two times, to $7,503,959,690.

..

.. ,
I

p.3.)

(PX 5767,

Just prior to the 360 announcement, IBH had approximately

11,000 systems installed in the United States.

By the time 370

was announced, that number had tripled to approximately 35,000.
In the interim IBM's corporate growth, revenue and profits were
"way beyond anything that [IBM] had anticipated".
101781; DX 4740, Evans, 'l'r.

(Telex)

(Cary, Tr. 101360,

3934-35.)

These numbers demonstrate the extent to which IBM's
success, as it stood on the threshhold of the 1970s, was the
result of an overwhelming acceptance by users of Systern/360 and

I

I

I

!

.I

I,
I

I
i
I

I
l
i

I
I

t

I

I

,i
i
!

-374-

II
f

Li of IBM's abilLty to put the system into production and install it
i

%, in unprecedented and unforeseen numbers.

As T. V. Learson wrote

in October 1966:

: ,.

j.

I

I

a1

"Observers have characterized the 360 decision as perhaps
the bigges·t,. in its· impact on a company, ever made in
American industl:Y-fa+ bi.gger even than Boeing's decision to
go into jets,·bigger than Ford's decision to bui.ld several
million Mustangs.

I

1

II
t

I

wil~

"IBM. has certain~y not been the same since, and never
be. again" • (PX 1900, pp. 8- 9. )

s. :
9-

lO·

I

I

111
I

i

!,21

!fI

!:S:

i

-375-

36.

a

Initial Competitive Responses to System/360.

The

System/360 announcement and its subsequent success provoked a host

! ! of competitive responses. from a variety of different sources, including
I

:3-I,systems suppliers, leasing companies, peripherals manufacturers and
4

!:

!. software

houses. 'As we discuss below, System/360 spurred the rapid

I

I

~~I

7

growth of leasing

J suppliers

compan~es,

in particular, and each applied increasing pressure on IBM

B ;1 as they grew in strength.
9

software suppliers and peripherals

In this section, we review the more

immediate actions taken by a number of systems suppliers.

j

(These

a actions are discussed in more detail below; p.p. 377-84.)
We saw above how, by the time of the System/360 announcement,

1.

,,!

IBM's earlier computer lines had been "leapfrogged" by competition,

-i
:3-

! and
i

how System/360 gave IEM a price/performance advantage over

competitive machines. Indeed, as

Knapl~~d

testified, it was understood

i
=1 that the price/performance advantage of System/360 as measured by
..4-

_ !\IBM employees understated the true superiority of System/360 compared
.Q

!I

:Ito competitive offerings.*

.7 ~I

(Tr. 90503-05.)

The System/360 announce-

'Iment, therefore, forced IBM's competitors to reduce rrices or

.S 11'.

:iincrease performance in order to remain competitive.

Weil of GE

.9 :i
~C
~

]said in June 1964:
:
I

I

;!

"The entire competitive picture in the information
processing business at this time in 1964 is characterized

'i

~.I

~ i----*--A-c-c-o-r-d-i-n-g--t-o---K-naPlundl
!time for
tevaluate
!improved
Z: .\support.
Z~

the methods available within IBM at the
making price/performance comparisons could not adequately
several advantages of System/360: the use of disks, the
reliability, the factor of compatibility and the software
(Tr. 90504-05, see Tr. 90506-09.)

.J
I

I

ii

I
I

i
i

./

-376-

by the impact of the IBM System/360 . . . announcement and
by the reaction to this announcement of our competitors.

"
"The System/360 is an excell-e-nt product line with outstanding peripher-al off·erings." (PX 320, pp. 12:-13.)

=1.

The result, according to Weil, was that it was "no longer possible

5:1
I

to offer equipment with a significant advantage over IBM".

7;1 p. 14.)

(Id. ,

In July' 1964, Learson reviewed the price reductions in the

industry that had taken place since the System/360 introduction and

a

wrote:

9

I'There. can be only one conclusion; namely, the cost/
performance o·f computers today is less than it has been
and • • • the price structure surrounding the main body
of our line is threatened by:
(a) Present day cost[,]
(b) New technologies, as typified by NPL[.] Perhaps
what we are missing is that NPL was a price reduction of
30-50%, so that competition is forced to come along with
us • " (OX 1525.)

la'i
\

II :
I

t

IZt!
I

!Z~i

And they did, with price reductions, product announcements or both.
In order to be competitive, most companies tried to price their
16 :1 products to achieve anywhere from a 5 to as high as a 40 percent

l7

II

price/performance advantage over IBM's 360 line.

18

;1
it

acknowledged difficulties of comparing the performance of systems

It

Despite the

19;!;{

(see, e.g., Palevsky, Tr. 3269-71; McDonald, Tr. 4207), such a

20

pricing policy was common among competitors, who felt they needed to

Zl

:1
:1
:1
:1
.j

offer something better than IBM to attract customers.

I

i

!
iI
I
I
I

22 'I pp. 377-84)
1

~- ;! to respond.
~ '\
z~ 'I
a.
1:

(See below,

I
I

:i
I

I

!
IBM monitored these reactions in some detail, and undertookl

RCA.

RCA both reduced prices on its current products

and shaped its planned new announcements in reaction to 360.

I

-377.iI

·f

''ri

:\

,!

l:

In

approx~ately

May 1964, according to internal IBM reports, RCA

t

': reduced ~~e price of its 3301 between 20 and 35 percent. (PX 2956,
,,

~

i p. 1;

OX 1525; see also PX 4829, p. 19.)

Within IBM the price

reductions were seen as "drastic", as "the first significant com-

:$..\0
\0

••

•

0

•

:;:1I petJ.tJ.ve reactJ.on to
System/360" and as making "the 3301 very
.

~ !, competitive in the model 40/50 area".

(PX 2956, p. l.-)

*

Withington

.. \1

Til wrote that the "primary reason for the price re4uction • • . would

8

il

seem to be a requirement for a competitive product during the interim

\t

9-) until RCA announces its 'counter-360' efforts".

(PX.

4829, p. 19.)

;

Soon after, RCA announced the Spectra 70 Series, which was
designed to be compatible with the 360 line .

.1

(See below, pp. 551-58.)

Zi The preliminary design of that series had started in 1963, with
1

.:3 ; "[m]ajor design efforts. · •• under way by the latter half of '64".
i

'~~

{Beard, Tr. 8459; see p. 551 below.} The strategy of compatibility
i
._ ! with IBM equipmen.t had been considered prior to the 360 announcement
~

-...

,I
I

lS :1 (Beard, Tr. 9113-14), and was firmly decided "within two weeks,

~I· three weeks at ~'1e most, after the announcement".

L1 ;

~f

9630.)

It.

RCA

:1

was "aimed primarily at the IBM 360 series range of computers".

rs
'
• :i
_..

TQ

(McCollister, Tr.

.

By making its Spectra 70 compatible with IBM's System/360,

hoped to be able to persuade 360 users to move to Spectra:

it

'to

ZO l

1 (Beard,

U! .

Tr. 8459; see pp. 552-58 below for a fuller explanation of

j this strategy.)
""~

;r

~.!

.. _ : t - - - - ~

!

!

*

In July 1964, Learson interpreted the 3301 price decrease as
Z4 'I: something forced upon RCA by the "bad price/performance ratio" of the
.3301 product and its failure to sell.
(DX 1525.)
""I:

".

'\
!
i

.1

I

:\,
I
I

!

:\
1
I

-378-

Within IBM the announcement of Spectra was noted in a

L

Z

memorandwn from C. E. Frizzell, President of GPD, to T. J. Watson,

l

Jr.

4.

than IBM in CPU-memQry speed, magnetic tapes and high speed printing

Frizzell wrote tha.t the series offered better price/performance

: ,- but assured Watson that he was "moving rapidly to meet this challenge
I

I

a; and expe'ct to respond effectively

in the very near future".

(OX

7 It 960.)
i

b.

a!

~.

Weil testified that at the time of the 360

i

announcement,

I

competitor to its current system, the GE 400.

~!

10 ~

GE

asses-sed

360

as a "very strong and very competent"
(Tr. 7060.)

As

I

11

I noted

possible to offer equipment with a significant advantage over IBM".

t~!

-I

13

II
I

(P X 320, p. 14. 1

Then he reported at the same time (June 1964) that

GE was planning to announce a new series of magnetic tape units

l~;

l5

earlier, his own assessment in 1964 was that it was "no longer

i

i "which will permit adjustment of our 400 line system prices to
!
I

16 a
11·

increase our competitiveness".

IBM sources reported

that GE did reduce prices on the 400 in reaction to System/360.

17 l
lr

15 ;i

:t

19 i~
20

J
"

~t

21 ·t
~
Z2 ~!

Learson wrote in July 1964:
"GE has not officially reduced prices, but they
are selling their 400 line at 18% off. They have also
reduced their extra shift to a 10% charge.

"Further, GE is selling their 635, a competitor to
the 7094, at no extra shift charge." (DX 1525.)
A September 1964 Competitive News Release from the Data

23 '\proceSSing Oivision's Commercial Analysis'Oepartment confirmed
Z4

!l

price reductions of 8%-15% and 'tlent on to say, "The price

:1
I

:1

:\
,.!

-379-

l;
;

reduction gives the GE 400 a price/performance advantage over com-

,

2.:i

parable System/360 configurations."

3!

Knaplund felt. that the price reductions were necessary for GE to

(PX 2966, p. 3.)

However,

I

remain competitive
;

_ i'

490-93.)

:11

afte~

.

System/360.

(~,

p. Rl; see below, pp •

A s-ubsequent p-rice/p.erfo-rmance evaluation made within IBM

I

6;

concluded:

"While the recent price reductions have improved GE's

.

~

position, the System/360 Mode-l 30 retains its price/performance
superiority~

tt

(DX

13445.)

General Electric announced its 600 series in the summer of
I

10 I

1964.

Although planned long before the 360 announcement to displace

IBM's 7090 and 7094 computer systems (see below, 9p. 493-505), GE

11

called the 600s a "family • • • for business, scientific and real-

12.
i

131

I
I

time use".

(DX

491, p. 1.)

Weil had compared the 600 series against

the 360 line in a June 23, 1964 internal GE presentation and concluded that the 600 is "either just a little more favorable.or just
a little less favorable than comparable members of the 360 series.
We are, however,-able to deliver our equipment a year earlier than
IBM".

(PX 320, p. 16; see below, pp. 493-505.)
GE saw itself as being able to capitalize on one of the

.I
I

risks IBM had taken with the 360--the risk involved in making the
older lines obsolete.

Weil testified that the computer group at GE

was "initially at least overjoyed with what had occurred because it
meant right at the time we were introducing a system designed to
displace 70905 and 70945, IBM had itself abandoned the 7094 and 7090

I
II
I
I
I

!
computer series and brought out an entirely different computer series, I
I

-380-

I'

I
L;

and it was our belief at that time that it would be easier, if you

2 : were a user, to convert from the 7090/7094 to the 600 series than it
I

3 ; would be to convert to IBM's new 360 series.

We regarded that as a

4-1 fortuitous occurrence and potentially to our advantage."

(Tr. 7060-61.)

:; I'The user of the 7094 was "forced • . . to either go to a 360 or
..

~o

I

a:
I

some other competitive system, and we were sitting there with a system

7 :1 designed to make that conversion as easy as possible."

a

c.CDC.

:1

10

According to Weil, COC also reduced prices in

response to System/360.

9,
I

(Tr. 7062.)

(PX 320, p. 16.)

At IBM, Learson analyzed

CDC's behavior as follows:

t

"CDC followed (360'5 pricing] with a price reduction
of their 3600, which was no longer competitive with the
360-Model 70. In dropping the price of the 3600, they
had to keep their deck of cards in order and so moved the
3200 and 3400 downward. Reductions of 20-40% were made."

II

(OX 1525.)

14- : And Wi thington wrote:
!
I

"Control Data's main reliance is on price; apparently
its intention is to provide a lower cost answer to every
System 360 model. After the System 360 announcement, the
price of every existing Control Data computer was reduced,
and the prices of the later models are still lower. . . .
This should unquestionably help Control Data's pOSition
because . • . the market is becoming increasingly priceconscious."
(PX 4829, p. 21.)

~=

J.,,;;;;;
1

16 '(

ld
lS
19

:1
:1

iI

'jI

Several months later, CDC announced new members of its

,;

./

20 ;
'Icurrent product lines--the 6000 and 3000 series.

,'T

-

I

The formal

.i

[announcement of the 6400 (a "scaled down" 6600) and the (never

~l

Zl!

.ide1ivered) 6800, to go with the existing 6600, was made in mid-

23 "\: Dec ember 19 6 4 .

(No rr is, Tr. 5 6 2 6, 5 9 65 - 6 7 i OX 319, p. 1 . )

2'::'! and 3500 were announced in 1965.

(PX

r

25\

,
I

:

:

'\

,

i

!

·1

t
"

-381-

355, p. 35.)

The 3 3 0 0

I
I

d.

Sperry Rand.

Sperry Rand came out T,-!ith new products

2: in short order after the announcement of System/360.

Two weeks

3

after the 360 announcement, Univac management met to consider the

4.~r

Univac Product Line Strategy.

~ 1~ the 1050 program 'to provide

~l 1004 through the 1050 Mod V.
,.

7

They decided to enhance and expand

9- compatible line of systems from the
(OX 14, p. 1.)

Learson reported in

~f July that Sperry was "announcing new models of 1050 and 1004 where

a :1

the price/performance ratio is not following the historical trend in

~:

the original announcement, so they are, in effect, using this as a

D ~ method of price reduction".

i
.-2.1.
"

(OX 1525.)

Univac management also

decided to extend the 1107 program to the 1108 and 1109, which were

,:

!,'
,3,

to be program compatible upwards with the 1107, for large scale
users.

(OX 14, p. 1.)

In mid-1964 Sperry Rand announced its 1108

.I

il at

.4. :1

a price which Withington described as "impressive when compared to

'.5

11

.

!tin terms of price/performance, "IBM's initial offerings in the 360

.5

:1
:1'

~1

:
:1

'S
•

·1

't'!

;!';

.;

that of the System 360".

line were inferior to it".

(PX 4829, p. 20.)

Withington wrote that,

(PX 4830, p. 22; see below,

D~.

477-80.)

(We shall see later IBM's response to this rather quick "leapfrogging u

:i

By 1965, Univac's Product Line Task Force was contemplating

:'the introduction of an entirely new product line in reaction to

,,., .1
~

.:

:: System/360.

~1

-

,.,

It faced a dilemma in that two of the three models

:1

junder development were likely to benefit from new technological
'\

--'developments if their development could be delayed, but waiting
!3 :f
Iwould have meant that a full family could not be announced at one
,,~
_~

,----

I
':I

•

.i t~me .
.:

(OX 16, p. 2.)

Univac finally compromised and announced the

-382-

.)

L:

9200

and 9300

(rather than an entire family).

(McDonald, Tr. 3821;

t

Z: ox

70, p. 9.)

These systems "aimed at compatibility" with 360

(Eckert, Tr. 908) but achieved it only in part.

3;

e.

Burroughs.

(See below, pp. 480-86.'

Burroughs also responded with a new

I

-

:- It

product introduct'ion.

a:i

(PX 2082, p.

~

~I

In August 1964 Burroughs announced the B5500

95), Ita more power'ful successor to the earlier B 5000",

- !J and what was to become the first member of the 500 System family.
I

:1

8

(PX 4829, p.

Withington described the B 5000 family as "incor-

22.)

porat[ing] very advanced design features, facilitating the use of

9

: compilers and executive programs", but he concluded that "Burroughs

10 ;
U i apparently has not atte-mpted to answer the System
board".

I

r'"
i
~:,

(_Id.)

across the

By 1966 Burroughs had turned the 500 family into na

: major new product line"

!3~

i

360

(PX 4832,

p. 21), adding the B 6500,2500

and 3500 to the 5500 and the very large (and never delivered) 8500.

14- :
f

(Id.; OX 10262, p. 8; see below, pp. 644-50.)

lS;
I

f.

I

l5 :1

Honevwell.

After the 360 announcement, Honeywell took

~i its successful 200 system and turned it into a compatible "family of

17

[I

the 120, the 1200, the 2200, the 4200 and the

'r computer systems":

15 '

. :I 8200.

19

(OX 13849,

n. 27; see below, 9!'. 619-29.)
ao

Hone:TWell also

:!abandoned its attempts to develop a mass storage system after the

20 ':

'!

"

~

2311 introduction and began buying disks OEM.

:!!
,t

g.

,,,;

SDS.

5DS announced successive new products beginning

-- 'iin 1964 with what it termed "the first computer to use monolithic
... _ :1
~'

lintegrated circuits, the 50S 92"

,I

(DX 44, p. 5), and eventually, the

Z~ i

.I~igma series, which was announced beginning in 1966.

.... c

,-

I

!

:/

I[
'1

I

I

!
.'i
I

I

I

-383-

(Palevsky, Tr .

,I
~

I

I

I
" 3223-24; see below, pp.
~! that "Sigma .

t!

.

703-04.)

A Dress release at announcement

. represents the first family of computers with an

entirely new design since the IBM 360 announcement"

i

~i and,

as

rl

,

applicability.

(See below, 99.

704-05.)

I

-'

:

I

61
7 J

sl,t
9 :i.,

;!

0:
"

I

:l '1
j

:2 'i

j

~I

~l
I

' ....
~-

(DX 52, p. 1),

IBM had done wi~~ 360.' SDS stressed the new line's universal

I

,\'

-384-

i

state~

I

37.

Li

IBM's Responses (1964-66).

With competitors responding

i

2:

rapidly to the initial System/360 announcements, IBM was soon faced
with the need to respond in turn or lose the competitive advantage it

4.1'

had obtained by the introduction of System/360.

It chose to respond.

I

IBM did so by introducing new products, improving existing

: it

products and lowering prices.

a \f

This section discusses IBM's initial

responses,* particularly IBM's reduction of extra shift charges,

7

:1

s·

improvement of memory speeds, announcement of improved tapes and
disks, introduction of the Model 20, and development of the Models

9:
10 II

44, 67 and 90.

,
i

II

! -

!2

i

a.

Reduction of Extra Shift Usage Charges.

At the time of

the System/360 announcement, IBM was charging its rental customers a

;f

13; flat rate for 176 hours of computer use per month--the

Mon~~ly

Avail-

I

i

t~;

ability Charge, or MAC.

For use beyond that number of hours, an

I

i

15

additional use charge was billed at a rate of 40% of the per-hour MAC

I

rates.

l6 ~!

(DX 14295, p. 44.)

One of the ways that competitors responded to 360 was by

,f
17 ~I

I reducing or eliminating charges to customers for using machines on

18 .,:1
19

za

'1
-Z2
.,,,~

:\ extra shifts.

J

An IBM

~iins

'!

announcements since System/360.

!

.j

2.)

On July 29,1964,

Learson wrote that GE had reduced its extra shift on the 400 line to

i

t
I

2.:

(DX 13824, p.

'I

i
-1----------planning for
*
Z.!

and Loss Report for June 1964 cited "erosion

:t of extra shift" as one of the most significant aspects of competitive
-I
i

:!
I

I

;

IB~l' S

below pp.

878- 9 22. )

its future products is discussed later.

iI
I

I

l

r

.!

I
I

·1

-385-

(See

I

I
I

l:

10% and was offering its newly introduced 635, Ita competitor of the

, i

7094", with no extra shift charge at all.

i

-

i

(DX 1525.)

IBM reduced its additional use charge from 40% to 30% on
I

~ I August 11, 1964, effective retroactively to .ruly 1.

(DX 13823.)

It was not enough, and IBM received pressure for additional reductions.
On August 13, 1964, Evans and others in IBM were notified by DSD's

"We are currently facing severe competition in the
medium and l.arge scale scientific areas from such machines as
the GE 625, GE 635, PDP-6, etc. A goodly part of this problem
is due to our additional use charges. GE, particularly, is
offering their 600 series on a 24- hour basis. Even in cases
where we are price competitive on a single shift basis, we
rapidly become non-competitive when additional use is involved.
The 30% extra shift charge is good but not nearly enough."
(DX 13640, p. 1.)

9\
a It

,

._

)I

2.h
~ ;,

In addition, IBM was losing orders to the Honeywell 200,

- II
..;.

particularly at service bureaus.

~,

In October DPD "fought" for a

I

-I

reduction in extra use charges to 10 percent, this being, as Cary

1

:;
-

wrote to T. J. Watson, Jr., in the beginning of December, one of "the

iII:t

.0

.1
.S

!,

:1 instances where we have

~t
_.. ·i

extra shift charge for System/360 to 10%.
b.

J

'0
• :1:
i

U. .!
~.,

screamed' for action".

(PX 1265, pp. 2, 4.)

On October 14, 1964, IBM announced a further reduction in its

,Iil

'Q

.

r

:1

Memory Improvements.

(DX 14134.)

Within two months after 360 was

announced it became clear that the memory speed of certain IBM systems

J.; had been surpassed by newly announced competitive machines.*

A June

-]----:s .!

*

Even before the announcement of System/360, IBI1 had been seeking

!! i to include raster memories in certain IBM computers. Evans testified
:i that, for the Model 60, a 3/4-microsecond memory, r.vhich he called
!S :\ "startling in test", had been planned. However:
I

!
,{
,
'\

,j
-,

-386-

\

I

l

1964 Wins & Loss Report cited "the fast memory speeds of [competitors']'

,

new systems" as one of the "three most significant aspects of competi-

3

tive announcements".*

4.

Honeywell H-220Q, the NCR 315 ID1C, the Univac 1103, the GE 635 and the

In particular, the memory speeds of the

CDC 3800 were mentioned.

(DX 13824, p.. 2.)

Haddad, then Director of Technology and Engineering,

a ;1

7:1 addressed this problem further in a July 28, 1964 letter t.o Vice
- -:1 -

President and Group Executive Gibscn:

a ~t

~ ;1

AI am becoming increasingly concerned over the possibility
that some of the 360 machines will be technically obsolete
before they are delivered. With the recent round of pricecutting by some of our competitors, it is even more important
that our machines remain technically superior.

10 II
\

u!

"There is obviously a strong trend toward the use of
faster memories across the board. This is exemplified by
the Univac 1108 . • . the NCR 315 • . . the CDC 3800 •
the
H2200 • • • and the RCA 3301 . . • . All of these examples
appear to give the competitor a memory speed advantage at an
equivalent 360 machine level."
(DX 13825.)

tt\

:1

~i

l~,

:!

The need to improve memory speed, and with it processor

i

16:!

price/performance, was particularly acute for the larger models of

17 ;1 ' _ _ _ _ _ _ _ __
18

~l

:\

I
19 'f

za '.,!
11

,I
:1
,1

zz. "
?~

"As we proceeded down the 360 development program, and so
to make certain that we could deliver what we were committing,
we decided in 1963 or early 1964 to use available memories that
were technologies that were proven and memories that had been in
production. And so instead of one Model 60 with three-quarter
microsecond memory, we made 2 models at that performance range.A Model 60 with a two microsecond main memory, and a Model 62
with a one microsecond main memory and that's what we announced."
(Tr. 101111.)

:,

Similarly, the Model 70 was announced with ~ one-microsecond main
memory
because the 3/4-mlcrosecond main memory was not yet fully
t
(Evans, Tr. 101112.)
24 'j tested.
!
* The other two were the "magnitude of price cuts" and the "erosion
I of extra shift".
(DX 13824, p. 2.)

-I

25\

!

'j

t

:!
:j

,
I
f

,I
'j

-387-

the 360 line, the 60, 62 and 70.

.. !

An IBM flTtlins and Loss Report" for

.r!

August 1964 reported that "there have been no credited orders for

r~

Models 60, 62 and 70 since June and only a few in the

.

r

t.:

.I

category't..

unc~edited

(PX .3630, p. 2.)
Within· IBM it was believed that the Models 60, 62 and 70

compared particularly poorly with CDC's new entries.

On October 19,

1964, Ralph A. Pfeiffer, Jr., then Vice President and Federal Regional

Manager for DPD, wrote t.o Cary comparing IBM's models to the CDC
I

;r'

6800.

(The CDC 6800 had not yet been formally announced and was

never in fact delivered).
J

He stated his belief that "our model 70,

with a little less than half the performance of the 6600, rents for

1

approximately the same amount" and recommended "that DPD request a

Zi!

!
3;

100% performance improvement in the Model 70 with no increase in
rental price and not more than a 20% increase in purchase price".

~:

I

5~

5

(PX 1214.)

On December 1, Cary recommended that the price of the

one-microsecond memory on both the Model 70 and the Model 91 be

;1

" reduced "in order to make our bids

.7 \ price/performance standpoint".

(PX 1256) DX 14504).)

reductions were announced on December 23.
App. A, "

more competitive from a
Those price

(JX 38, pp. 329-30; JX 10,

3, 5, PP. 2-3.)

That day, DSD President Kennard wrote to A. K. Watson:
"As you know, we have undertaken a number of actions to improve
the product line and to provide specific responses to certain
technical requirements. An example of this is time sharing. We
have redesigned the 2362 1 microsecond memory and released new
models reflecting this redesign. The net effect is a lowering
of the rental and purchase price, and lower systems prices on
5/360 Models 62, 70 and 91.
"We have also determined, through analysis of the requirements
for peripheral I/O devices, that we could achieve substantial
-388-

operating efficiencies and enhance our price performance by
developing a new multiplexor channel. We have done this and
combined the multiplexor functi.on with the already announced
selector channel function.
The net result is reflected in a
potential systems price reduction of from S5,000 to S10,000 per
month. When the new higher speed multiplexor selector channel
(2870) is integrated into our plan, it is apparent that the 2860
price for its function had to be. re-evaluated. We have completed
this evaluation, and this has resulted in a lowering of the
purchase and rental price. This price adjustment has been
released to DPO along with the 2870 multiplexor channel."
(OX 13827.)

l.:
Zi
I

l:

,
\

I

4..
.

j•

I

- j'
:t,

,
I

e:

711

However, these price reductions were not enough.

In

S\

December 1964 Kennard wrote to Watson and A. L. Williams that the

91

performance of the 6400, as indicated by CDC, would place it between

10

the Models 62 and 70 while "(f]ield reports indicate a price somewhat

11 : above our Model 50".
!

'He reported that steps were being taken to

I

I2.j

improve the competitiveness of those machines, including an increase

_i

'f

~'I
-.

in the memory speed from one microsecond to three-quarters of a
microsecond for the Models 62 and 70.

I
I

This and other improvement

!

15;

programs for the Model 70 and Models 60/62 were targeted for release

15~! in January 1965.

(DX l4322.)

The competitive advantage of CDC 6400 and 6600 over IBM

l7 :1
15

;f

19

i\ Jr., -then Director of Product Programs for DPD, wrote to Learson:

models continued to be a concern.

it

za ,:

On March 10, 1965, C. B. Rogers,

"The CDC 6600 overpo~Yers our 70 . . . for approximately the
same rental. . • • The new entry of the CDC 6400 . . . clearly
out-performs our Model 62 by a factor of 2 at a substantially
lower price for both purchase and rental. . . • It is accurate
to say we are in trouble."
(PX 1389-, pp. 1-2.)

'f
11 .!

j

.""
. .,.r.1

1

....,I _t"
~

-I

By April 1965 IBM was ready to announce a faster memory:

I

z! .\
I

\

z:i

.\

the 750 nanosecond (3/4 microsecond) memory.

the Model 63 and Model 75, each having a memory speed of three-

i

.~

:1
.I

:

,j
:1

:!

On April 22, IBM

-389-

announce~

L:

quarters of a microsecond.

Z;

the Models 60 and 62, and the faster performing Model 75 superseded

l i t h e Model 70.*

c.

!':'

(JX 38,

The faster performing Model 65 superseded

p~ 3~3.)

Tape Drive Improvements.

Soon after its announcement

of System/360, IBM also recognized the need to improve its peripherals

I

in order to maintain the superiority it had achieved in the 19505.

On

August 21, 1964, the System/360 Compatability Conunittee reported
that because of the nature of 360, peripheral manufacturers could be
~i

expected to market compatible replacements for IBM's peripherals:

l

" (1)
I/O manufacture'rs, whether independent or divisions
of computer manufacturers, are in a position to market devices
of comparable IBM capacities at approximately 20% less price.
n(2)
It appears that I/O manufacturers will attempt to,
sell tape drives and terminals to System/360 customers.

!.2;

~

iJ

11

"(3)
There will probably be concerted activity from
competitors in marketing I/O devices on System/360 in the
Federal Government."
(PX 3908-A, p. 4.)

!.. :\

.J

..: :1 They stated that:

!I

'I

15 :!

~J.J~

:,

~S

'f;1

19

"The heretofore heavy emphasis on processor planning as
the criterion for improved price/~erformance should be
re-oriented towards I/O developments. The across-theboard improvements in price/performance which will be
required in the 1967-68 time period will probably be
brought about more by improved I/O capability than by CPO
and memory improvements.
As part of the regular development effort, such activity will be necessary in any event
to keep System/360 a viable product line . . . . "
(Id.,
p. 22.)
-

:1

:l
:~

"

t

10

'J
"

,I

2!.l
~~

~

';

----------------------

:= ,tj On
~

Z~

* IBM did not limit its memory improvements to its larger models.
January 4, 1965, IBM announced that the memory for the Model 30 had
; been improved, from two microseconds to 1-1/2 microseconds.
(See PX
j 1288, p. 2; PX 1637, p. 2; OX 14135.)

-390-

I

I
1

Technological improvement was additionally important, the

L

1

Committee reported, because

2.

I

"competitors will attempt to market I/O devices, with particular
emphasis, on tape drives, directly to 360 user.s." (Id., p. 24.)
Tape

I,

:

!'I

ment.

i

in particular,. were an area that needed improve-

A prese·ntation to the DP group- staff in November 1964 by a

a ;1 group headed
7:1

d~ives,

by C. J. Bashe entitled "Group Staff Review of IBM's

Technological Pos'ition in the Marketplace" summarized IBM" s posi.tion

II

a \t,

relative to its competitors from the viewpoint of research and

~~!
10 I

development.

That presentation reflected IBM's unparalleled commitment

to R&D and showed that IBM., in comparison to CDC, Burroughs, NCR and

11 : Sperry Rand, had consistently devoted a larger portion of its revenues
t~

1

to research and development.

':""J

!3J showed areas
14-11
15,

!
17
-

:!

.. 0
".

Nevertheless, it

in which IBM was not ahead. The report concluded:

It recommended attention to "box-by-box superiority" and concluded

!f'
i
'I
:t

that half-inch compatible tape drives was an area in which IBM was

lSI:i

19

6671, p. 5.)

"We are ahead of competition in some but not all of the
technology areas critically important to system performance.
We do not have an unassailable position of leadership in any
function. " ( I d., p. 27.)

\

16

(PX

:t "inferior".
:l
;{

(~,

pp. 15, 26-27.)

A General Managers' meeting was scheduled by Knaplund for

:1
:1I

December 4, 1964, at which technical managers were expected to report

, i
'11 :1

~,:

~on action plans to solve the problems in the areas in which "IBM must
22 '\
... _ it take immediate action to attain technical superiority". One of the
~

I

Z.!

:1

itopics was "[a] superior performance 1/2" tape drive to be announced
.! in 1965" .

... _

~=

(PX 1251 (DX 14503), 9· 1)

This was considered necessary

• Ii.

I

;because:

11

t

I

I

:!,I
'j

-391-

~1,
:\

"We're outclassed in half-inch tape and apparently can't sell
one-inch tape equipment. We need a tape drive that is superior
in performance and acceptable."
(!i!:.., p. 4.)
A week later, on December 11, a Peripheral Task Force
•

L f·

reported.

;-;

peripherals, as in tape-to-printer or card-to-tape applications.

This group considered the use of small systems to control

Such applications were common. applications for the 1400 series computers and it was -expected tha·t the 360 Model 20 and t-1odel 30 would
also be used for s.uch purposes.

But the Task Force believed that IBM

had a problem and could "expect to lose approximately 500 systems {in

a

-

that application area] by the end of 1965 ''lith the presently announced

t

, ; product line",
.

wi th losses expected to continue thereafter.

To

minimize such losses, the Task Force recommended the announcement of
Z II
3 i the 2400 series tape drives on the Model 20 "inunediately" and stated:.
i

"Low Cost Tape should be announced on the Model 20 primarily to
satisfy the longer term problem (after 1965).1t
Further:
,6

"

"Low Cost Tape on the Model 30 is required to provide more
competitively priced configurations particularly to those
customers requiring 1401 compatibility."
(PX 1271, p. 3,
see pp. 6, 8, 12, 14.)

"

.i

.i ii
,S

.9
~!J

I

:i

I

'i

-I

tapes were made even more immediate by additional actions of its

I

I

'j
,

IBM's fears about its lack of technological superiority in

;i

!
i

·f

~ "i

competitors.

Force issued its report, C. E. Frizzell, President of GPO, reported to

- ., T.
"\

..~

On December 11, 1964, the same day the Peripheral Task

J. Watson, Jr., on the recent RCA Spectra 70 announcement.

,

listed among the "significant advantages" of the Spectra 70:
",4

~-

!5
-392-

He

I

I
I

L.

"One-third higher speed magnetic tape drives at equivalent
rentals compared to IBM. . . . Availability of magnetic tapes on
the Model 15 gives them a magnetic tape system in a price range
where we have no current entry." (PX 1272 (DX 960), p. 2.)

Z
1

Honeywell, CDC and GE tape drives were also a problem. On

~

December 22, T.. y. Learson wrote to T. J. Watson, Jr., concerning

- j'
:t:
I

~il
7

J
if

8'!

"out-performed, out-priced market areas".
systems" as one of these and stated:

He listed "low cost tape

"This is largely the Honeywell

200 storylt.

He called for "[t]apes on the 360/20 [to be] immediately

announced".

(PX

g.t

1288, pp. 1-2; see OX 13955, p.

4.)

IBM improved its tape drives in two steps.

The first step

10 :

i was the announcement of the 2415 tape drive and control unit on

111

April 5, 1965.

(JX

38, p. 377.)

The 2415, a lower cost unit for the

I

I2.

I,

Models 20 and 30, solved the tape drive needs of users of those

13 :1 models. The second. and more important step was the announcement on
1.4- :l August 9, 1965, of the 2401 Models 4, 5 and 6 tape drives and control
j

-..

I --

!
;

.

units.

These 240ls incorporated several advantages in tape technology

including:

1600 bit per inch density, phase encoding recording and

twice the data transfer rate of IBM's earlier models.

(Id., p.

I

484. )
For the time being, IBM appeared to have solved its problems
in tapes with the new 24015 and the 2415.

(PX 4256; DX 13950, p. 2.)

Soon, however, competition, particularly from PCMs, would push IBM to
improve its tape drives even more.
d.

Disk Drive

.
(See below,

Im~=ovements.

•

!
I

I

i.
I

I
i

pp. 886-90.)

As we have seen, IBM made the

disk drive an integral part of its System/360.

I
I

I
i

I:

1.
i'

(See above, pp. 323-28·)1;

.
!~

~

The 2311 disk drive, announced as part of System/360 (JX 38, p. 86),

i,

-393-

!'
!

i

I;
I

~
1 ;

I;• I
!j"

.

was "the first very reliable disk drive".

I

~

:t

(Beard, Tr. 9048.)

petitors initially were unable to offer a similar product.

i:

Com-

(Case,

Tr. 72744; see also Withington, Tr. 56240-41.)

I

~I'

For severa~ years prior to introducing the 2311, IBM had
marketed the 2302, which was a drum-like file with very high capacity.
The 2302 was larger- than the 2311, but with not as much versatility as
the 2311.

"it was beginning to be· apparent that customers had a far
greater need for data stored in disk drives than we had
anticipated a year or two earlier when Systern/360 was under
development and when the 2311 disk drive was first introduced."
(Case, Tr. 72742-43.)

a it
1

Soon after System/360 was announced IBM found that

Thus, IBM needed a disk drive larger than the 2311 to replace the 2302

1

and supplement the 2311.

(PX 3226A, p. 4.)

Against that background IBM introduced its 2314 for two
reasons:

--..

first, since the 2314 would be larger than the 2311 it

would "provide a better relation to competition than the 2302 files".
(Id.)

Second, because the improved price/performance of the 2314

would improve the overall system performance of 360 systems on which
it was used, "the 2314 was announced . . . to sell more 360 systems".
(Id., p. 5.)
IBM announced the 2314 on April 22, 1965.

(JX 38, p. 439.)

The 2314 "[v]ery definitely" represented an advance over prior disk

j drives.

__ I

(McCollister, Tr. 9597.)

Compared to the 2311, the 2314

~'

:::..:,

provided an increased capacity of four times per spindle (Case, Tr.

,

!

.1

Z;! .\

72742), an improvement of two times in data rate (id.), and the

! ability to operate on-line.
2=

(PX 1967

.\!

(Tr. 35690).)

Beard, who then

,l worked as Chief Engineer of RCA's computer division, testified that
-394-

.1

I

I

L

while "the 2311 demonstrated the reliability" of random access devices,j

Z

"(tJhe 2314 not only offered the reliability but also a practical
cost fO'r the random acce·ss user".

(Beard, Tr. 9049.)

The superiority of the 2314 provided substantial benefits
.- ;.

::1
~.

I,

~il

711
8

;1

9

i

to IBM.

customers found use for it".

as customers were demanding them".

(Case, Tr. 72743.)

It also had

the desired effect on systems sales:
"The availability of the 2314 has been the catalyst to make
many systems sales for previously undeveloped application use
of computers."
(PX 1967 (Tr. 35690).)

U,
lI

IBM "totally underestimated the demand

for such devices" and was "hard pressed to deliver the devices as fast

10

tZ.!

The 2314 "turned out to be very surprising in the rate that

And:

;

i

13;I
1. I~
!

"The 2314 is an example of where the product developed a
market beyond our initial fore~ast expectations. Every company
should have a door-opener that beats competition--the 2314 is
such a product and will continue to be only if our pricing
policy can stand the challenge of competition."
(Id. (Tr. 35692).)
Withington echoed the advantage which the 2314 gave IBM over
its competitors: .
"During that period the entire industry and the users began
to appreciate the importance that disk drives were going to play
in the great majority of general purpose computer systems . . .
I believe only IBM among the major competitors at the time
offered an alternative between magnetic card devices and disk
drives, with developments proceeding along both lines . . . .
When it became apparent that the class of magnetic card devices
was not going to be successful in the marketplace, for reasons'
of reliability, and that the disk drive was a critical product,
many of IBM's competitors were left"for awhile without a satisfactory option."
(Tr. 56240-41.)
e.

Introduction of the Model 20.

IBM's success with its

650 and 1401 had shown that small, low cost computers

~.,ere

important

because they helped grow the market by permitting users who otherwise
-395-

might have been unable to afford them to obtain computer systehls.
above,. pp. 39-44, 141-47.)

(See

In the face of that experience, the SPREAr:

Committee had recommendedtha·t IBM develop a "very small" processor ,.
even though such a processor' might not be fully compatible with the
f i

rest of' the 360 line.

(DX

1404A, pp. 35-36, 69 (App. A to JX 38).)

I
•

II

The development of such a small pr'ocessor was assigned to the World

:Jl

Trade Corporation's German laboratory in Stuttgart.
71942-43; Knaplund, Tr .. 90478.)
was judged

"no~

(Hughe s. Tr.

In early 1964 that small processor

to be as far advanced in

~evelopment

as the Models 30

a: through 70", and it was therefore not announced with the rest of the
!
l~

360 line in April 1964. (Knap1und, Tr. 90489.)
The need for a low-cost computer was evident within IBM.

I

~ ii' document of April 15,
~=::.l.1430N Data Processing
-

:1

.7 \1

System" (the 360/20), stated:

"The l430N, which will have a subset of the NPL
instruction set, will be the smallest member of the
System/360, and will benefit strongly from the L~pact
of the recent announcement of the NPL line .

.S :f!I
'a :t
• .,

1964, entitled "Forecast Assumptions for the

"The 1430N Data Processing System will offer the
advantages of stored programming to customers and
prospects for whom mechanization of data processing
has heretofore been either impracticable or confined to
conventional punched card equipment •

Ii

:1

.6

A

:i

I

~'!

"This system will bring the world of the System/360 down to
the price range the small user can afford.

:i
I

I

:1 ;1
-:

~
,., 'i
-';

,_ :i
~

!

II

z.! .\•

__ I

"For the first time a
like the one realized with
be made available at lower
same time as to the larger

new technological breakthrough,
SLT for the System/360, will
cost to the small customer at the
user.

"The 1430N system offers growth within the system and
upward growth into the System/360, Model 30." (DX 13829, p. 1.)

~

.,

;

:1

-396-

L[

Even

expected to be acquired by new users, it was anticipated that a

2;'

3:

var~ety

I

of customers would find it attractive, including:

"(1) Small companies characteri.zed by one accounting
machine ins~allations [sic].

~;-

I

It

a ;\

(2)

New customers· in this size range.

If(3) Larger unit record customers who have not yet moved
to a system. In some cases, these customers will use multiple
1430N systems. Others w,ill use a 1430 along with some unit
record equipment.

7 :1
S ;l

"(4·) Users of' large data processing systems who still
have a considerable amount of unit record equipment installed.
In these cases, -the 1430N would replace some or most of the
unit record equipment supporting the larger systems.

I

g,l

10

though, as this. suggests, the 360/20 was in large part

!
\

"(5) The Communications Market. This market will
be characterized by customers having a number of branch
locations requiring frequent and/or prolonged contact with
the central data processing center or among each other."

II !I

!2!!i
I

!.S.

4~6, p.

6'i'

OX 13S47, p. 7.)

SOS reported that users of

if

its computers included Johns Hopkins University, Duke University,

il

University of Delaware, Michigan State and UCLA.

(OX 983, p. 10.)

And Hewlett-Packard reported that colleges were' using its equipment.
(DX

llO~l,

p. 10.)
As a result, IBM and its competitors frequently became

, involved in highly competitive situations at universities.

(See,

e.g., PX 1824 (Berkeley); PX 1468 (University of Pennsylvania)

i

I

;1

PX1558 (University of Colorado).)
Even if IBM had discontinued its educational allowances
altogether, it seems probable that oth~r manufacturers would have

1,
'I

continued them nevertheless, * and it is therefore hardly surprising that

[1
~I

:t to some extent IBM considered such allowances a competitive necessity.
'j

'\ As a result, in 1965, IBM raised slightly the educational allowance on

: ;t

:, System/360 computer equipment, and created-a sliding scale of discounts
r :

J ranging from 20% on the Model 30 CPU to 45% on the larger CPUs •

. :l
~ :!~----------1
* ~fuen asked what Burroughs would do if IBM were forced to discon-

~ ;:tinue its allowances, Macdonald said, "I believe we would consider it
~

fcarefully, and were that to happen today I think we would probably
:\ continue t.l1.e practice." (Tr. 6987.) Moreover, Macdonald said that
! "I suspect that for the remainder of the industry that the practice
:1 would continue.
(Id. )
11

'I

-

'j

I

:\.1

,

Ii

-448-

J

I
I

L\

Even though that increase helped colleges and universities

Z:

to acquire the- newer System/360 computers, and even though it enabled

I

I

1 [

IBM to be.

,

more compe.t.iti..ve, a great debate ensued. wi thin IBM as to

I

4--1,

whether high educational discounts were the most appropriate way fo·r

..

IBM

to support education.*

Some favored continuing the discounts;

some favored. raising them; others favored lowering or even eliminating them..

Still others favored massive efforts in support of educa-

tion.-

As examples of the differing opinions, T.V. Learson was
quoted a's saying:
".We [IBM] have two objectives in this [E .A.1 program:
the
first to get university customers back up to paying full
rentals or as close to it as possible in the long-run; the
second, to get more revenue in the short-run, i.e., 1966."
(PX 1652, p. 1.)

II

Herman Goldstine, when he was Director of Scientific Development at

·- l

DPD Headquarters, observed that "the educational allowance was ori-

J..: '.

.~

ginally introduced by IBM as a matter of enlightened self-interest

il

and the expressed" intention was to further the training of young

16 ;1

~1

:r people in the use of the computer."

18
'
..
:j

He went on to recommend "that we

• :l should substitute for the EA or for most of it a cash srants program
~9 i~

or a value-received program.

:1

ZOI

·1 ,..

-

7~

J:or psychological reasons."

,I

.[

Perhaps we will always want a 5% discount
(PX

1679, pp. 1, 2.)

Armstrong took the

:

iposition in November 1965 that the educational allowance program be

Z2J

. ._:l _ _ _ __
~

Z~

I

* That debate was fueled by the Carnegie decision, referred to above,
lwhich had the effect of passing ~~e manufacturer's discounts on to ~~e
Igovernment, a result which manufacturers had not intended.

t

,..I
~=
I

.\

:\

:t
11

:1
;1
I

-449-

1

left a~one, i.e .. , unchanged from the March 1965 position.

2

Armstrong, pp. 145-46;- see

3

PX 1661, p. 1 .. )

a.~so

(PX 3871:

Wright, Tr. 12912-13; compare

The resu~t. of the debate was a corporate decision gradually

4

5·

to reduce the all.owance to 10%.

6

PX ],746, p. 2.)

(P·X 1706, p. 2; PX 1745, p., 2;

In 1966, the educational allowances on most

7 I equipment were reduced by about 10% of the price of the equipment.
8

(JX-2S, 11 26) as "the first-phase of the larger reduction.

9

the allowance was red.uced to 10% as. planned (JX 28, 11 29), where it

10

remains today on most products.

11

12
I

13

I

141
I

I

15 II
l-

II

Ii

16 III.

II

17

II

1811;!
,I

19
20

!:

I:

I!

II

21 Ii

221)
Ii

23 ,Ij:

,:

24

i
II

f'

25

I'

-450-

In 19'69,

L.

39.

2i

a.

IBM's Unbundling.
Introduction.

Before discussing IBM's unbundling in

3; 1969, it is useful to review briefly the causes and effects of bunI

I

;

~i'

dUngin the 1950s and 1960s.

5';,

Bundling, as used in the EDP industry and

with respect to IBM, is "the offering of a number of elements that are

I

;l considered to be interrelated and necessary- from a customer's point of

~ ~l
~

7

'\

view, in the computer field, under a single pricing plan, without

\f

a;il

detailing the pricing of the component elements themselves."

9; Bloch, Tr. 7603-04.)

(R.

The elements which were offered without a

i

I

separate price were non-hardware elements such as education, software,

TO:
•

1

l~ i

systems design, and maintenance.*

(See above, pp. 56-67.)

As de-

scribed above (pp. 53, 56-67)., the provision of such support services by
manufacturers greatly facilitated the marketing of their equipment to
users by reducing the users' risks in installing that new, unfamiliar,
and expensive object, the computer.

15:!

(See R. Bloch, Tr. 7751-54;

! Norris, Tr. 6058-59; McCollister, Tr. 11041-43; Welke, Tr. 17380-81,

T-!I

~; l---------------------

13 '1
* Maintenance was included in the lease prices for equipment
:l that the manufacturer continued to own and the user leased.
19 jMaintenance was priced separately for purchase customers.
(See
;} Spangle, Tr. 5094-97 (Honeywell); Macdonald, Tr. 6980 (Burroughs);
za ,j tveil, Tr. 7087-88, 7099-100; R. Bloch, Tr. 7804 (GE); McCollister, Tr.
i 11461, 11476-77 (RCA).)
Manufacturers have strong incentives to
Zl :!provide such maintenance in order to protect their property.
(See
.iNorris, Tr. 6069-70, McCollister, Tr. 11476-77; Vaughan, Tr. 21732-35.)
Z2. :! The significance to the users in the eartY day's of maintenance
:1 being included to lease customers, however, was similar to that
2.3 .' of the bundling of other support services--i t increased users I
!willingness to experiment with this new equipment and helped to
Z~ 1assuage their fears and minimize their risks.
(See Welke, Tr.
\19225-28; see pp. 53-67 above.)
1.5 .i
!

.\,I

1
,I
I

:1
·1
:1
~:

-451-

I 17343-46.)*
:1

if

As a consequence, virtually "[a] 11 the computer rnanufacturers marketed on a bundled basis" during the 1950s from the Univac
Ion.

i-

:,

(Goetz, Tr. 17500-01; Spangle, Tr. 5092; R. Bloch, Tr. 7604;

J McCollister,
I'

Tr. '11042-43; see also Norris, Tr. 6066.)

At IBM, the provision of bundled support began before the

I

;1

installation or even the acquisition of a computer by the customer.

:1

Such support was viewed both inside and outside IBM as an essential

~t

part of the marketing effort.

The IBM systems engineer (SE) was

"part of the marketing team" (Akers, Tr. 96554-56) and would
.11 assist in the preparation of the proposal made to the customer.

(Id.; Enfield,"" Tr. 19908.)

:1

The IBM salesmen drew on them for tech-

II

· :\ nical support.
,

It was the systems engineers who "had the implied

I

1 responsibility

of • . • developing systems to make sure that the

• I

r'

i

..
In formulating the prov~s~ons of the 1956 Consent Decree
concerning IBM's obligations to 7ustomers that purcha:ed equipment.
from IBM, the Department of Just~ce apparently recogn~zed the benef~t
to users of the support provided by IBM without separate charge. The
January 25, 1956 Final Judgment obligated IBM "to offer to render,
without separate charge, to purchasers from it of tabulating or
electronic data processing machines the same type of services, other
than maintenance and repair services, which it renders without
separate charge to lessees of the same types of machines". (U.S. v
IBM, [1956] CCH Trade Cases § 68,245, Part VI, S(a), (S.D.N.Y. 1956).)

if

~f'
~

:
:1

l

.!

:!

t ·f
'r
~:l

"i

1 -

r

,j

-

!

- .... At the time of his testimony in 1976, Enfield was President
of The Computer Software Company.
(Tr. 19841.) Between 1964 and
- ! 1969 Enfield was employed by IBM, first as a systems engineer and
I then as a Product Administrator in Data Processing Division headS 'iauarters. (Tr. 19843-44.)
• i

,

~

I

~

41

i
i

!I

..= :\

.!
-452I

i

,

'I
"

,

-!

:1

:1

it

]
1. J machine wa.s put to good use".

(Welke,* Tr. 17009.) They worked

2 ~ with customers to define requirements and in system design, deve1op1

I

3; ing approaches to problems, also engaging in customer education and
~i

training and in programming.
after installation.

Such work would sometimes continue

(Welke, Tr. 17007-10, 17069-70, 17372-73.)

In short, the systems engineers were responsible for "making sure
that the customer wa5indeed implementing the targeted applications,
the'business applications, and doing the job properly and being of~fL~t-

9; ever assistance we

co~d

to make sure that the machine was . . •

(Welke, Tr. 17010; Akers, Tr. 96555-56.)
10 ! performing properly'''.
Other firms in the industry also provided those types of
11 1.1;

l~

it

""s

services as part of their marketing efforts.

McCollister testified

!.S ~ that it was "normal for some fraction of the time of the (RCA] marketl

l~':\

ing force" to be dedicated to, for example, "(a]ssisting the customer

i

~=
......

with applications design and development, training . . . helping the

I
:

I

l6 :1 customer plan expanded use of the system."

(Tr. 9648-49.) McCollister

11 :1 regarded all the elements of the RCA "field organization" including
•

1S :!
~t

____________________________

'J

~9 I~

* At the time of his testimony in 1976, Lawrence Welke was President
I
:Iof International Computer Programs, a firm providing "an information
za .j service to the computer soft\vare product marketplace" by publishing
• icatalogs of software products and by conducting seminars on buying
Z.!. :1 and selling software.
nvelke, Tr. 17003-04.) Welke's first job in
~19S4 was with General Electric and he had the responsibility of
21 '!installing a punch-card system in GE's production department. Between
,11956 and 1963 Welke worked at IBM as a systems engineer for three
Z3\years and as a ~alesman in the Data Processing Division for four
lyears. Between 1963 and 1968 Welke was with a consulting firm and a
Z~ 'I bank as head of their automated customer services division.
(Welke,
!Tr. 17004-07.)
ZSI
\
,i

-453-

'I
I

"salespeople, maintenance people and systems analysts and programmers,
technical people" as "a normal and as a necessary part of the success-

i

ful sale and installation of computer equipment."

(Tr. 11370-72.)

• . In 1972 Ray Macdonald, President of Burroughs, stated that:
j.

f ,[

"A major element of the marketing effort in our industry
is support activities. It is important to note here that our
industry's involvement with its products lasts throughout the
lives of those products. It starts with semi-finished raw
materials, continues through intermediate and final manufacturing processes, and extends to a full range of services in
support of the product throughout its use.
"At Burroughs, we developed a worldwide capability in
excellent technical support of our products very early in
the. traditional product period. With the introduction of
the. computer, we have significantly extended our support
operations by adding the new dimension of supporting the
customer in his use of the product. This includes systems
planning and installation support, and perhaps most important
of all, the support of the customer in his application software requirements."
(DX 426, p. 12; see DX 427, p. 4.)

l;
!
I

Similarly, in 1961 NCR reported to its stockholders that its "marketing
.;: organization • • • provides necessary programming aids, training
III

.
I

I

_ i,
a!

courses for the customer's employees, technical assistance on site

7:1 preparation,

and other supporting services of various kinds." (DX

S J 402, p. 10.)
;\

9
,0
r'T

Obviously, the amount of SE services needed at a particular
'.ii
·rJ account varied and not in any simple way. As Akers testified,

.,

.1

systems engineers at IBM "were a scarce resource within the branch

:j
:1

,.,.

Joffice"
so there was an attempt "to manage the technical talent in
0'

~I

- ~ta way that was most beneficial in '[IBM's] sales efforts and installa~

.

.!tion efforts with our customers."

Systems engineers "were allocated

~! i

Ion the basis of how much assistance a particular customer needed at a
~

Iparticular time; the degree of experience that the customer had;
;i
!

:iI

.
I
I

I

.\

!

I

I
!

I
I
!

I
I
I

.

--:

- I

-454-

i

L

whether or not that customer perhaps required additional educational

2

effort because he or she was installing a new computer system or

1

computer system for the first time.

1

It was an effort to try to use

r

~!.

that resource as productively as possible in pursuing the quota

:1 objectives that the branch office had.

1I

(Akers, Tr. 96555-57; see

i

Enfield, Tr. 19878-79, 19886-88; OX 4793.)

Systems engineers were

assigned to customers on the basis of "who needed the work done and
what had to be done to make it a successful installation
9-

~

10

~

ll

•

(Welke,

Tr. 17017.)
Systems engineering services were provided to familiarize
users with computers and to ensure that the user, if he chose to

11

acquire a computer, used it properly to solve his problems.

r?;

Such

-it
I

13' : service relieved users from some of the risk of acquiring a computer
i

in order to induce them to acquire it in the first place.

But, in

"-, ' relieving customers of such risks, IBM, like other manufacturers,
1-

-

.
I

assumed them. By giving the users "a predictable cost that they
16 :\
17 :1 could budget against" (Welke, Tr. 19225-26), the manufacturer took

:I over the uncertainty in cost resulting from unforeseen variation in
18

:i

:t user needs.

19 :i.
·1

Concomitantly, manufacturers stood to gain (by lower costs)

:/

za ':

:f if over time the customer required less or no assistance.
2!. ';

..."'"

""',.-"

In the

;!

long run, the reduction in customer needs

!
,1

would be accomplished in

part, as it turned out, by the provision of increasingly sophisticated

~

:\ operating systems relieving customer programmers of a number of
Z.! ;
:!cornplex tasks, but it could also be accomplished in the short run by

---

...

.... -

I

'\

i
'i
!

.j

-455-

training customer personnel in the tasks which software had not yet
taken over and in the use of the software-hardware combinations.
:: Thus, according to the IBM "guidelines" concerning programming,
,
~l "Systems Engineering personne). were to clearly encourage self-suffi~
ciency among the customer [sic] in his programming capabilities with
regard to application programs."
Welke, Tr. 17373-75.)

(Enfield, Tr. 19862; see also

Such self-sufficiency "was a self-serving

!;

objective.

t;

own support would enable an SE to perform less of those functions",

l:

freeing the systems engineer for other assignments.

l!

make the customer more efficient if he did not have to depend on

!

, ; others.
-:

:,

3

The objective to enable the user to provide more of his

(Enfield, Tr. 20249-50.)
In November 1962 Frank T.

:1

It would also

Ca~I,

at the time Vice President of

~l\ Field Operations for the Data Processing Division, put out guidelines to
,

IBM executives, regional and local management and sales representa-

..:1
'

I

;, tives and systems engineers saying that it was IBM's' "responsibility"
S :1
1 :1 to provide to its·customers "the assistance they need to install and

I obtain the results from the use of our equipment that we have outlined

SI

ii

it

in our proposals to them".

Among IBM's responsibilities were the

9 ,
:1 "
,('!

.'.J

[e] ducation of customer personnel" and the provision of "[tl echnical

I

I

.! guidance" in "the use" of IBM equipment and in "programming and test~

~!

jing".

,., 'i

Similarly, in order to underscore to the recipients the extent

- ito which IBM was committed to having the customer assume responsibility,
~\

.r

'A
.-

the guidelines emphas ized that it was the "eus tomer's res pons ibili ty"

I

Ito "[w]rite his own operating programs", "[w]ire the necessary control

-456-

:1

II
Li panels", "[o]perate the equipment" and n[p]rovide for the physical
2; installation of the equipment".

(OX 4793.)

It is worth noting
'~the

3

that these guidelines applied only to. lease customers and to

4--

firs·t user of purcha:sed eq:uipment" to whom IBM felt it to be its

=!

I

"responsibility to provide • • • the assistance they need. to install

;

i
.:

,.. :l
I

and obtain the results from the use of our equipment that we have

7

\f

outlined in our proposals to them".

(~)

IBM, quite naturally, was

ai

making this marketing support available to its customers and not to

9;

users that acquired IBM equipment from other sources.

i
I

Ralph A. Pfeiffer, Jr.,* described IBM's philosophy as follows

10 ;
I
I

"What we were trying to do was to insure customer's
profitable use of the equipment. The Manager has a certain
stable of talents; he had a customer set that he had to
support and he tried to make the most productive, efficient
use of that cadre of personnel.

II i
I

12!

!
!.3;
i

-''1
r=

i

.".. :1

:; 'I
is
.I
Ii

,t
19 :1:i
t

20

i

A-

"We certainly were interested in having him be capable
of running his own installation in a profitable way. Whatever
that required in the way of training somebody or supplying that
piece of education that was missing, I hope I operated accordingly."
(Tr. 16019-20.)

l
,!

11!
Z2

"We are trying to supply a service to a customer. We
are trying to have that customer make profitable use of his
equipment. And if he is unable for some lack of whatever it
might be, education in a certain area or a certain person who
he relied on left and he was caught short, we try to supply
that missing ingredient until he is able to handle it hLmself.
We tried to train him.

The policy of building self-sufficiency in customers, however,

J
'i

i----------------------

'\

i

*Mr. Pfeiffer is an IBM Senior Vice President and Chairman of the
lBoard of IBM World Trade Americas/Far East Corporation. (OX 8074, pp.
Z~ ;42-43.)
At the time of his testimony he was an IBM Vice President and
!the President of the Data Processing Division.
(Tr. 2963-64.)
"'-

~

--

A-

-457-

carried with it an end to the practice of not charging' separately for
such services.

When enough customers became self-sufficient and when

changes in hardware and software ceased to require them to be taught
~

very new ways of operatin.g, i't would no longe·r make sense to bundle.

l

r I" By increasing self-sufficiency in customers, IBM created a growing
I

group of customers who

E;
,
r il,

d~d

not require the bundle.

The exact date

on which that group was sufficiently large that it made sense to un-

!! bundle and provide the formerly bundled services at separate charges
•

for those who wanted them is a matter of judgment.

As we shall see,

in IBM's judgment it came in 1969.

1

b.

The Continued Demand For Bundling in the 1960s.

During

!

customers unfamiliar with computers.

~ ~

-:
!

established user", such services would be required "to some degree".

6 !I

"[T]here would always be areas which are unfamiliar to even a relative~y

;t

7 it

S

:i
~.

sophisticated customer.

The fact that he was graduating from some

!I

• system which might involve
:, smaller system to say, a larger.
9 :'
"\ communications, this communications area would be the first time for

a .,
.1

.i that large cus tomer • • • •

!.! .
'

....

So even with sophisticated customers these

jkinds of support were required."
'

~ :\

(Beard, Tr. 9944-46.)

The demand for support services continued in the 1960s as

;:3 :,
.1
~!

I

:1
:=

....

i
:1

users were rapidly exploring new computer uses and as software
improvements and architecture changes were occurring at a rapid rate.

,I

'!

.,.i,
.1,
'1

-458-

Ii

. I

I
I

I
L: As Beard testif~ed:
Zl

most of the customers we [RCA] were dealing with
in the time frame of 1960 to 1970·were not thoroughly experienced in the use of data process·ing equipment. The field had
gone through a very dynamic growth. It faced new technology,
a new set of pro.grams imposed upon the business organizations
that used compute.rs. So a lot of people felt they were on
very shaky grounds. They were not sure of themselves."
(Tr. 8497.)
tI • • •

4-. \.
I

New products and new ways of doing things were being introduced requiring customer training, programming and systems design services,
imposing additional demands on the manufacturers.
g.~
i

Tr.

i

observed in 1968:

I

10;

9647-53~

OX 69, pp. 3,

5~

(McCollister,

see also OX 98, p. 12.)

As Withington

I

III

!2

"Programmers and system analysts are in inadequate
supply. This shortage has existed for years and shipments
have nevertheless grown, but in one major respect the problem
is worsening. The advanced, integrated applications many
users wish to implement are novel and very complex and require
much more creative, high-level system analysis than the
simpler, second generation applications did. Since experienced system analysts are in the shortest supply of all, this
pressure may have an increasing effect •

il

14- :1
.,-

~ll

.,,.
~o

~I

:1

17 \I
15 J'i
:\
19 ,i.j

"The increasing complexity of the third generation
hardware and'software (a necessary corollary to its increased
capability) makes it difficult for the average user to understand and use. It may take longer than it used to for users
to fully exploit the equipment they are currently installing:
many users will not be able to use anything larger or more
complex for a number of years."
(PX 4833, p. 9.)

I

za ';

I

--1
"-

Thus, although users would

event~aIly

become familiar with

I
I

t
j

the architecture of System/360, the sharp increase in complexity

Z2 '! as users moved from second generation equipment to System/360 tended
·t
..,~I

~t

to offset the gains from previous experience.

Users were being

I
i

Z~ :~trained and retrained to use more complex equipment in increasingly

z:

sophisticated ways and the bundled IBM offerings were all the more
-459-

important to the System/360 user.

-

(See Welke, Tr. 19617-18.)

For

example, Welke testified that System/360 "represented a new level of
hardware technology • . • i t represented a new level of software
I

I

technotogy- with its systems software environment and the very way

I

,. t
I

t

that you approach programming and processing.

It caused a complete

change in how people approached the task of data processing."*
In January 1964, F. P. Brooks, Jr., wrote that:
"The breadth of System/360 and the number of innovations,
particularly in gross systems concept, will require
substantial lead time between announcement and proper
installation. • • .- The sheer amount of new abilities, new
options, new specifications, and new prices will require
time for the customer to assimilate. A major education
program for IBM field personnel and customers must intervene
between announcement and successful installation."
(DX 1172,
pp. 1-2; see also Withington, Tr. 56591-93; OX 4815.)

I ;

l

~

I!

,-:,
:

As we have seen in the discussion of System/360, all of

I

t;

this happened--and more--with the result that IBM was compelled to

i

;.;

i

expend tremendous effort and expense to install and support System/360.

:~

• As other third generation equipment began to appear, other manufacturer

S]
found requirements for support services growing as well.

5DS told its

7 !I stockholders in its 1965 Annual Report that
s :t
"[t]he character of the computer market changed substantially
last year as the result of advances in both the understanding
of the technology and in the manner in which computers should

:\

9

a
1

.,

,I
.i

~f
.i

,I

i

:'1
I

!

! c:i
-'j

I

i

I
I

i
:1

I
.j
I

'f

II

II

* "By [1968] the marketplace had acclimated to these new hardware
technologies and software technologies. By the same token, the
~i product, the 360 system, particularly with reference to the software
involved, the system software, had settled down and achieved a
'A... ,;I respectable semblance of predictability."
nvelke, Tr. 19617-18.)

:!

I-

,i

-~
-:)
'\

·1

I

-460-

I

I
~

be employed. • . . During the pas-t year increasing emphasis
has been placed by management on providing complete service
to SDS customers both before and after installation. To
this end, technical staffs' and applications programming, systems
engineering, custom.er training and maintenance have more than
doub'led in size and in the scope of their activities."
(OX 981,
pp. 4-5.)
Such increases continued for the next few years.

(OX 982, p. 3; OX 983,

pp. 16-17.)
Similarly, RCA found that the introduction and installation
of its new Spectra series created large user demands for assistance.
9:

(McCollister, Tr. 9649-53, 11403-06.)

NCR told its stockholders in

1

LO; early 1966:

"As the trend toward fully integrated business systems gains
momentum, NCR's opportunities for growth and greater profitability can be expected to increase proportionately. Full
realization of these opportunities will require an aggressive
contihuation of the program of recent years. To this end,
additional expenditures will be required not only for further
product development efforts but also for training sales and
service personnel and for providing the many supporting
services essential to the successful marketing of advanced
busines·s systems."
(OX 3 68, p. 3.)

I

tz.l

II

~]

:"4- [I

-

...

.~

,

,
;

.
~

I

16 :1 It t"as a view which NCR was to reiterate as time went on.

The

17 a following year, it stated:
lS itJ
-9

~

:l
~I

;

ZO .1

·1
I

11 ;!
·i
?? '\

:

~

'\.
I

"Today, a . • • requirement for fut~re success in the
marketplace has arisen; that is the need for business equipment
suppliers to provide additional guidance to customers in the
utilization of new technologies for operating their businesses
more profitably. For in the final analysis, the effectiveness
of today's sophisticated information systems depends upon a
full understanding of their potential at all levels of management. To this end, NCR's educational programs are being
designed not only to prepare sales representatives to install
advanced systems, but also to provide counsel and training in
management sciences."
(OX 370, p. 5; see also p. 19.)

t

.I

24 .\ In its 1967 report,

just after the announcement on March 2, 1968,

I
2S :\ of its new Century series, NCR reiterated this position.
I
I

-461-

"In addition to offering outstanding equipment, meeting
the demands of the market today also requires:
"1. Expert diagnosis of customers' current and future
business information requirements, based on broad systems
knowledge- and experience.
II 2..
A ,complete ra'nge of supporting software, including
standard programs for many applications and in-depth training
of customer personnel.

"3. Continuing support of every installation, with
upgrading of both system and equipment as customer requirements
change.
;

"The company's marketing strategy is based on providing
this full spectrum of customer services." (DX 366, p. 3.)

:
i

Similarly, one of Sperry Rand's major objectives in 1962 and 1963

l~

i

L i was to "give increasing emphasis to our computer service and

z:; marketing".
a \tMcDonald was

( DX 69, pp. 3, 5.)

It was an "emphasis" which R. E.

I

to look back on in 1973 as tt[o]ne of the main factors"

~ttbehind Univac's success.
i,

c.

::,

(DX 98, p. 12; DX 65, p. 2.)

IBM's Unbundling Announcement.

On December 6, 1968, IBM

it announced that it expected "to make changes in the way it charges

S~

_ ~tfor and supports its data processing equipment" during the following
j

:\

.

year.

:.1

(PX 3390.)

It announced its decision in detail on June 23,

S '".
;l1969, with the changes effective immediately for new orders and
Q

"

~ "effective January 1, 1970, for customers with machines installed or
~a
~

-r

I
"

:Ion order.

(PX 3351; PX 3352.)

Basically, the announcement instituted

i

- jCharges for systems engineering services and education and for new
~.,

'\

: :t"program products, as distinct from system control programming". (PX
:.;, 'j
.13351, p. 4.) Programs then available from IBM's library continued
,...
.~

I
1

:1

a:

to be available as in the past at no separate charge.

j

.j

i
i

i
'f
I

I

-462-

IBM also

L:

offered to engage in contracts assuming "responsibility for the

z!

performance of specified tasks in the areas of systems design and

3.1 analys'is, applica·tion and program development and systems install~I ation and evaluation". (~)
i

No change was made in the way in which

maintenance was provided, maintenance on purchased equipment continuing

5'

I

-

i,

7

:f
\1

I

to be available at a fee and maintenance on IBM-owned equipment

a;1

leased to users available without a separately stated charge.

a::

3351; PX 3352.)

(PX

IBM also reduced its prices by' 3%, stating that

i

9 l this reflected .its "best approximation" of the expenses which would
i

lQ:

"no longer be provided for in prices of currently announced equipment".

t

II 1 (PX 3 351 , pp • 1- 2 • )
There were a number of reasons for the announcement.

i

i"" i

~l'

13: First, IBM, like others, was feeling the strain of standing ready to

1+;

supply services on demand without an extra charge in an increasingly

15:

complex environment.

16
li

IBM "stated that--as a result of fast-changing

II data processing market conditions--the need for increasingly complex
and comprehensive' systems support is growing more rapidly than antici--

:,'i

!\

:jpated. In addition, new support requirements are arising from leasing
lS ;,
19 :1 companies and other owners of IBM equipment as they relocate and
:(

,~

,!reapply
their systems."
i

--- 'f

Such demands for "new and additional forms of

support services" were expected to continue to grow.

,I

2! I .

., PX 3351, p. 3.)

Z2 .!
.,

_

(PX 3390,

pp. 1- 2 ;

As would be expected in a company accepting the risks

t
'and
burdens bundling entails, there was a recognition within IBM of

~.\

Z~

tthe increasing costs of providing software and

I

suppo~t.

During the

[early and mid 19605 persons within IBM observed that progr~~ing

25 t

I

·i

i

'\

I
i
:1
.;

,,

'\

-463-

expenditures were "skyrocketing" and "increasing dramaticall:l"

(PX

customers for educ-ation led to sep.arate pricing of certain education
!

offerings and that IBM was ·'always- looking for ways of reducing the

;1

cost of systems engineering".

'\

(JX 57, p.

2.)

The general problem of cost escalation was magnified by
the--speGial problems-----as-s-ec±ated with installation of System/360.

As

we have noted earlier, because of the unprecedented--and unantici\

.: pated--success of System/360, IBM had added new people to its marketing
r

(See- p. 372 above.)

division.

11

The training of such

people~

the

.. if

l ' support required by users to effect their conversion to the new and

sophisticated operating system software associated with System/360, and

~1

f - the problems which IBM encountered with some of the 360 software caused
i

• it IBM to devote an enormous portion o-f its resources to supporting the

: :1

. ~i installation
r

of System/360 and making sure that customers were able

~l

$t to do their work during the transition phase.
'I
_

!.

above. )

The result of this, however, was that levels of support far greater

:I

, 'i
~

(See pp. 369-72

'i than ever before required were demanded of IBM.
I
i

The cost of providing

such support had to be borne directly by IBM itself, but in the long-

I

Jrun, of course, it would have to be absorbed by IBM's data processing
2.1
:ii users.

3t
A

_i

At the same time, by 1969, in part as a result of IBM's

,- I
c:
-

!policy of encouraging self-sufficiency, there had developed a group of
I

-I

!

i
j

:1
I

I

-\

,I-i

-464-

L

relatively efficient and 'sophisticated users who would accept much

Z

more of the risks of computers and were willing to do much of the

1

sup'port in-house..

~

,

As We.lke testified:

'''The more sophis,ticated users, and the ones who had the
best-run or .the bes't-manag.ed shops, for the most part were
ready to accept th~ idea of unbund~ing, because I think they
saw in it a chance to be more cost effective 'in their entire
data processing operation." (Tr. 17172-73.)

:&
7

T. J. Watson, Jr., testified:

8

"We had- some very sophisticated customers by this time,
Lockheed, Boeing and others, who felt that they were better at
performing some of these services than we were.' They felt it
onerous to pay for them when they, themse,l ves, could do it in
their opinion better." (Tr. 16602.)

~

10

11

Another reason for IBM's announcing unbundling in 1969 was

tzi that, by that time, the notion of charging for software and services

!

!3,! had become relatively accepted because of the entry and success of
!
(See below, pp. 851-65. ) That had not always been
l4-: software houses.
I
I

IS: true, however. From the early days of the computer industry up until

15

I

the late 1960s software was generally looked upon as something other

:1

17 :1 than property that could be appropriately charged for.
18

'f longest time, computer programs were looked upon as an intellectual
:i
:1

product, but not necessarily having proprietary value."

i,

17361~62;

19
.,
.. ;1

za'l
"
.....

see also OX 1096, pp. 1-2.)

~

(See Welke, Tr. 17093-95, 19180-

.r

-l82.)

ZS ;,

Z:

This led many people to believe

:1

" " ,!

2:1

(Welke, Tr.

:t that in fact most users were not willing to accept the notion of
Jsoftware as a "product" in the 1960s.

"".,

"For the

This view was both illustrated and' reinforced by the free

,!interchange of software that was characteristic of this period.

(See

!

!below, pp.856-58.)

But, during the 1960s software houses began to

l

'\ charge for soft"tlare products that competed \-li th IBM's unpriced offerings
I

"l

I

.,

.\
"

II
i

:/
:1
.. !

-465-

and by 1969

If

[t] he industry bad

develo~ to

a txJ:int where many of those

services were available, sepaJ;'ately, and outside."
16601; PX 3351, p., 3; see pp. 858-59- below.) *
I

.

believe that, for the first time"

,I

I

!

_As a result, IBM began, to

there might be business opportunities

in selling software and s~rvices' separately.

I-

(Watson, Tr.

(E.g., PX 3351,. p.

3-.>

Under such circumstances, it was pos,sible for IBM to stop offering

~f

such services, which, it was finding "onerous", under the bundled system.

'J

a IBM's Chairman testified that it "seemed like an appropriate time,

i

from a business standpoint of view, to open the matter up in the way
that we did".

(Watson, Tr. 16602.)

Not surprisingly, customer reaction to IBM's unbundling
i

,: announcement varied. Some relatively more sophisticated customers
.. iJ
~

L1

welcomed unbundling; others, generally the relatively unsophisticated,

~l

were less happy.

"The initial reaction was--it varied. Some people were
very happy with it. A good number of them that I came in contact with were anything from hostile to total disbelief as well •

• 'f

; ;1

'.

"

.

..

. .

I think it depended on the sophistication of the user.
The more sophisticated users, and the ones who had the bestrun or the best-managed shops, for the most part were ready to
accept the idea of unbundling, because I think they saw in it
a chance to be more cost effective in their entire data processing operation •
If

) ;1

:1

; :l';

1

., :t

.. :\:\
2.

Welke testified:

4

~

2 -; ----------------------------* One of the reasons for this was that industry practices had emergedl

1

3 ,\which gave sellers some assurance of protection of proprietary program- I

I

ming from plagiarism.
(Welke, Tr. 19211-13.) Welke testified that
" "many sellers" of software at one point, and "to a very limited degree"
:! still, feared that their software would be plagiarized because of the
:5 i ease with which programming can be copied and the inadequate protection
,~

I

I

'i
:1
:1
i

-\

:\I

-466-

"The ones who didn't want the unbundling or who were
against the idea I think in some cases were also the ones that
were getting, . . . more than their normal share of IBM's
suppo,rt and' systems engineering and programming as well."
(Tr .. 17172-73.)

Li

I

Zi,
,
i

3" ;

4.i.I

. '1 '1 y:
S~nu.ar

[0] ser's, even in. 19-69, whe·ri they hea·rd about unbundling,
were· reluctan.t to accept it· or were hesitant and in some cases
even hostile to the idea. At that point in time users were
beginning to get a pretty good idea of what some of their cost
elements were and the. mO're sophisticated, more advanced
users had a way of breakinq out ~ost. elements in thei ~ total
computer operation, identifying them, and controlling them.
II

a :1
7li

atif

"But for a lot of users, there were still many, many
unknowns in their data processing operation, things that they
didn't know could happen, they had no way of anticipating, and
I think they wanted the assurance that bundling, in effect,
offered them, that one way or another, if and when the unknown
occurred, they'd be covered. It was an insurance policy in
many respects.
(Welke, Tr. 19226.)

9-

la. :
!
II i

-

II

l.,

1.3

As might be expected, reactions of other manufacturers varied
i
I

also.

Bundling had been a practice desired by users.

14-;

-467-

Users' needs

Spangle. of Honeywell testified that Honeywell did not

1

2 f"ollow IBM's lead for a number of reasons.

It was not set up adminis-

3 trativeJ.y to charge for the separate items and e·nforce their collectio
4· throughout the fie·ld; i.t was' not certain of the contractual arrange-

.

5

ents it had with its existi.ng customers; finally, Honeywell "hoped to.

6 gain some temporaxy market advantage . • . because we thought there
7 would be quite a bit of res·istance to this change by the customers and
8 prospects, and tha·t because. of' that we might be able to get some

9 Icustomers that we otherwise would not have been able to get".

(Tr.

10 5086-87; see also Withington, Tr. 56186-87.)
Univac had similar reasons for not unbundling when IBM did.

il

12 I McDonald testified:
13
14

15

il
II
Ii

II

Ii

16 /I
17 II!-

18

II
I,

"
11

19

i:
i!

20 I'I;
21

"Actually, we felt that there would be considerable
anxiety in the marketplace as the result of IBM's decision and
announcement to unbundle, and we felt it would be to our
competitive advantage to maintain our previous pricing policy
so that we could go to the customers, potential customers of
IBM, and say to them that we would offer you these services
which we have in the past under the same pricing policy, and
you know what you will be getting from us, and under the IBM
unbundled pricing policy, only time will tell what your real
prices will be; and I think this was effective, at least for a
period of time.

I~

Ii
II

22/;

"
"[W]e did see some increase in bookings over what we
expected our bookings would have been had IBM not changed their
policy . • . which we attributed to IBM's unbundling."
(Tr.
2896-97.)

Similarly, McCollister of RCA "recommended that RCA

Ii

23 !:should continue in the business by continuing to offer bundled
I:
24 Ij services" . He felt th.:s to be "to the benefit of RCA in its
!.

25 '

;;relationship with its users . . . • [G]iving assistance to the user
I,
! as required could lead to and usually did to a more effective use
-468-

of that equipment by the user and gave RCA, therefore, a stronger
%,l

installation and to the extent that the eq.uipment was on rent,

~

insured more completely a continuation of the rental income."

4-

brought in more money than unbundling.

~

It

Further," I felt. this had been

I· a sound business pol.icy f.or the IBM company for a long time and just
I

j

a;,

because IBM • • • decided that they would change, I did not see at

7 \i that time. tha.t this was a reason for the RCA company to change and do

S \ differently".
g;

ItI believe the customers preferred the method which RCA

had been following and which RCA el.ected to continue."

10 :

(Tr. 11206-09.)

NCR went some distance in the direction of unbundling.

;

ll:! On October 1, 1969, it stated its belief "that each user of its
!2.if computer systems must be provided with a certain essential amount

J

13

il

11

l~:

of software, systems support, and educational services if he is to
successfully install the system and begin to benefit from his

l!: investment.

NCR believes that this basic package of supporting

I

16

II

services must be the responsibility of the equipment manufacturer."

11 \1 (DX 346, p. 1, emphasis in original.)
13
•

*

NCR recognized that there

J:i

;i - - - - - - - - - * NCR expressed the view in its 1969 report to stockholders ~~at,
19 :I
ZO:
"The deluge of new concepts and new equipment which has
·1
I
flooded
the information processing industry in recent years
.,.or :i
points up dramatically the need for ever-greater customer support.
~

-

"

"Indeed, the growth of the industry will continue to depend
in large measure upon its ability, through supporting services,
to adapt these new concepts and equipment to the requirements
of different organizations. Thus, during the 19705 increasing
funds and effort will be devoted toward broadening the spectrum
of customer assistance."
(OX 367, pp. 19-20.)
-469-

I
I

!I
!

.' would be considerable variance in the level of support required by
t

t :

different customers and stated that "it will continue to be NCR's

t

policy to provide, as part of the basic hardware price, that amount

·

1

I

I

r

~;

of software and support which will realistically insure that a

j-

i,, prudent user will be able to install and successfully utilize his
}

i

II

NCR computer system".

r il

a

An allowance, based on the size of the

system amounting to "approximate;Ly 30 man-days of support for each

I

$1,000 of monthly rental" was to be provided with support above

i

that level billed separately.

i

The same principle was to apply to

J! educational support and software "including both applied programs
l

l! and computer languages".

(Hangen, Tr. 10721-24; OX 346.)

On January 1, 1970, however, NCR announced a change in

2,iI

II its policy stating:

l ;1

"After further evaluation, it has been decided not to
price all basic and applied software and not to establish an
allowance against which such chargeable software would be
applied. The NCR software pricing plan will be to continue to
establish pricing for software products on a selective basis,
considering the value to the customer, uniqueness, and other
factors."
(DX 386, p. 2, emphasis in original.)

.~\

...=,i
.6 :1

.7 :l;\

I

There was much less disagreement in 1969 and 1970 on the

,S :!J
~

:iauestion of whether or not operating systems or systems control

.9 :l;\ -

, 'I programming should be unbundled.*
.-

."

....

gramming, stating:

I

" 1';

,.,

IBM did not unbundle such pro-

~II

"System control programming is an essential part

.

.j

!,

.~

- :t--------------------.._ 'I
~

I

2~

* By the early 1970s only CDC had unbundled its operating system.
; (Norris, Tr. 5647; Goetz, Tr. 17530.)
,

'i

i
!
I

I
I

"

!

-470-

!I

L !:,' of a data processing system.

z;

It is fundamental to the operation and

maintenance of the system and will be made available as part of th.e

I

3. : system .. "

(PX 3351, p. 4; see also PX 2454, p. 1; PX 3352, p. 5.)

I

~l·

The fact that operating systems were essential was widely

I

I',
6;,

!'

reCOgnized.\

I

Enfield testified that he did not "see how" a supplier of

I

computer systems could market its equipment without making available

I

7;1 some form of an operating system, at least following the introduction
S

of System/360, by either producing the operating system itself or

g:.

arranging for it from some external source.

lO

~

Welke testified to the same effect.

(Tr.

(Tr. 19223.)

2~740-4l,

21074.)

Dr. Perlis of Yale

i

11:I

testified that
"operating systems are • • .. indigenous to all major computers
at the present time. They managethe computer resources and
they really could be part of the hardware except that their
functions are not well enough understood at the present time
to make it economically feasible to put it into hardware".
(Tr. 1344.)

r.:. :

·J. s

According to Perlis, operating systems are "crucial to the

I
~I

successful operation of almost every computer around today".

;.

17 :1 (Tr. 1348.)

As a' result, operating systems are "typically" designed

ls;l for a particular fit
:l
19 J depend very strongly

with a particular computer, because "(t]hey
on the particular resources and the way those

'I

2oOi, resources are organized in a particular machine, and they do this
:1

." 'I, so that they can achieve the most efficient operation possible • • .
--

.j

Z2:; to take maximum advantage of the idiosyncrasies of the hardware" .
.-_ ;l
~

I (Perlis,

..
Z•

Ii
I

!

Tr. 1986.)

Thus, Withington testified that hardware and

software "are now necessarily designed as one, designed to execute

25 '\ from the same architecture".

(Tr. 55919-20; see also DX 491, p. 5.)

I

\

.\
t

I
"

::

"
'I

!

-471-

Renc'e, separate pricing of operating systems would require "arbitrary
allocations".,

(Withington, Tr. 56798.)

Indeed, Withington wrote in

June 1969, shortly befo're IBM.' s June 23 unbundling announcement, that
I

"': systems software was tr'es:sential to the operation of modern computers

I' and is designed contemporaneously with the machines.

It is not

\\ possible to separate its development costs from those of the computers

themselves, nor is it possible for the machine to operate without some

;1

version of the' o,perating system".

,I

He concluded' that this was a

"complex area" ,and that It-basic skeletons of the operating systems""
were, at that time, "likely 1;0 be provided free with every machine

...

i
i

~

~

because there is no rational way to separate them".

; p. 11.)

n

, ~r
~

Ray Macdonald of Burroughs testified:

,

~l

n[W]e had extensive discussions on systems, software, and I
believe that our conclusion after some experimentation, and
quite a bit of back and forth debate, was that the systems
software that I have described is in fact an inseparable
part of the system for the average user.

~ :1
:

I

, :\
:1

i ~,

· :(
,

~I

)

:j

r

. :\
t :1

"Now there may be the very unusual user which represents
an extremely small portion of the total market who may • • •
have the sophistication to consider a different mix or different system software for his own purposes, but first of all, I
think this is a very, very small portion of the total market,
and certainly not suitable for the vast majority of the market."
(Tr. 6977-78.)

J :1
!.

(PX 4834,

i
;1

Thus, as the 1960s ended IBM had embarked on a course of

} separately pricing certain of its software and services. As we shall
Z. :•
• lsee, IBM continued on this course during the 1970s, separately pricing

~

~

1increasing

amounts of its software and services in response to rapidly

~

:!changing market requirements and technological advance.

:I
I

'\

I

:i

!
:1

-472-

!i

L:

40.

Sperry Rand/Univac.

Although Sperry Rand's Univac Divi-

!

Z i sion entered the second half of the 1960s lagging substantially behind
!

I

1;

the indus-try leaders in the are'as of product compatibility and storage

I
I

4.1: technology,

it was able., by the end of the decade., to reestablis,h
logging substantial gains in revenues,

a.

a ; state

Univac's Problems in 1964.

of some disarray_

Univac, in 1964, was in a

It was in the midst of a succession of

9: j presidents (Eckert, Tr. 1008-13; McDonald, Tr. 3785-88) * and was "still

suffering" from the "great drawback" of its "inability to assemble

i

10 .

a smoothly working, reasonably permanent management team".

11

p. 20.)

1

12. Ir
~

!3;

(PX 4829,

Additionally, despite the suggestion of Dr. Eckert**

that Univac, like IBM', should concentrate on a single product line

(OX 10; Eckert, Tr. 1014-17), Univac had manufactured and was still
14. :._: marketing several incompatible product lines (represented in 1964 by
I

I

~
~Q

!t the 490, the Univac III and the 1107), each requiring different softI

~_ :tware.
./

Moreover, Univac had failed to provide successors to its

:1

lS JObsolete products.

(See PX 4829, p. 20; OX 8, pp. 1-2; OX 10; OX 14,

'\ p. 1.)
19

,~

20

'I

In 1964, "after it had become apparent to the rest of the

I

'I

,I

.~,I

industry that magnetic disks were superior", Sperry was still marketing

Z!.:!

.

:l its FASTRAND drum instead of quickly proceeding with disk development,

~ ,t
!

* R. E. McDonald was President of the Univac Division from 1966

z! '\ to 1971. (McDonald, Tr. 2769, 2776-78.)
~=! ** J. P. Eckert was a Vice President of
~

the Univac Division and

-- I technical advisor to the President of Sperry Rand at the time of his
:!testimony,' having held that position from "about 1960".
:j Tr. 710.)
:l
'i

-473-

(Eckert,

.:

a de'lay which had a substantial adverse effect on the marketing of its

,.... i!'

computer systems.

i

t:

(Withington, Tr. 56455, 56485-87.)

Consequently,

Univac wa·s compelled to purchase disks from other suppliers "for' a

I

$.\'.

while w·.*,

(W·ithinqton., Tr. SQ2043-44.)

Univac:i.s f.inancial results during the first half of the
decade were not particularly encouraging.

In 1962, the corporation

had found that "the ra·te of technological obsolescence" required it
3 ~ to write' down the value of its older EDP equipment by more than $50

million, and to accelerate the depreciation of its newer models.
(DX 69', p. 3.)

In 1964, Univac was "losing money" (McDonald, Tr. 3813)

and experiencing a relatively slow rate of revenue growth.

(14.8%

compound growth rate from 1960-64 compared to 27.4% from 1956 to

-

1960. )

~;

..

(See DX 8224, p. 624.)

\

Notwithstanding its limited success, Sperry reported to its

~;
~

shareho.lders in its 1965 Annual Report:
.6 a

.7 II:\

.s

· fii

19

.!

I1Data processing is a dynamic industry, having great growth
potential. It has established a place in the world's economy
that is essential and will continue to grow. Such dependence
upon any industry in the past has not only led to growth but
also profitability. Therefore, we have determined that we will
remain in and grow with the data processing business." (OX 13983,
p. 6.)

,o1------ I

* IBM employees reported, in 1968, that suppliers of disk drives
to Univac included Vermont Research, Bryant, Data Disc and Memorex.
:t (PX 2267B, p~27.)
Univac continued to purchase disk drives from
Z2 'tMemorex through 1970 (Guzy, Tr. 33170-71), and from CalComp through
_ .} 1973. (PX 5584, p. 16.) It also purchased disk drives from Peripheral
~ 'j Systems Corp. in 1969.
(OX 1302, p. 1.)
U

.i

:1

., A

j

,~

Ii

.-. 1

-- ,I

.\
"

·i

"

II

:1
i

!

-474-

1 '

According to McDonald., during the period from 1963 to 1971

Z : Univac concentrated its marketing efforts on the Federal government and

l

airline res,erva·tions users.

(Tr. 2890-91.)

The Federal government was

4;..I·a very' important eu·stomer for U.nivac in. the 19;60s, as it was fO'r most

5: i' of the industry; Spe1:"ry reported that in the fiscal year which ended
,
March 31, 1964, for example, the Navy had o·rdered four 490 systems for

a:
7

11~Jwor

Id -Wl.. d e ~nventory'
.
.
Corps h a d or d ere d tree
h
.
contr.o 1 , t h e M·arJ.ne
Unl.vac

a ilIII

systems for similar applications and the Air Force had "ordered more

ithan 150 UNIVAC lOSO-II systems, as well as three UNIVAC 1107's for

g.~

10 ! logistic control purposes".
U

Ialone was,

The Air Force order

as Wi thington noted, "large enough to cause a bulge in ship-

ment statistics".

!.2.

(OX 13913, p. 16.)

(PX 4·830, p. 22.)

During the 19605 Univac claimed

i "a complete
array of computers" for the military. In its 1964 Annual'
13'
i
'Report, Sperry Rand contended that "no other company in the industry
T a. .
-. I
I [could] match this range".
(OX 13913, p. 12.)
Several computer systems
,,
~ :Iwere offered by Sperry Rand to satisfy shipboard, airborne, van-mounted
lc !I
17 :Iand aerospace military and space requirements.* Univac was the prime

.--

',supplier of the militarized AN/UYK-5

&

7** which were the standard

1$ .

• :tmilspec computers for the U. S. Navy.
19 ;11;______________________

za '
·1

*

Univac also had a broad range of

Sperry Rand also had large commitments to the space program.

11 ::For example, eleven Univac 1218 systems were to be delivered in 1964 to
.jNASA tracking sites to assist in tracking the Gemini Capsule. A Univac
,., ;1218 was selected for the "mobile-wing, l-imi ted-warfare intelligence
-lcomplex".
(DX 13913, o. 12.)
:\
.
Z3
! ** The AN/UYK 7, a chird-generation computer, used a general
2~ \purpose software package called Gipsy, developed by the Naval Electro!nics Laboratory in San Diego. Gipsy provided the capabilities of a
25 master control and data base handling program with a maximum degree
bf hardware independence. (OX 5117, p. 1.)
I

'1r

.1
i

"

I

:\,

-475-

\

I

computers oriented to Navy milspec requirements which were in popular
~ ~

use aboard. Navy vessels, performing a wide variety of applications.
For example,. the Naval Ta.ctical Data System (NTDS) application aboard·
the U. S. S. Enterprise had a Univac USQ20 (1206) as their central

~
I

f;1
i il

were used on Navy vessels to process maintenance records, supply and

; \1

accounting· applications.

! l

Sperry Rand laOS systems (AN/UYK-5 [V]) for their field van.-mounted

~.

applications •.. Van-mounted 1005s were also used by the Army in their

(OX ~9, pp. 12-14.)

computers.

PEBMACAPS

l:

11

In addition, the AN/UYK-S computers

(DX 5123, p. 3.)

The Marine Corps used the

and DLOGS systems in Germany, Vietnam, Korea and around the

United States.

(OX 5410, Fullerton, pp. 36-37.)

Missile Range (WSMR) in New Mexico

the

At the White Sands

Sperry Rand 1218* was used for

a variety of applications including: missile guidance and tracking,
~;

data reduction and analysis, simulation, communications, logistics

i

_

management, and satellite tracking.

::1

,768.0-.4.)

_:{ and tracking.

(Plaintiff's Admissions, Set II,

The Univac 1108 at WSMR was also used for missile guidanc1

(!!h.,"

7 4 8 • 2 -. 4 • )

-

.J ;,

.3 ,[

:i

The Naval Electronics Laboratory in San Diego acquired:
1 IBM 360/65; 1 CDC 8090; 1 Sperry Rand 1230 i 5 Sperry Rand USQ20s

.9 il
\ (CP 642A/B); and 1 Sperry Rand AN/UYK-7 (CP 890.)
~

I'

'!

(!!h.,

~f 702.0.)

!

As

.: of 1974, applications of a general data processing nature previously.
-1
:- 'i
~ processed on the Univac CP-667, USQ-17 and U5Q-20 computers were to
I

,., ;

-,I

be transferred to the IBM System/360 Model 65 along with those that

~ 'I

~~

zs

J had been run on the two CDC 16045.

(Id., 1r 702 .15 • )

i

'I
.1

'* The militarized 1218 and the commercial UNIVAC 418 are identical
in design and the mainframes do not ~Tary at all.
(DX 9088.)

.,I

i
I

·1!

-476-

I
!

i

II
I

!

I

L

The

Department of Navy reported the use of Spe·rry Rand

2

AN/USQ-20s, AN/UYK-5s, Sperry Rand 1219s, and a Sperry Rand AN/USQ-17

I

for the Navy Management Information System for Education and Training.

4--' (OX 2992, pp. 592-93, 1123.)

In the 'area of airline· reservations, British European

I.

=1
I

~ I

Airways ordered a 490 in 1964

a it

7

mercia1 computer contract ever awarded", a $39 million contract from
United Airlines, "to design and build a computerized information system

9-

that [would] handle United's needs through 1975".

10

tz

13913, p. 13); two years later, in

fiscal 1966, Univac reported that it had been awarded the "biggest com-

jJ

aI

II

(OX

(DX

61, p •. 9.>

As

it turned out, Univac was unsuccessful in its bid to meet United's
i

requirements, and the effort was "aborted" in 1970, with United

i

i

if
T~ :

Airlines moving to an IBM system. *.

~!.

(OINei1l, Tr. 76015-17, 76231-32.)

i

b. The 1108. The United Airlines system was to have been
14- ;
I "based on Univac's 1108 IS" •
(0' Neill, Tr. 76231.)
This computer,
15'
l introduced in 1964 (DX 13983, p. 14), was compatible with the thin16 a
11 film 1107, and was intended for Oni vac I S " large-scale users". (OX

il

:( 14, p. 1. )

Withington viewed the '1108 as "technically impress i ve

If ,

18 :
..

11

19

'j

claiming that its "very fast control memory" marked "the first significant appearance of integrated circuits in commercial computers

;t

ZO :;
'I

Zl

Z2.

"

'I

(PX 4829, p. 20.)

The 1108-II, a "time-shared version" of the

:f

.t

~;~

---------------------

•
"The reason that United decided to terminate that activity was
Z3 '. that they concluded that the system being developed [for] United at
t Univac would not accommodate their projected volume.
They subsequently
Z~ 'f installed IBM 360/65s, and later installed IBM 195s for their
j passenger service system. II
(0 I Neill, Tr. 76016-17.)
~\

*

zst
I

:\

J

;j

,

:1

:\
:1

-477-

.

:

~

I delivered in volume

1108 was introduced in 1965.

r: ll08

unti~

(PX 4830, p •. 22.)

late 1966.

"accountQd: for about half the

The 1108 was not

(PX 4832, p. 18.) By 1967, the

va~'ue

of. Sperry Rand's shipments".

i

~\

(PX·

4·83'3, p. 1 T .. )

r I'

Univ-alc" continued to develop and extend its

1~08

system

I

! and related machines through the late 1960s. Univac, in fisc'al 1969',
ii
r \1 announced th.e 1106; II a smal~er, compatible version of the 1108 system".

il

5i

(DX

32.71-, p.' 5.• )

In 1967', Univac entered "the data services field with

a service bureau ne:twork C)·f 1108' s directly connected to small compute·r

i-

. on users' premises

I • •_

J

(PX

4833, p. 17.)

univac l1.08s were employed in a wide variety of commercial

l;

contexts.

2.\

Univac 1108

3- i
A;.i

The 1968 Sperry Annual Report showed a 'picture of the
trains for the French National Railway.

schedu~ing

;

(DX 13914, p. 5.)

In addition to United's reservation system, Fuji

I

I Bank Ltd., Tokyo, in 1969 inaugurated a nationwide on-line banking

5
.S-

,7

\
1
:1

system using an 1108, according to the Sperry Rand 1969 Annual

:1

II

,S ''!I.f

Report (OX 3271, p. 7)

i

and the Sun Oil Company ordered an 1108

system in 1968 for use in processing business and scientific problems

(DX 13914, p. 16), to name but a few examples.
:1
.9 :i;r
noted in its 1970 report:
:1
~\
"

~i

~I

J

~;!

,_ ;1
~I

As Sperry management

H • • • The Univac large-scale computer systems-especially the 1100 series--are acknowledged to be the most
versatile processors available. The UNrJAC 1108 and 1106
systems, in addition to having unparalleled capability for
scientific and engineering applications, have gained wide
acceptance among commercial/industrial users for business

-478-

I.l

data p.r.ocessing and communications tasks."

2 !

(OX 13915, p. 5.)

*

In March 1·969, Sperry Rand management reported that" the

3.

aa.ckloq· for

crn~vac-

level.

llOS computer systems continues at a high

It provides·. the Company with an entree into the

r

I

.

.

:- j. ma·rket for management information· systems because of the computer's
I

I

:. co'mmunications and multiprocessing capabilities in both business
#11

I

7 il and scientific ap.plications·t-.

il

a;

(OX 3271, p.

5.)

Development of the 1108 was not without its problems,

i

however; the

1~08

operating system, EXEC-VIII, had "major problems

in its initial stages".

(J~

Jones, Tr. 79631; PX 4834, p. 25.)

These

II ; problems, similar to those encountered by other manufacturers with
!:

!Z.' complex operating systems during the 1960s (see Perlis, Tr. 2002-03;

13

Weil, Tr. 7217-19; McCollister, Tr. 9694-97; Rooney, Tr. 12132-36,

t~:

12349-50; Conrad, Tr. 14088-89; Withington, Tr. 56727-31), came
relatively later for Sperry Rand "because it was not attempting to

._ i
~;

I

15 :Loffer systems programs as complex and advanced as the other competitors
i

;.7

J were".
~I

ni'ithington, Tr. 56736.)

During the late 1960s, Univac failed·

lS :tto deliver operating systems which completely met their advertised
:1

19·

:1

;i - - - - - - - - - - -

J

*

NASA's Marshall Space Flight Center (MSFC) Computation Laboratory

za .; utilized ll08s to perform both "scientific data processing(,t and
.j "administrative data processing".
(Plaintiff's Admissions, Set IV,
Zl .\ ,r· 386.0.) The Slidell Computer Complex at Marshall also used two

JlI08 systems for rocket stage design work, scientific applications
'~and "some administrative data processing"..
(Plaintiff's Admissions,
;lset IV, 'f~r 390.0,392.0,394.1,401.0.)
Five Univac 1108s were
2.3 i installed at the v-lhite Sands Missile Range (WSMR), utilized by the
lArmy, Navy, and Air Force:
two of the 1108s are employed in real24 :itime missile performance computations; two others provide back-up,
,!batch processing of test data and remote time-sharing ability; and
15 .\ the fifth is used for batch processing of classified' data.
(Plain!tiff's Admissions, Set II, ~f~f 746.4, 748.0-.7.)

Z2

:r

I

:[

i

-479-

I

·: capabilities and, indeed, EXEC-VIII was delayed at least two or three
I

years, not meeting its. adve-rtised capabilities until sometime in the

~!

early 1970s. 1r
c.

(PerIis, Tr. 2003; W:ithington, Tr. 56737.)
The- Product Line T'a:sk Perce.

The· 110,8, though succes:sful,

t i was not an answer to Univac's: need fO'r a compatible product line.-

As

i

i;I

we have seen, it was announced at approximately the same time that

i

r \1 Eckert, in his

t;

for unification of Univac's diss·imilar product lines.

President from July 1964 to early 1966 (OX 13983, p. 6; DX 61,
!

i
i

pp. 2-3), set up a Product Line Task Force to review Univac products'

l~

and to help him make decisions about their future.

, II

..

In 1965, in

the wake of IBM's System/3.60 announcement, Frank Forster, Univac's

~

J

c'apac'ity as head of the Gemini Committee, was calling

3804-05; see also

\

;

~'

DX

(McDonald, Tr.

13.)

The task force, in February 1965, reported that it believed

..

...-

that Univac's manufacturing costs were higher than those of IBM, and
:

!
5 a that:

7 :1

s

:1

-!

il

:1

.9 ;i
~c

:l

"IBM's heavy investment in product research is beginning
to bear fruit. Its developments in circuits, microprogramming
techniques, memories, and mass storage suggest that for the
first time in the short history of the industry, IBM has
acquired a definite technological leadership; this, together
with our cost situation, may leave us little to sell .
(DX 15, p. 2.)

.l

~l

In its next report, issued in March 1965, the task force observed that

~I

~

~.,

;~

-

.j

both Honeywell and RCA had committed themselves to the production of
integrated computer families (the Honeywell 200 series and RCA's

~I

...'4 :\
I,'

,=

---------------------

* As a result of the delay in developing EXEC-VIII, NASA, for

i example, was able to renegotiate its contract with Univac to

.- I include

the grant of free computer time as a "slippage" penalty .
.l (DX 5654, pp. 114-15, -231-32.)
.,.\,
I

:1

1

:\
:;'1

-480-

I
.I
I
I
I!
I

I

I

!

;

!!

I'

II
,
I

L \ Spectra 70 line} in the "tailwind created by • • • IBM".
i

Zi
!

p.2.)

i

11

!.
I

_I,

.

report quoted the' editor of Datamation:

"mtIVAC. is the. biq question mark • • • eve·ry month until a
new line is' announced weakens· their chances of success· • •
and it 1 's nat c~ear they'll. offer a complete line at all.
Anything' le:s·s. could· relegate them' to the second. division. rt
(Feb •. ,. 19:C'5, p. '8:&.)

:"1I

I
-

The.

(DX 16,

(~)

None·theless, the task force was unsure whether Univac should try

I

~!
I

7

to match IBM's' 360' or take some other action.

\1

Specifically, it

I
I

I

expressed the concern

S\
i
g;t

"'thai: the RCA and Honeywell moves, although based on clever
sales stra.tegies, may not make such good sense financially.

I
1Q ;
.. I

Bo·th are based on the assumption that now that IBM has made
its· move·, the pace· of obsolescence will slow down, and longer
writeoffs will be possible than in the past. It is our
opinion that in about five years this assumption will prove to
be catastrophic to anyone who bases his product line on it.1I

U;
tZ.![

13

~f·
I

(!S..:.)

Ultimately, Univac decided not to introduce a full
spectrum product line but to introduce only three machines, called

r:;
-

models A, B and C.

I

I

In consonance with its "concern" abou·t future

[I

16 ;' technological developments rendering obsolete an entire product

11

line, the task force called for accelerating development of the

!!

La i!model at the low end of the line, the model A, which was to be a

19

a
\t

360-compatible processor targeted between the 360/20 and 360/30, to

'J

take advantage of the "large and barely exploited market for a Iowa
Zl :!priced scientific computer". (Id., pp. 2-3.) The task force

20

:1

.~

Zl :!observed, however, that:
·t
.... _ J
~'t

2~

I
i

.,

\
Z5 :\
'i
I
II
I
;1

I
':\!

'I

.!

"The announcement of Model A will have an effect on
the whole product line, all the way up to the 1108A. Regardless of what is claimed, the fact that model A contains the
360 repertoire will tell the world that our other products
may be dead ends". (Id., p. 5.)
-481-

~

.

.. :

d.

~I

The 9-000. Series.

The task force had been convened

~: to consider Univac's p~oduct strategy nearly three. years after
i

i

IBM's SPREAD Committee report; its reports appeared near-ly a year

1

4

$a j.

after the announcement of S.ystem/360.

~lI

finally announced its third generation compatible computer family,

!;I

the

7 11

A,

(OX 16, p. 1. )

Univac

I

il

9000

B and

serie·s (corresponding to the previously mentioned models
C)

in the· spring of 19·66.

Called a "line of small and

:5! medium-sized computer systems", Univac's initial offering included
!
!

9-! "the 9200, a low-cost, internally progranuned punch-card system, and
;

a
1

i~

the 9300, a high-performance card and tape system".

(OX 70, p. 9.)

i

I While the 9000 "aimed at compatibility" with IBM's 360 (Eckert, Tr.
!

2;

908), it was not truly compatible:

I

:1

n[A] new line, compatible with IBM 360 coding . • • would have
probably solved the problem. While the 9200, 9300 and 9400
are IBM like i~ their order code, they are not enough alike
to do us any real good. We have had loads of people prove
to us why we can't be IBM compatible and very little real
effort to be IBM compatible, either in our software or our
hardware efforts."
(DX 10, p. li see also McDonald, Tr .
3803-04.)

3;

Sit
.0 ~l

:i

.7 :,'I

.S :1
;1

.1

The 9000 series was upward but not downward compatible
among the three models .

Thus, "if a person had programmed something

.•Q ·1.,; for some of these smaller machines he could use it in one of the
!
~O .1 larger machines but not the other way around."
~,

(Eckert, Tr. 906-

.i

I

-

; 07.) It also was not compatible with the 1100 series.

{Eckert, Tr.

~I

"? .'
~ .!
"

.._ I
~i

,

.. .i

,~ I

908.)

The third machine of the line, the Model 9400, was first
announced in January 1968 (DX 13914, p. 6), and delivered in 1970

-. 'j
'-=

I "from factories in the Uni tee. States, t'lest Germany and Japan".
!

-482-

(DX

1.;

3271, p. 7.)

The 9000 series was intended to "enable smaller

1

2.!

companies to benefit from the advantages of computer power. .

l"

Typical customers _[were] a savings and loan .association in Kansas

City, an a:viatio'n company in California and a-

4.

whoJ.esa.~e

grocer near

I

I'
a-il

5.

Philadelphia."

(DX 13914, p. 16.)

I

Univae both manufactured its own peripherals and purchased

7 \i periphe:r-a.ls from others, remarketinq them as part of its computer

a

systems • *

9

its peripheral devices which in turn were remarketed as part of

10

For a short period ,- it marketed to other manufacturers

other- systems.-

~

(McDonald,. Tr. 4053-55.)

I

Further, its own products

11 I were used as part of systems in another way.
!

!Z

example, were sometimes used as terminals to other manufacturers'

I

!,

ui:.I· sys terns •
l4--

As a 1970

"They are widely used as either central site systems or
terminal systems. As terminals they may be upgraded, without
reprogramming, in low-cost steps to grow with your processing
needs.
(DX 13939, p. 176.)

u

J.:I

11

(McDonald, Tr. 3969; Withington, Tr. 56981.)

Univac advertisement said:

~

lSiI
I
~5

The 9000 series, for

It

it

In addition to acquiring peripherals from other manu-

13 :1 facturers, Univac contracted with software houses to have work done
lS

;t
j when it did not have sufficient in-house capability to meet its
I

2D -\ requirements and did not wish to expand internally to meet a peak

-

I

.,., ,I
,
'f

i

'I

?~ :\ ----------------------

-- ~,1i
* For example, Univac purchased tape drives from Ampex (Ashbridge,
23 jTr. 34851) and disk drives from Memorex, Calcomp and Peripheral Systems.
! (Guzy, Tr. 33170-71; PX 5584, p. 16; OX 1302, p. 1.)
In 1968, IBM
2~ 'iemployees reported that Univac also purchased disk drives from Vermont
I Re-search, Bryant and Data Disc and tape drives from Potter Instruments
15 '\ and OKI.
(PX 2267B, p. 27.)
,
.

~

i
:1
,
I

:\

:\

!

-483-

11

!I
I
I

load.

(Eckert, Tr. 915-16.)

McDonald teztified that Univac purchased

;: "software assistance from the Computer Sciences Corporation and also
- from Univers:ity Computer Company"-.

(Tr. 4024.)

Univac- both le·ased and- sold its EDP equipment.

McDonald

F ! wrote in 1~67 that:.
I

i

ii,',

"(a]pprox.ima.tely 50 per cent of the Division's products are
sold outright with the remainder leased by customers on a oneyear to five-year basis."
(PX 1, p. 3.)

rJ

!" :1 Univ'ac provided support services to its customers as well.
i : Tr. 2893-96.)
,

:r:

McDonald testified that Univac had to provide these

services if it "were to compete successfully", since IBM did so.

I

(Tr. 2895-96.)

f \
-

(McDonald,

However, Univac did not unbundle when IBM did in 1969,

I
I

Z.11 because:
" [W] e fe-lt that there would be considerable anxiety in the
marketplace . • . and we felt that it would be to our
competitive advantage to maintain our previous pricing
policy • • • and I think this was effective, at least for
a period of time."
(McDonald, Tr. 2896.)

3 ;

5:
l
6 ;1

McDonald testified that Univac's pricing policy between

1 :1 1963 and 1971 was ·"to provide the potential customer with a system

S :[that would perform his requirements at a price that would generally
il

.9

.

~'be
j

10 percent, as a rule of thumb, below the price offered by IBM",

:Inot taking into account the performance of associated peripheral

~crl

;,
.1

~!
~.,

devices.

.

(Tr. 2883-84; 4190-91.)

Univac attempted to set its

:i products' price/performance between IBM's products, much as RCA had
:1

- ,tdone with its Spectra series.

(McDonald, Tr. 4182-83.)

Consider-

2:31- ing that Univac's 9000 series was announced two years after Sys-

,~ 'I

25

!tem/360, Univac's pricing approach was perfectly understandable.
I

'I

IB~

was not the only competitor about which Univac was

:\
I
I

I

~I
:1

-I

-484-

L

concerned, however..

While McDonald, in 1967, identified 'teight

major hardware manufacturers" who were "[a] t the hard core of the
industry·t [IBM; Univac r CDC, RCA, GE, Honeywell, Burroughs. and NCR]
(PX 1,' Pp.-. 6,· 12;: see also McDonald, Tr. 28:04-0·6), he recogniz.ed tha.t:

"[b:] y the 19··60"s·,.there· we·re up to 50 major s.uppliers of
automat.ic computing digital a·nd analog computers and. data
processors. Over 700 organizations with some 30,000
perso·ns were engaqed in one part or anothe·r of the computer
field .• "
(PX 1, p •. 1.)

These included peri.pheral manufacturers, software suppliers., service
9 I';
lO :

centers', and leas'ing companies .•

.

i

11!

( Id., P • 12 • )

In the middle 1960s Univac management became "concerned"
about leasing companies.

Forster wrote to McDonald in 1966, stating

i

; that he had:
IZI
!
"some apprehension and also some prejudice in that I
consider them to be parasitic. . . . If computers do
not stay on re·ntal, since they have no loyal ty to any
particular equipment their manner of disposal could be
damaging. It
(DX 78.)
I

I~t·

_.
1a

!I

~

l

Univac's cOncern about the "manner of disposal" of leasing company

:ri equipment was that the leasing company would at some later time
'7 ;

~S

market it at very low prices, in effect "dumping it" on the market,

:.

:i knocking Univac's own equipment out of customer installations.

19. ;i

J

(McDonald, Tr. 4017; OX 76.)

20:.,
~'r

Univac responded to this concern .

.1

In January 1969,

:I

- 'j

management approved revisions in Univac's long-term lease plan which

...? "

' " ,!

t

... _ ,i were designed to "decrease future vulnerabilitylf to third-party
~

,

_40

I

, leasing companies and which included the adoption of step-liuwn

,I

I

i payment

15'

'i

I

plans for long-term leases and price-cutting of five-year

lease rates for Univac· s "most prof.itable systems".

'1

'\

I

~I

,I
I

!

:1
!

'I

-485-

(McDonald,

11I
I

I

• \ Tr . 3 9 88' ; 0 X 76, P • 5.)
j

t ;,

..

e. •.

;

Univac's Success in the Late 1960s.

Despite the fact

I

t

that Univac' did no·t offer a single compatible family with the

1
I

$.-\ breadth and comp'atibili.ty of ,the IBM 360, it experienced substanf

r 1-

tial growth in' itsED:P bus·iness during that time.

At the end of

1965, prior to. volume shipments of the 1108 or the announcement of
the 9000 Series, Un:i.vac·s U.S. EDP revenues were $203 million; as
of year end 1970, its U.S'.
8224, p. 62_4.)

revenues were $478 million.

(OX

McDonald es·timated in 1974 that "revenue grow·th

since' fiscal 1965 [had] been 284%, or a 16% compound annual growth

a!

t

rate--in excess of that of the computer industry as a whole".

1 :
-

EDP

I

"i!

-

Z

(McDonald, Tr. 3867-68;

~l

II

OX

71, p. 7.)

By fiscal 1969, the Univac

division had become "the largest contributor to [Sperry's] revenues

.1
i

and earnings".*

.4. i:
:

1, From at least the 1960s onward Univac offered a single worldwide

It product line.

I

.1

3271, p. 2.)

Univac's growth was not limited to the United States ..

-=,

.E

(OX

(Withington, Tr. 57602-03.)

Thus, in 1967 Univac's

it

:1 International Division conducted operations through 32 subsidiaries

is '

·L9 ~I and distributors

in Canada, Central and South America, Europe and

;i

.~ the Far East.

Sales and service offices were situated in Belgium,

roJ

:!England, France, Germany, Italy, the Netherlands, Norway, Sweden,

2!..\
:1

Z2. ;i

.

Switzerland, Australia, Brazil, Canada, Mexico, Argentina, Colombia

A-:t----~:I
Z..
A

,

:!

I
·1

151
I
.!

* Withington echoed the turn-around:
"The Univac Division became the largest single contributor to
the profits of the corporation (it seems only a short time
ago that Univac was castigated as the largest single drain
on them!)."
(PX 4834, p. 24.)
-486-

L

and Venezuela.

Z

(PX 1, p. 4;- see also McDonald, Tr. 3839-42.)

McDonald predicted in 19'67 that "overseas markets will grow at a
i

l

i"

mo,re rapid rate than that of domestic markets' . •

UNIVAC ser-

I

i

4o.L'ious~y

intends to participate in the rapidly developing European

=j, market',,, , and

"'will' rou·tinely work across' many international boundaries n'.

I

I

a: 11
i

(PX 1,

pp.

5-6.)

For 1970 Univac reported that its "international

;J business [was] growing at an even highe,r rate than the domestic

S;11
9 ;

ope.rations".

(OX' 13915, p. 7.)

Univac made gre·at strides in the last half of the 19'60s

10 \ despite its slow s.tart in undertaking a compatible family of products
I

.1

j
j

J._ ;

and its reluctance to accept disk technology.

McDonald recognized

I

, what the problem had been and what would be required to solve it:

:11
1';' :

....
I'"

-

(

:

"Planning will be a requisite to survival on the ba'sis
upon which profitable business development can be structured. . . . The combined magnitude of both opportunity
and risk superimposed upon the rapidly changing pace of
the industry will rUle out success based upon 'seat of the
pants' decision-making. The old technique of fumble and
correct errors is out. There will not be time in the
future to recover from serious mistakes without suffering
severe penalties. We, therefore, must measure daily
events against a flexible, preconceived plan of action
in order to react in a timely fashion, competitively.
Hard ,planning will be a part of daily activity. It will
not be a luxury in the future.
"This is the precise area of one of UNIVAC's greatest
past weaknesses. It is an area which has received concentrated attention since 1964 and will continue to receive
emphasis in the future."
(PX 1, p. 7.)
Finally, Univac was back on
company.

-487-

it~

way to becoming a successful

41.

General Electric.

At the time of IBM's announcement

of System/360, General Electric was (as it still is) a large corporaFrom. that time· to the end of the 1960s', it was always in the
.: top· six o,f the Fortune 50,0.

I,

. (R., Jones, Tr. 8754.)

Its· corporate-wide

~l revenue grew from $$ .. 1 b.illion in 1964 to $8.4 billion in 1969.

~ if

(OX 13667 I p •. 1; OX SS6 I n . 2.)

~t

IBM's corpOr'lte revenue in 1964 was

r-J $3.2 billion (PX 5771, p. 3) and $7.2 billion in 1969.
i

l p. 5.)

(OX 3364,

GE w·as larger than IBM throughout th.e entire period.

p. 28; OX 3364, pp. 59-60.)

(OX 556,

However, whereas most of IBM's domestic

revenue during the period 1964-1969 came from its EDP business <-see

I

1.:. OX 3811; OX 3364, pp. 47, 48, 53, 54; PX 5771, pp. 32, 36; OX 13677,

.,

z.;1

pp. 33, 37; OX 13678, pp. 33, 37; OX 13679, pp. 33, 37; OX 13680,

~~

a.; pp. 45, 46, 53, 54), virtually none of GE's did.

As the chart below

i

~~Shows,

= :1

at no time during the period 1964-1969 was GEls U. S. EDP revenue

more than 3-1/2% of its total U. S. revenue.

(See Neil, Tr. 7260.)*

.. fl

6

;1

j

:1

S

:f
.1
'I

'l
'i
* Plaintiff called four witnesses who testified about the GE
:I computer business. They were John W. Weil, who was in GE's computer
:0 .j business from 1963 through 1970, as Manager of Engineering
,S

from 1964 through 1966 and r1anager of Advanced Systems and
(Weil, Tr. 7003, 7007-08, 7072);
~ John L. Ingersoll, who was involved with GE's computer business from
:! 1967 to 1970 as a financial manager and a staff member of the Ventures
Task Force (Ingersoll, Tr. 8042-43, 8097) ~ Richard M. Bloch, who was
t Manager of the Advanced Systems Division of GE from November 1968 to
mid-1971 (R. Bloch, Tr. 7615-16, 7755, 7777) i and Reginald H. Jones,
i who held top management positions at GE beginning in 1961 and became
I Chairman of the Board in December 1972.
(R. Jones, Tr. 8752-53.)

:1

-f'T 'iI Technology Operation thereafter
~

~
~~

1
I

I
'(

-488-

'I

i
I

I

i

I

:t

I
I

.

!
I

L·,

% GE u.s.
EDP to GE
Total u.s.

GE Total
U.S.
Revenue

GE

19'64

$4011.5

$ S3.4·

1.3

1965

4952.6

66.5

1.4

1966

5698~3

99.0

1.7

1967

6129-.2

143.1

2.3

,

1968

6664.6

180.0

2. 7.

81I
,
91,

1969

6638.0

219.6

3.3

2.!

-Year

EDP
Revenue
(in millions)

l
I

~ \:
I
I

61i
7

il
II

u.s.

(PX 326. (OX 13668, pp. S, 3)~ PX 327, pp. 2, 36; PX 328, pp. 2, 23;
lO ~ OX 556, pp. 2, 18; DX 8224, p .. 6.; OX 8631, pp. 31, 37; DX 13667,. pp •.
S, 14; OX 13669, pp. 3, 4; OX 14484, p. Rl; nx 7320.)
I

111!
I

12

11
I

131
1

In 1963, computers were a part of the "industrial compo-

l~[

I nents and materials area" at GE which accounted for 28% of GE's

lSi

I revenues in 1963.

15.!,!

That area also included advanced controls for

machine tools, Le.xan plastics, silicone chemicals, component motors,

1

17 : appliance controls and lamp ballasts.

The remainder of GE's business

was derived from consumer goods (26% of revenue), including appliances,
television, and lamps, among others; heavy capital goods (24%),
including diesel electric locomotives and power generating and
transmitting equipment; and defense sales (22%), including jet
engines and missile guidance systems.

(PX 325, p. 10.)

Notwithstanding the small part played by computers in the
GE hierarchy, GE had to be considered one of the most significant of
IBM's competitors in the computer industry in the 19605 because, as

-489-

:1
~I
\1

Richard M. Bloch, who joined GE in 1968 as the Manager of the

"i
i

~:

Advanced Systems Division, testified, GE "was probably the greatest

t

electrical and electronic technical organizati.on, technically

1

~:I ori.ent.

ad .organiZation in. the world,

f,·resources".
I

i;lwrote!
7

~I

~

Similarly, in 1964 Withington

"GE's long-term potential must be considered'greater than
(PX 4829, p. 19.)

John W. Weil, who

the ,manager of enqineering for GEts Computer Department from

: 196'4 to 1966 and thereafter the Manager of GE r s Advanced Systems

a l and
1

CR. Bloch, T'r·. 76,15-17.)

that of any IBM competitOr-" •

a 11:t was

and with very strong financial

i

Technology Operation until 19·70, testified that he believed

that "GE had the resources and technological capability to become a

1
i

Z ~ major force in the computer industry".

(Weil, Tr. 7007-08, 7072, 7173.)

I

3 ; With all that technological potential and financial power, GE was
!

.4- i called the "sleeping giant".

(R. Bloch, Tr. 7788-89; PX 353, p. 43.)

I
I

But, in the computer field at least, the "sleeping giant"
.5:
!
~6 ;!never woke up_
Its efforts in computers in the 1960s ended with the

,7 (!sale of most of its computer business to Honeywell in the merger
lS Jthat created Honeywell Information Systems.
:\

:1 failed

fg ';

The story of how GE

to capitalize on its advantages and succeed is the story of

• ;ilack of corporate commitment, inadequate management and. a failure to
ZO ,1
I
Ikeep up with the demands of the. market as technology and competition
"

·1

-·1

jadvanced.

Z2. :\

23!

a.

The GE 400 Series.

During the year 1963, GE was

lmarketing the GE 100 and 210 computers for banking applications
Z.! i
\ (they were derived from the ER!If_~ machine), the 304 (lli"lder license
Z=iI

II
I

'1

"
1

I

i

!

:1

-490-

1

i

from NCR) and the 225.

(Weil, Tr. 7005-06; see above at pp.

205-07.)

t

2. ~ In Decembe·r 1963 GE announced its 400 series.

(DX 488; DX 490.)

I

3 ;- That series had evolved from work done in the Computer Department in
I

~I Phoenix in the early 19605.
i

-I
6:

(Weil, Tr. 7238-39.)

The 400 series

was called the "GE line of the future which would be compatible

::li
I

throughout".

(PX 353, p. 44.)

The 400 line was aimed at, among

:

7 il others, IBM 1401 users.

(Weil, Tr. 7031-35.)*

According to Weil,

11

8!

I

the GE 400 series (which was not compatible with the 200 series)

i

Si "was intended primarily for business data processing users, although
1Q

I

it did have some features that could support engineering and scien-

11

!

tific calculations, but strictly as a secondary objective".

I2.

i,

Tr. 701.8, 7038.)

I
,

(Weil,

~

I

However, within a few years after the announcement of

1.31
,j

14- ,: IBM's 5ystem/360, lithe distinction between a scientific computer and
I

lSi a business computer . . . had been erased".
I

(Weil, Tr. 7188-89.)

16

iI

GE was marketing the 400 for both scientific and business applica-

17

!I

tions:

"Can scientists and businessmen be happy with the same

it
18 :, computer?

Ask about a GE-400.

Many installations have proved the

'I

19

il

GE-400 can handle engineering and scientific problems as easily as

20 -If! business problems."
:1
21 ,I ness.

Z2

"So you see the GE-400's don't just mean busi-

They now offer you the broadest capabilities available today

~i

If

* GE offered a "1401 simulator [with the 400 line], a piece of
2S~., software
which • . . had some hardware assistance which permitted
I

24 :i programs from IBM 1401[s] either to be run or to be converted easily
(Weil, Tr. 7031-32.)
:1 to the 400".
.1

25 'I
;1
,I

;1

!
:1
;1
;1

ii

-491-

l~

on a medium scale information system--all the way from everyday

i
2,i

business runs to complex scientific·problems."

i

:

3'

i

(OX 489.)

The

reason for this ma.rketing chang'e was, according to Weil, that "[a] s

l

4-1' of 1967,

the [IBM.] 360 had been on the' market for three years and

i

:·1

the market in the middle rang.e . • . of computers was now much mOl:e

I

s::I homogenized between bus·ine·ss and scientific than it had been earlier,
I

7:'

and the GE' 4'00 was hence sold as much as you could to a broad market

:1

!

S·! encompassing the middle class of . • . engineering and commercial

!

9-;

la\
11

(Weil, Tr. 7263.)

"[S]o long as the scale of

problem is suitable to the machine the machine could do either

i1

121
13

applications, both."

business or scientific work.

The distinction between those two in

this class of machine had largely been erased by that time."

if
II

Tr. 7264.)
According to internal IBM reports, GE also reacted to

l~il'
T- :1

-~ II

(Weil,

IBM's 360 announcement by reducing the price of the 400 CPUs between

16 ;1 8% and 17% and the tape drives and their controllers between 14% and

17 11.,
18

27%.

(PX 2966,

p.

3.)*

The IBM Commercial Analysis Department

:t reported that "[t]he price reduction gives the GE 400 a price/
;1
II

19 J

20

·1

Z!.

;1

performance advantage over comparable System/360 configurations.
The improved price performance of the GE 400, coupled with 4-6

·1
.i

i

* See also OX 1525, p. 1 (7/29/64): "GE has not officially
reduced prices, but they are selling their 400 line at 18% off.
They have also reduced their extra shift to a 10% charge"; and
PX 320, p. 16 (6/23/64):
"The 400 line is a competitive offering
.1
today, but will require some revision if it is to remain competitive
24 .1 in the direct access market, and in the mixed business and scientific
i
environment of two years fr'om now."
"

.,.,

·i

-;1

23,
2S

:1

;
i

:I

i

1
.r
,I

-492-

1

months delivery,. demon'strahle hardware, and programming support

Z·;

makes· the GE 400 extremely competitive with IBM's 'commercial product

II

line~"

(&)

This' Conmtercial Analysis report evoked disagreement

I

~ \' within IBM as- to the effe'ct 0'£ the GE p·rice reductio·n.

:.!:i

Knaplund.

"felt that, whi~e in some applications the price reduction did

!

indeed give the GE 100 [sic] a slight advantage, basically and

-'
'!t

;1

T:I

broadl.y the reason for the competitive announcement was that our 360

a: t

put

g

stay competi.tive".. -As' a resw.tz,-oIBM' s-Presi-dent ,-A.~ L.-ti-lliams-,

1

~

under pres'sure and they had to reduce the 400 for them to

I

10: chided the President of the Data Processin.g Division, F. T. Cary,
(PX 2966,

for disseminating reports tha·t were "unduly negative".

!Z \1 pp. R-l, R-2.)

,
13:

GE initially announced four models in its 400 line of

i

!.~

"compatibles"; in fact, however, only two were ever delivered.

;

353, p. 44.)

Subsequent GE product announcements (the 600 and 100

I

16
11
lS

:t series) were not compatible with the 400 series.
:~

:I

(PX

(Id.)

In 1970,

GE cited the failure to del.iver all. the 400 models which had been

J announced,

as well as the incompatibility between 400 and 600 series

:1

19

;t computers, as yet another reason why GE developed an "image of fail (ing]
:~

I to

ZO .:

·1

follow through" in EDP.
b.

:I

(!£.:.., pp. 43-44.)

The GE 600 Series.

GE announced its 600 series in

Z!. ,t .
.1 July 1964, after the announcement of System/360.

Z2i

..._ J 98;

DX 491, p. 1 • )

At that time the

.
600 Series

(Weil, Tr. 7197consisted of the

~~
f

......

~..

:!

GE 625 and 635, which differed only in memory speed.

i

Later, GE

I announced the 615, a "special configuration, slower memory speed

~= ';
-- '1

I

-493-

L

version of the same 625/635 system", the 645, "associated with MIT

Z

in Project MAC", discussed below, and, eventually, the 655 which

1: reimplemented. the 625/635 in higher speed integrated circuits.
t·

I

4.: I"~ (We·il, Tr. 719'8 .. ')
i

! ij'..
I

5\

'rhe-

GB.

6:00 seriesa·lso included "several compatible- but

physically dif.ferent military versions".

(PX 4-829, p. 18.)

In a

I

il
a I/.
7

report on the 600 series, Withington w.rote that the 600 series (and.

I

the 4·00) show "the same design emphasis on well:"balanced, practical,

!

9-l

but unspectacular systems.

The're are no technologic'al innovations,

I

10!

ul
1%!I
13.iI

and their basic speeds and specifications are no more than c.omparable
to those of their competitors."

(Id.)

Internal IBM documents

reported that GE was offering the 635 "at no extra shift charge".
(DX 1525, p. 1.)

When GE compared the 600 line against the announced

1

l~!

IBM 360, it concluded that "depending upon exactly which model and

I

!

15! details of usage and configuration, the 600 is either just a little

I

l6 a more favorable or just a little less favorable than comparable

1711 members
18

if
a

of the 360 series".

(PX 320 I p. 16.)

As we have seen I

however, IBM had made its own analyses of the competitive reactions

19 It to System/360 and improved its price/ performance with the 360/65

zo :!
21

~_

:I

H

ij

(See pp.

389-90 above.)

However, the 600 line was not as technically advanced as
I

;i

the System/360. Weil classified the 600 series as a "second generatio~I
i
solid-state computer".
(Tr. 7192.) Moreover, in peripherals the

J

600 series suffered in comparison to the IBM 360:

i,'•.

~

24

before delivery.

;j
:1

I
!

2S ;!

I

il
~I

,I
;1

i

:I

il

'I

I

-494-

!•
II

i

I

I

I

II
I

I

,I
[

"At pres.ent, GE's systems are somewhat handicapped because

their peripheral equipment (particularly random-access file
storaqe devices) is in some respects inferior to IBM' s .. GE
says it is· moving' actively to remedy this and to equa~ IBM"s
pEaripheratl equipment with products of its own manufacture. II
(PX. 4,8-29·,. p.' 19:.)

Ne,verti'teless, according to Weil, the initial cust'..:>mer acceptance of

1
i

!:!

the 625 and 6lS were· "extremely good, well beyond our expectations J'

I

I

ail
1

..

(Tr .. 72Q6.)

;1

One of the reasons for this was GE's success with users of

i

Si

the. IBM 709'Q/70 94 computers.

9

GE had "carefu~ly targeted as one of

the markets for the GE 600 system the installed base of IBM" s 7090' s

la

and 7094' s" because the· 7090/7094 "was at that time by far the

11

leading scientific and engineering computer in t.lo].e field, it had the
I

I.2. !t,t largest number 0'£ such systems, so it was a large enough target II •
lSI
Further, since GE was itself a large user of the 7090/7094, the
"members of these computer installations played a leading role among
IS

the user community o£ the 7090s and 70949, so that . . . we had an

J

I

!

16

;!

enormous resource to draw on who understood that market and the

"7
:til needs of that user very well".
•

GE "designed the 600 system to feel as familiar as possible

18 :1

19 [I to a 7090 or 7094 user".
20

_
'1

(Weil, Tr. 7026-27.)

Among other things, its peripheral equipment

.! could accept both media and format from such users and its software
I

represented "a compatible superset, a software that would include

.,1,

~

Z2 :! the capabilities of what the user already had but would give him
'1

23

it

further extensions".

(Weil, Tr. 7029.)

To aid conversion, GE

I

.1

24. 'i provided a piece of hardware Itcalled a 7090 Simulator, so that a

z.s

,\.1

:\user who purchased this piece of hardware and put it in his system
'i

I
:j

,
t

~I
;1

-495-

1

could in fact run programs from the 7090 or 7094 without

2

or at least that was the hope.

3:

(Weil, Tr. 7030.)

4- j

!

As a

modificat~on,

Most of the time it succeeded."

consequence" when IBM announced its 360 line as

incompatible with its own

earlie~

series, the computer group at GE

was "initially at least overjoyed with what had occurred because it

6.
I

7;1 meant right at the time we were introducing a system designed to

a
9

~l
,I
r

I
j

displace 70·9·0·s and 7094's, IBM had itself abandoned the 7094 and 7090
computer series and brought out an entirely different computer

i

1al series, and it was our belief at that time that it would be easier,
i

11! if you were a user, to convert from the 7090/7094 to the 600 series

,

than it would be to convert to IBM's new 360 series.

We regarded

that as a fortuitous occurrence and potentially to our advantage."
(Weil, Tr. 7060-61.)

The user of the 7094 was "forced • • . to

either go to a 360 or to some other competitive system, and we were
sitting there with a system designed to make that conversion as easy
as possible."

(Weil, Tr. 7062.)

That, of course, was one of the

risks that IBM was taking with the 360, and by 1964 GE with its 400
and 600 and Honeywell with its 200 were attempting to take advantage
of the 360's incompatibility with previous IBM l.ines.
Weil testified that GE was "relatively successful in
converting user programs from the 7094 and 7090 to our 600 line" and
that "our users found the conversion to involve work but to be
within

reason~ble

difficulty".

"I don't really think we found a lot

more difficulty . . . than we anticipated."
-496-

(Tr. 7037-38.)

Weil

1

estimated that GE acquired between 10% and 20% of the IBM 7090/94

Z base·.
~. !

...

I·

I

4-\'i.

(Tr. 7269.)
In addi ti.o·n to providing compa tibili ty with the 7090/70.94,

the GE 600 (as had the' 400) provided a

compatibi~ity

feature which

I

S'!I ass·isted conversion from· the IBM 1401 to the 600 line.

This would

I

a~

enable users who had previously used l401s as off-line devices in

I

7

if

co.njunction with the 7090 or 7094 (e.g., tape to printer, peripheral

I

I

a! operations) to move both the applications previously done on the
i

7090/94 and the off-lin.e functions run on the 1401 onto a single

~i

i

10 ! computer in the. 600 line.

i

ul!

l2.iI
13

II

14
1:1

15

(Weil, Tr. 7031, 7034-35.)

The GE 600 series marketing strategy probably was based in
part on the ability of the 7090 users who leased the 7090 to. terminate
their lease in a relatively short time and send the IBM equipment
which they were using back to IBM.

(Weil, Tr. 7207.)

judgment, "the GE 600 competed well with the IBM 7094".

In Weil's
(Tr. 7212.)

\1

Naturally, in competing for conversion of the 7090/94

16 ~~

17!
customer as well as for other business, GE was competing against the .
..
i
l8 :1 newer System/360 IBM computers as well.

Weil testified that "gen-

!I

19 ;l erally we were competing with the upper end of the 360 spectrum as
20 :1 it then existed.

.,

'

That would include occasionally the Model 50 but

21 !!:\ primarily the various models of the 60' s and occasionally the 70' s

Z2!!

within the IBM 360 family".

...,~ i!

615 may also have competed with the 360/40.

~

'I

24 :\ also Tr. 7215.)

ZS:I! against

(Tr. 7207:>

.,:1

:1

II

iI
;1

(Weil, Tr. 7209; see

Still latar, in about 1970, the 600 series competed

the 370/145, 155 and (less frequently) the 165.

:i

;!

The restricted configuration

-497-

(Weil, Tr.

t

i
1: 7210.-11, 7215.)

In "targeting" the 60.0. line against the 70.90./94, GE in
1

part paid a price for its success.

Weil testified tha.t the GE 6·0.0.

f

4-\.

competed with the 360./65 "perhaps less well" than with the 70.94

i

5

I

"because it was very s·pecifically targeted at the 70.90./70.94".

I

I

6;

(Tr. 7212.)

7 il

GE described its 60.0. line as a "family of large-scale

:1

I

s! computers for business, scientific and real-time use"

p. 1)

(DX 491,

!

9-1i and as "a new, advanced, high-performance, large-scale computer for
t

10 \ use in business, scientific, and real-time applications--complete

11

I
t

,,

with all software".

"(DX 492B,

p. 3.)

t:"1eil testified,

howe~.rer,

that

;

12! the line was originally intended "primarily for engineering and
!

13 I scientific computation, but with specific features that would make

i

l~:

it attractive as well for business and commercial application,

i

~

16

I

! but that in this case was the secondary market".
II
:1

(Weil, Tr. 7019.)

"While the machine was basically a scientific machine derived from

17 :1 the 7090/7094 we were trying to replace, we also included extensive

~

11

~haracter manipulation facilities, which would have been typical of

!I

19

11

earlier business machines, commercially oriented machines, and was a

20 :1 part of the support we built into the machine--there were other such
"

?,

:l supports--part of the support we built into the machine for a COBOL

-- :!

22.l'

compiler to make it attractive to business. applications" .

~ ;! Tr.
~!I

",
·i

7192.)

(Weil,

GE "had the ability to use the growing low cost of logic

to provide a number of features aimed at these several markets

II

24 ~I
25 :1 (id.), reflecting the fact that "since the early sixties it really
:1
J

!I

J

-498-

hasn't been economical.ly important to design a computer system only
for business' or only for scientific applications, except at the
extreme ends o-f this· s.pectrum, where you were trying to do as much

scientific c·al.cul.ation as, you possibl.y can within the limits of the
technology" •

(Weil, Tr. 7190.)

Thus f GE's "inte-n.tions " with

respect to the scientific marketing emphasis of the 600 series were
differences of degree, not of kind.

The'perception at the time was

that the 6·00 series, like the 360, would compete in all application
areas.
Thus, Withington in 1964 wrote:

10

"GE also believes (and we

agree) that in_the large-computer area there are no longer significant

11
,

distinctions between scientific and business machines, so the poten-

l.Z.i

I

a tial

13 ;1

(PX

market for the 600 series and its successors is very large".
4829, pp. 18-19.)

He also wrote:

1.4-,

"GEls product line, then, is more analagous [sic] to IBM's
than that of any other competitor. GE hopes to compete not by
being different, but by doing the same things better: by
providing a combination of hardware, software, price, and
customer service which will appear superior. No competitor
desiring a rapid increase in market share and profitability
could afford to follow this approach. However, GE has repeatedly
stated that its intention is to build a solid and major position
in the computer industry: its approach is consonant with this
goal. " (Id., p. 18.)

I

15~

I

15 :t

·7
;(;,
J.
;t
lS ,!;1
19 :t
:i

za
z~

...

Z2

And Weil made clear that the 600 was marketed after its

:~,I
:1

announcement for both business and scientific applications:

.!;

.j

" [AJ s

the 600 was sold, as it went on in its lifetime, it was sold more

~!

f

Z3

:1

I

and more to organizations that were more business-oriented and less

Z4.t scientific-oriented, partly as a result of bringing it down to the
:1

2.5

j 615

• • • which was more in the territory of more·business installa-

I
"

'\

./

'1,
i

;1

'r

:1

!

-499-

.

~

1 I tions, and partly because we found there were many more business
i

2.

i
i

customers. out there than were scientific customers for our class of

i

I

11, system."

4-1

"[T] he customer bas:e that we built' up became more and more

business-oriented with

time~."

(Weil, Tr •. 727'0-72; see PX 328,

t

5

!:

6,

i

p .. 21.)

I

Weil tes·tifled that the 600 also had capabilities for real

1

7\1 time applications, which later turned out to be very us·eful for time
i

sl
st!

sharing. (discussed below) although those capabilities "were used by
very few of the actual users that we sold the machine to".

These

i
10.1 real time capabilLties were Ita direct reflection of the military
I

parentage of the central processor and the memory controller portion

n!

I

of the 600 system".

IZI

i

1.31I of the

(Tr. 7192-93.)

In particular, the development

600 line drew· on the work which had been done for the GE M-

t

I
14. ' 236 military computer by the Heavy Military Electronics

I

15! in Syracuse.*

i

(Weil, Tr. 7178-79, see Tr. 7301-02.)

16 ] time uses of the

Among the real

GE 600 were the data reduction and monitoring done

17

II in connection with the Apollo launch system.

l8

:f

19

Oepar~~ent

(Weil, Tr. 7200; OX

556, p. 5.)

II

Even with the initial announcement of the 600 series, GE-

\1
a

"',., It was thinking about the importance of time sharing as an emerging
~,I

~I

21

l!

area.

In July of 1964, in an internal GE publication, the General

;j

22

~:

:j

* Weil testified that "for the hardware aspects of the central
processing units", the componentry, skills and the manufacturing
facilities required today to produce the central processing unit a=e
"'4
,. l! essentially
the same whether one is speaking of a computer which is
used for scientific, commercial or process control application.
25 ;1 (Tr. 7191.)
23

:1
"

:I

i
:1

,I

I

'I

:i
a

• ;i

ij
'\

-500-

L:

Manager of the Computer Department was touting the 600's ability to

2:!

permit Ita large number of low-cost remote stations [to be] connected

3 :

• by common carrier lines, thus permitting many people access to

4- I

the computer' s problem solving skills.

51

computers on college campuses, large government installations, or in

The need for many

smal~

•

a II

widely-dispersed manufacturing organizations might thus be elimi-

il
7 ;1

nated."

s:

in its peripherals and architecture which would make this possible

9: · · · at
i

(OX 491, p. 1.)

While "the system had a number of features

the time of this announcement we (GE] did not supply a

!

10; system that could support such an

applicat~on".

The hardware features

ll:i included "an excellent form of memory protection to isolate the
system software from whatever users may be doing and to provide

~!'.!

memory relocation features so we could accommodate a number of

u'

different programs in the system at the same time".

14. ;
I

see, the 600 was subsequently used in

lSi

system.

... :1
~o

·1

11 ,I
15

~~is

As we shall

way--as a time-sharing

(Weil, Tr. 7199-203.)*
Notwithstanding the attractiveness of the 600 series

·t conceptually, GE encountered difficulties in delivering the 625 and
,j.

:i

:t 635.

19 :i.:

Weil testified that:

'I

zcr ',I!

I
* As Weil explained, at the time it was thought that a single,
2ll central, shared computer was more efficient than a number of smaller,
,i stand-alone computers.
(Tr. 7203-04, 7254.) Thus, the 625 and 635
12 :; were "actively marketed for remote batch applications" as a cen'l tralized system in which it was contemplated that remote batch
Z3 i terminals would replace earlier smaller stand-alone systems. 01'eil,
: Tr. 7252-54.) In the 19705 with lower and lower hardware costs, th~
Z! '\ trend turned the other way with many people believing that a number
·1 of smaller computers were more efficient than a single large computer.
2S1 (See belo\v at pp. 1276-86, 1339-40, 1448-59 , 1510-16.)

I
;;
i

i

,!

i
I

,

I

i
"

;i
"

\

-501-

"We were attempting to bring to market simultaneously a
new central hardware system, a new processor system, a new set
of peripherals, and an entire new set of software.
"On top of that this was the first time that General
Electric had ever attempted to put together and market so large
a" system, and as a result of all of those factors at once, we
had a great deal of difficulty making the systems perform to
our customer-' s and our own satisfaction in the field. A combined
set of hardware difficulties and software difficulties",

, if

,

"

inc 1 uding

• :1

• ;I

"
• a lot of difficulty with the magnetic tape units, we had
some unreliability in the memories we were using",
and, because of the size and complexity of the system,

J!

"one of the difficulties we had was when something went wrong
we had the problem of telling just what had gone wrong in this
roomful of equipment, so diagnosis was a problem for us as
well." (Tr. 7215-16.)

1;
,

~

\

!

:

z.~

The difficulty with the software "centered around the operating

! J system called GECOS, which was . . a comprehensive operating

:t

~II

supervisor", among the first of such systems.

=il in

its design.

We had a great deal of difficulty in getting it

S ~lbuilt, made reliable and made efficient."
j

(Weil, Tr. 7216-17.)

There were three versions of GECOS.

:1

"(I]t was ambitious

GECOS I, which had

S JoriginallY been intended for the 625 and 635, was never brought to
iI
"

the field.

,Q
.. :1."
I

:0

";

I

·1

1

r'

,i

J
i
:t

"It died in our test rooms because it was clear that it
was sufficiently scrambled up internally that it would not make
a good product, and so GECOS II was constructed to take its
place using the lessons that we had learned on GECOS I .

•1

~ •

.~

i

.....

:i

,:

·1I

,~

1

!

"GECOS II was the first version of GECOS that was sent to
the field, and while it had a good deal of difficulty when it
went to the field, eventually, with much patching and baling
wire, was made to operate satisfactorily.

i

-- II
I

;

"'I

.',
t

t

.j

I

-502i

i

iI

I

I
. i

1

"GECOS III was initiated at that same--at the time period
that GECOS II was in the field again to make use of the lessons
we had in bringing GECOS II to the field, to reflect them back
in what we hoped then would be a clean design and a clean
product, so that GECOS III would incorporate the lessons of our
field experience.

2,
I

3'

"It was started and it was brought to the field much
later, I believe around 1968 • . . • " (Weil, Tr. 7217-18.)

5\
I
6;
I

Weil echoed the theme of many computer people during the 1960s when

t

Ii:1
a !Il
7

he said that GE's problems resulted at least in part because it was
attempting to develop a state-of-the-art software system.

(Tr.

(

~l

7217-19; see Perlis,

Tr.~200l-04;

McCollister, Tr. 9694-97, 9706-08;

t

10 ! Rooney, Tr. 12132-36, 12349-50, 12358; Conrad, Tr. 14088-89, 14133;

11

Withington, Tr. 56727-30.)

12

13

The difficulties encountered with the 625 and the 635 did
not result in slippages in delivery dates although Weil testified

ff
I

14-: that "perhaps they should have.
15

I
!

The difficulties occurred much too

often out in the customers' installations."

i

(Tr. 7220-21.)

I
16

'I

In late 1966 or early 1967, the 600 series systems were

17 ;1 withdrawn from the market and "put into.

-I

put to sleep for the winter").

hibernation" ("it was

GE continued to support the systems

18
19

:i

20

~;

period lasted for at least a year or two, and the systems were not

21

I
:1

marketed

22

i\

already sold but did not actively seek new sales.

1!

:1

'.

.

aga~n

until 1968.

That winter sleep

n'leil, Tr. 7221-22.)

In the fast-moving computer business, withdrawal is a

23 :\ mistake.

v'lhereas IBM, when confronted with similar difficulties,

.!
24 :\ put all of its effort into solving them and keeping its customers
25

.1

:l

,

satisfied (see above at pp.

371-72

t

:j

:1

.1I

d

;1
II

:\ .
I

,I

11

-503-

), GE withdrew.

Neil said that

1

"the hibernation of the 600 was a mistake"; "it led to a considerable

2!

undermining in the confidence of General Electric's offering of this

i

3;

class of system

~~

industry.

I

ll

and adversely affected GE's image in the computer

Weil explained why:

I

!
6

7 a
:1
il

8

;1

i

9!

10

11

i
I
1

hurt the credibility of General Electric."

1
I

13/

(Tr. 56754, 56727-28.)

There were direct financial consequences as well.

!j
~

In 1966

GE reported that "in the information systems business, current

LSi

operating losses were higher than projected because of difficulties

I

l6 a
:1'

17

!

is

;1

•

:i

19

l,tli

"'0 :1
:I

:1

21
22.

General Electric Corporation to deliver operating systems [including
GECOS and MULTICS] which completely met their advertised capabilities

I

12.1

,

Withington also testified "that the inability of the

t

i

14-

"When you buy a computer system, you are expecting a great
deal from the man who -- the company that supplies it to you.
You want to make sure that they will still be in business; that
they will stand behind any difficulties that your system has
had, and that they will make it do what they told you it was
going to do. And any indications that people were backing away
from such a full commitment would surely reduce a customer's
confidence in that particular vendor."
(Tr. 7224-25.) * .

i!

involved in meeti.ng a very sharp increase in shipments, and because
of expenses in integrating worldwide product offerings.

Substantially

increased costs were also encountered in getting some new systems
into operation."

(PX 327, p. 9.)

John L. Ingersoll, who had been

Financial Manager of GE's information systems business in the late
sixties, testified that from 1965 to 1968 GE's difficulties with the

~;

,- j ----------------------~ ;\

* Withington, when he testified, emphasized that the customer's

Z~ iii relationsh~p

with a computer systems ve~dor depende~ on the customer's
; understandJ.ng that the vendor was "credJ.ble"--that ~S, that Ita given
25 :1 manufacturer is a good one to be associa ted T...;i th . . . over time".
iI (Tr. 55735 - 36, 57671-72.)
I
I
:1
'\

:

:1

ii
'\
~I

,I

-504-

L;

625 and 635 "were a major element in the financial results experienced

2;

by that segment of GE".

i

3 !
4-

(Tr. 8339.)

Such difficulties, experienced with the first computers
and software of the 600 line, were aggravated when it came to the

jI

:i~ development of time sharing.

a !{:1

c.

Time Sharing.

GE was involved in "two somewhat separate

7.1 threads" in the development of time sharing.

a:11
~

lO

(Weil, Tr. 7106.)

The

first of these, developed by Dartmouth with some help from GE, was

iI !fa very effective small time sharing system which we then brought

II

into our engineering organization and eventually modified, documented

ll!\ and offered as a product • • • initially on a system derived from

~?

\1 the 225, later on a system derived from the 235, and eventually,

--I
13; very related, conceptually related systems were offered on the 400
t~~

line and on the 600 line".

15:

commercial time-sharing offering.

i

15 it

17

Weil believed that this was the first
(Tr. 7106-07.)

That system was "independent of the separate path which

involved the more ambitious, technically, time sharing system based

!!

15 ~I upon the 645 and the MULTICS software".

(Weil, Tr. 7106 -07 . )

Tha t

:1

.a :\ more ambitious development involved Bell Labs and M.I.T.
_. '!
:1 7108 ,

20 J.,

7225-26

I

(Weil, Tr.

7231.)

Early in 1964, the Project MAC org'anization at M. I.T. ,

I

z: :

which had already developed a time-sharing system (CTSS) on a pair of

22!
... _ ;\ IBM 7090s
~

(Brooks

1

Tr. 22739-40; Perlis, Tr. 1881, ~veil, Tr. 7226-27),

t

I

I was "interested in developing an extremely advanced time sharing

....,~
,.. "I

! system
1: .\
!

i

iI

:1
"

i

i

':
oj

!

ll

•

It approac!'led a number of manufacturers "for a cooperative

-505-

:1

effort in that development

L:

it

•

(Weil, Tr. 7108.)

General Electric

2: proposed to Project MAC a version of the 635 system, which "would be

3:

modified in accordance with some of the discussions we had had with

4- j. them, and which would provide then a hardware base for the advanced
f

!~ time sharing system they wished to develop."

In addition, GE

a;, "proposed working jointly with them in the development of the software
7

:1

that would reside on that hardware."

\1

(Weil, Tr. 7111-12.)

;1

8 ;

In the sununer of 1964, Project MAC selected GE over bids

~:

from IBM, DEC (who did place a $1 million peripheral processor,

, however), and others.
I

.0 ;

(PX 2961,

pp. 1,3.)

IBM believed that its

~
.l ; rejection was, due, at least in part, to the fact that it had proposed
i
.~ i to implement time sharing without dynamic relocation hardware.
-i

t

(Knaplund, Tr. 90533-35.)

~:

Weil confirmed that GE believed that

i

"certain aspects of the 6·00 architesture [sic], the 600 system, as

~.!
•

i

laid out, were more amenable to some of the things that MIT wanted

La

I

11

to do than were either the 7094 based system or the 360 based

l1 :1 system".
lS

:!

..

[~'Vl e

had a good meeting of minds, a good agreement on

philosophy with the Project MAC team."

(Tr. 7115.)

Project MAC and

19 :! GE--and others in the industry--believed that computer systems were

20
A1

:1

': concept which would be of crucial importance to the future of com1

~.~

,.,

evolving toward "an information utility" based on the time-sharing

I

~
'\

.

puting.

(Weil, Tr. 7116, 7251-52, 7254-55; see Perlis, Tr. 2117-18;

--i1px 320, pp. 9-10.)
23

i~ IBM from 1964 to

24 I

.,=
--

Wright, Director of Time Sharing Marketing for

1965, summarized his eight or ttvelve conversations

with Dr. Ivan Sutherland, the Director of Information Processing
-506-

1

Techniques for the Department of Defense's Advanced Research Projects

Z I Agency (which funded Project MAC) (Tr.

13287-90) as follows:

I

11I

"Ivan Sutherland was essentially exploring what IBM was
doing in the timesharing field. • .". I think that he was
trying to convince himself whethe"r or not we were" serious,
whether or not we intended to follow through with a degree of
urgency in the project.

I

4.j

,

!i
j

I

5;

"He spoke words of encouragement, encouragement in the
fact that he believed that IBM should pursue development of the
time sharing concept in products and software as a matter of not
only great importance to the United States government, but also
of great importance to IBM and he simply encouraged and wanted
to be kept aware, sort of as an insider, of how things were
going on the project.

it

7 II
11
I

8

1

1

g.1
I

10 !
\

11

!i
i

12.

if

It

lJ!

!
14-- !
;

" [I] t w'as my understanding that his interests were the
fact that he believed providing time sharing facilities to the
Department o"f Defense contractors in design of new weapon
systems, and use in other things, including health systems and
so on, would, in fact, foster the use of computers, but, more
importantly from his standpoint, would assist in the solving of
problems that these people in their research and development
activity were confronted with and the use of computers would
facilitate the solution of those problems at a more rapid rate
and, therefore, accelerate the advancement of technology.

I

,= I

~ll
16 ;1

17

"

II

18 J:1

19:'
:1

za

'I

n[I]t
such as GE
beneficial
therefore,

was clear that he felt that two large companies,
a"nd IBM, pursuing developments in time sharing, was
to the government, was beneficial to industry and,
that he thought that was a good situation." (Tr.

13290-92.)

As shown above (at pp.

417-36), many people within IBM

also believed that the time-sharing computer utility concept might

,f
"
'I

2! 11 well be the wave of the future and failure to respond to competitive
:1
.,? "
;1 thrusts
in this area--especially by a competitor with the power and
23 ;1
\ potential of General Electric--might relegate IBM to a secondary
:!

24 :\ position in the future.
25

Thus, for example, in September 1964,

Ii

1

:1

responding to the loss of Project MAC and of other important accounts

,I
;1
:1

tl

:1

,j

,Ii

:1

i

'/

-507-

., in the time-sharing area, Nat Rochester, a member of IBM's Time
!

~: Sharing Task Force,

concluded:

"There is much more at stake than

!

(i

these few prestige accounts.

What is at stake is essentially all

i
I

~

i

computing business, scientif.ic and commercial.

rl'

2-3.)

"

(PX 1l94A,

pp~

Two days later, the Research Group of the Time Sharing Task

i

wrote:

~

"There is a very strong probability that the 'computing utility'
will be the way of all scientific computing in a few years,and
a good pOSSibility that it will capture a substantial part of
the commercial market as well.
IBM cannot afford to overlook a
development of this scope. We are currently in danger of losing
all contact with the leadin develo ers of this conce t."
(PX
2811, p. R-3; emphas~s ~n or~g~na .

":1;
.,i

:l;

I Similar

l!

thoughts were expressed by other groups within IBM.

The

Scientific Computing Department reporting on "remote scientific

?

computing" urged:

3'

i

"Certain accounts have already been lost. A small set of
key accounts are right now in the process of evaluations
leading to computer acquisition decisions. For every such
case, decisions disadvantageous to IBM appear to be in the
offering.
In quantity, such losses do not appear to be large.
In quality, they will have a tremendous impact upon a very
large market.segment.

}

.S :~
.7

.3

:1
:1

;f

;,

~9 :~

.\
~~
,f
~
I

:!
,I

'"

-

"If we do not respond on the time-sharing requirements in
the near future, the time-sharing market will be largely lost to
GE who has responded to this requirement. A large part of the
balance of the remote scientific market will also be in
jeopardy."
(PX 2964A, pp. 4-6.)

:1

Jwright put it concisely:

22 :\
:}

z:s 'j
....... I

,,- I

.i

A_

II

I
,
i

~J

"And all during this period of time, in general, the
industry was in a state of agitation because time sharing
appeared that it might indeed be a new wave of the future frc~
the standpoint of computing facilities for a company or an
institution .

"
-508-

II

!
"So there was clearly, you know, an understanding that if
IBM for some reason did not respond to this particular requirement of customers' need, demands of the customer, it was very
likely that those customers might very well buy such capability

1
2

from somebody else.

3
I

4-1i
5

"

I'

II [T] he
signific'ance would be that IBM would lose business
and that part of the installed base that IBM had at that point
in time would disappear."
(Wright, Tr. 12843-45.)

I

6 ;
,
I

7 11
8

11
i
!

In addition to being in the forefront of the new wave, GE
expected two additional benefits from its work with Project MAC.
First, "it was an opportunity for us to work with one of the organizations that was widely regarded as an advanced thought leader in
the field, hence, we hoped to benefit technically from that work,
but also because it was based upon 600 line hardware, even though it
was largely incompatible with the 625/635, it would nonetheless
provide a reflection on the 635 and 625 hardware in the minds of our
prospective customers, so that the customers would feel that the
machines they were buying were related to and that he might someday
look forward to growing into the kind of applications that MIT and
GE were developing on the 645".

Second, "it lent an aura of advance-

ment to the rest of our commercial offerings."

(Weil, Tr. 7122-23.)

GE and M.I.T. were not the only participants in Project
MAC.

Bell Labs was also to be involved in the development of the

MULTICS system, "a system, hardware and software together, for
carrying out a very advanced form of time sharing, a multiple access
to extensive system facilities".

(Weil, Tr. 7225-26, 7231.)

The first GE system installed at M.I.T. was a GE 635,

-509-

I
I
\
t
\

L - which was "used as a developme-nt facility, but the project was aimed

at developing the MULTICS system, and a part of the MULTICS

!;

system was a special expanded version of the 635, which was later

~!~

termed the 645 _"

The 645 involved "major extensions to the central

l~ processor, primarily having to do with the way in which memory was

a:i

addressed and accessed."

"[T]here were hardware protection features"

:1

7;1

and a "high capacity input/output controller".

"A very advanced

8:t:1 form of dynamic relocation was included in the 645."

gl

7227-28.)

.0 ~

-

In the fall of 1965, GE announced the 645 as a product at
the Fall Joint Computer Conference.

, !

.2

(Weil, Tr.

(Weil, Tr.- 7233.)

In December

-

il

it announced t.;'at it was working toward the "broad conunercial availa-

:J

3 ] ~ility" of the 645 system. (PX 326 (OX 13668,

P.

lS} -.) ...- However, within

~~ !1 a ~'ef;r of the December 1965 announcement, the 645 was withdra\V'n "because
!

we began to realize that what we had on our hands was a research

~,

;

,,. ;, project and not a product. . . • We were attempting to do something
.: .,
that had never been done before, and, in principle, we might end up
1_

]

~I

;1

;'\ discovering that it was not feasible.

~S ';1.

:t and slow, but it was feasible."

L9

j

-I

~O -I

-

As it turned out, it was hard

Weil described the GE 645 as "being

in the research project stage" until 1969 or 1970.

(Weil, Tr.

;1

..

,~
~

17234.)
!

';
~

Z2 :; ---------------------:}
* GE had already bid a version of what came to be the 645 to GM
!S : Research along with time-sharing software, graphic console and devices.
Nei~~er the hardware nor the software existed at the time, and the
Z~ -j consoles were to be modified versions of those already being marketed
! for military applications. (Hart, Tr. 80284-87.)
25 :\1

I

-510-

I
I

At the time of the public announcement of the 645, the

1.:

t

1

2;

software had not been developed and the 645 itself was not in

i

3: existence.
i

General Electric never offered the 645 again as a product.

1

4.1 (Weil, Tr. 7234-35.)
i

5

While the 645 was intended "to provide ~ top-of-the-line

!
I

6il prestige
I

7

if

luster to the 600 line and to our other products, and also

to be a prototype for future sophisticated time sharing systems", as

a

it turned out, "because of its lateness and its difficulty, it

~

represented very little to General Electric except a drain on its

10

resources" (Weil, Tr. 7236) although "some of the features that were

11

pioneered in the 645 have since appeared elsewhere".

ta

7237.)

13

never put its principal marketing thrust on the GE 645.

l~

7236.)

Despite the potential which it had for future success, GE

I

(Weil, Tr.

The 645 was never delivered, and Project MAC received a

15: system designated a "636".
16 :1

(Weil, Tr.

(Wright, Tr. l3375-76.)

Although Weil and others believed in 1964 and 1965 that

11 II the MULTICS system "could be technically feasibly designed", the
15 ~I participants in the Project MAC effort "underestimated the difficulty
a

19:1 of successfully developing MULTICS".

(Weil, Tr. 7232.)

n[T]he

it

20 :1 system operated in the way that (it] was originally intended about
;1
I

21 :!

Z2:1

three years behind its own schedule."

Weil testif ied that this was'

a consequence, first of the difficUlti~s of cooperation among M.I.T.,

..,~

il Bell Labs and GE, and, secondly, because "the technical task that

24

!\

25

,I:1 subjects were at the state of the art as it was then known, and it

~ ;1

was being attempted was extremely sophisticated and many of the

" took a long time to iron out the details of implementing some of
~I
:i'I

.IIf
11

:i'I

,I

-511-

l!

these important features".

I

n'lei1, Tr. 7233.)

Such problems occurred

2; in other state-of-the-art software efforts, including those of IBM.
3

(Perlis, Tr. 2001-04; McCollister, Tr. 9694-97, 9706-08; Rooney,

~l

Tr. 12132-36, 12349-50, 12~58; Conrad, Tr. 14088-89, 14133; Currie,

i

~I

Tr. 15704-06; Withington, Tr. 56727-30.)

;

6
7

d.

II

False Starts.

On a

n~~ber

of other occasions during

the 1960s, GE began development of product lines which were cancelled

II

8!

or greatly reduced.
Weil testified that in the early 1960s, a series known as

9-

WXYZ was in development in Phoenix.

10

"WXYZ was a series of four

systems of which the Z was to be the most powerful."

II

By the time

Weil became familiar with it, "9nly the X and the Y were under

12.!
13 \1

serious development".

14. It ally became the GE 400.

After "considerable evolution", the X eventu"The Y was to be a rather sophisticated,

I

!

larger system, but it was cancelled at the end of 1962 and its place

15:
\

16 :1

17

il

in the market spectrum was eventually covered by the beginning of
the 600 project.

:1 (Weil, Tr.

18 ,!il
'9

i!

·

:1

20

:1
;1
:j

21 ;!

22

Neither the W nor the Z was ever delivered.

7238-39.)
Following the announcement of the 600 series computers, GE

considered a series of new product lines.

An important event which

triggered these lines was the acquisition of overseas affiliates,

:1

the Bull Company in France and the Olivetti Electronics Division

:1

(later known as GE Information Systems Italia) in Italy.

23 :1
1

2.~

II'

:i

:\

i

25 '1
:i
;1
'I

(~veil,

7239; see also PX 326 (DX 13668, pp. 3, 15); PX 328, p. 18.)
According to Weil, GE at that time was interested in

-512-

Tr.

l:

producing" a world-wide product line which would cover the main

Z i' portions of the product spectrum", and as a result a series of
1

product lines were conceived.

(Tr. 7239-40.)

The first such line, the GE 100 line, was conce·ived during
I

51: the tenure of

Dr~

Louis Rader.

Rader joined GE in 1964 as Vice

I

I

President and General Manager of the Industrial Electronics Division

a :1

7 ;i and took over the GE Information Systems Division which was formed in

;t

1965.

a:

(OX 13668, pp~ lS, 33.)

The GE 100 line consisted orimarily of

three sets of processors which were to be manufactured in Italy,
10

France and the United States and which GE intended to market through-

1

: out the world.
(Weil, Tr. 7240.) In 1966, Rader was transferred
11 '
~~' from the Information Systems Division to become General Manager of a
,I

new division, the Industrial Process Control Division.

13'i

, pp. 9, 33.)

1.4. :
!

327,

Despite the fact that several study groups recommended

proceeding with the 100 line, Hershner Cross, who took over from

!.5

Rader as General Manager of the Information Systems Division in 1966

!!

16

~!

~I

:1

._ J "overruled

all the study groups and decided that the 100 line would

'r be abandoned't.

lS '.

Cross did this "at the same time that he put the 600

'J into hibernatiori."

19 ;
·

(PX

(Weil, Tr. 7223-24, 7240-41; PX 327, pp. 9, 33.)*

;r.

za '\ ---------------------~

I * Weil testified that the GE Italian computer operation pursued
Zl\ the 100 line after the decision was made not to proceed domestically.
~i The lower members of the line manufactured in Italy had their names
Zl :\changed several times and were brought tb market originally as the
-1115 and later as successi·ve members of a moderately effective, lo~v
Z3 [priced business system".
(Neil, Tr. 7241.) The GE Italian opera[tion pursued the 100 line despite Cross's edict because "they had a
z:! \ strong general manager". (Weil, Tr. 7242.)
It

.1,
".._

1

".:

;i

!

i
I

.1

'\
\

.!

-513-

1

After cancellation of the 100 line, GE began to consider

2

different new product lines.

3-

"Upon cancellation of the 100 line, one of the measures
that was taken was to initiate a study centered in France, but
with worldw-ide participation, to spec out a more advanced line
than the 100 line that would serve the same general purpose.

4.

"This project, known as Project Charley, met in Paris for
a period of a number of months, but nothing broader came out of
that beyond a book of proposed specifications.

6

7

"At that point there were some management and personnel
changes in General Electric and it was about at this juncture
that John Haanstra came to General Electric, and he initiated
the development of another line of computers, again to beworldwide- and again to serve a broad spectrum.

8

910

"Eventually this line of machines was known as the ERW
line • • • ~..
(Weil, Tr. 7242.)

11

The ERW line began in late 1966 and "lingered on for a while after

l2..

that, but its principal effort was for eight or nine months, beginning
_4- ' in the fall of '66, into the spring of '67".

1

After that,

i
I

I

"John Haanstra's responsibilities were changed and he was
put in charge of the Phoenix operation. He lost his personal
identification with this worldwide product line and instead
became a champion of what was going on in Phoenix, which of
course was very heavily the 600.
"The ERW line was largely leaderless for a period of time
"Then Dick Bloch came to General Electric and he instituted
a line, I believe initially called the 700 line and eventually
called APL, which was his conception of a worldwide, broad
spectrum computer line."
(Weil, Tr. 7243.)
This was in 1968.

(R. Bloch, Tr. 7615-16, 7755.)

Haanstra, who had

been recruited from IBM to lead the GE computer operations in 1968,
was moved to Phoenix less than a year later, then was killed in a
plane crash in 1969, and none of these projects ever resulted in

-514-

delivered products.

1

(Weil, Tr.

7242-46~

R. Bloch, Tr. 7756.)

Bloch, who came to General Electric from Honeywell via

2

3

Auerbach Corporation in 1968 and succeeded Haanstra as General

40-

Manager of the Advanced De·velopment and Resources Planning Division,

5.-1- testified that when he arrived, there had been "several starts in
I
6; the direction of an advanced product line". (Tr. 7592, 7611, 7757~
I

i

7 !I PX 327, p. 28.)

According to Bloch, while there were "some very,

~
8! very excellent developments afoot", the operation was poorly organized
~!

and "one would have wondered how this would ever be put together

i into a line".

10 i

(Tr. 7757-58.)

One problem was that there were

I various development activities under way under different auspices

III,,
~I

throughout the company.

(R. Bloch, Tr. 7759.)

1

13;
l~

l
j
i

1.5
16 a

17

:1

"GE previously was typified to me as a company of great potential
in terms of spot accomplishments in various areas--software,
hardware, new attacks, in concept and in hardware too. But the
real question was, how was it all going to be put together?
That was one side of it. The other side of it was that nobody
thought about the total plan, the total objective, what this
business data processing world was all about." (R. Bloch, Tr.
7759. )
Thus, Bloch believed "the decentralized organizational

18 ;1 approach of General Electric adversely affected their attempt to
a
19
20

11

it
,I

'I

21

:1
:1;.

22.

:j
f\

~~
:1
~:\

develop an integrated line of computer products", and individual
departments took over responsibilities for obsolescent lines, promotins
their own interests.

(Tr. 7759-60.)

.

unlike IBM, was unable to tie together under central control this
disparate collection of products produced and marketed throughout

r

-I

24

'I

25 :\

:I
;1
:1

:1

~!
II
~i
:1

The problem was that GE,

-515-

-

the world.*

,
I

What Bloch called GE's "decentralized organizational

approach" was a substantial part of its downfall.

i

e.
i

The. Management of GE' S Computer Operation.

Ge·neral

.

Electric encounte'red s'ubstantial difficulties in managing its computer

• 1-

.,. operation.

It had a revolving door of management personnel running

i

~! its computer business during the period 1964-1970.

• ;1

it

During that time

frame GE ran through a progression of managers and other key per-

, \1

I i1sonriel whose jobs constantly changed and who were succeeded by
I

, ! people with little computer experience.**

The result was that

1~
I

~

I. the *GEThecomputer
following statement from the
equipment business as

, !

"On a world basis, General Electric offers five product
lines, starting with the small-scale GE-50 series, produced by
Bull-General Electric in France. The Italian operation produces
the 100 series, and in 1968 introduced a more powerful system,
the GE-130. The US-designed 200 series continued to hold wide
acceptance for its dependable computing power. The GE-400 line
of medium-scale systems is produced in the U.S. and France and
in Japan under a licensing agreement." (PX 328, p. 18.)

~ i~"
~

:
i

;:

-....

1968 GE Annual Report summarized
of that date.

:

I

S :1
]

** In July 1963,. the Computer Department was headed by Harrison
7 ;{van Aken~ who.r~p~rted to ~he General Manager of the Industrial
:f ElectronJ.cs DJ.vl.sJ.on.
(WeJ.l, Tr. 7085; PX 320, pp. 1, 2, 19; OX 485;
S :!DX 491.) In 1964, Dr. Louis T. Rader was hired to be in charge of
~~GE' s worldwide computer activities.
He was named Vice President and
9 JGeneral Manager of the Industrial Electronics Divison and reported
:lto Hershner Cross, Vice President and Group Executive of the Indus,0 ~!trial Group.
(J. Jones, Tr. 79357-58; OX 13667, p. 31.)
In
~11965, General Electric realigned its organization and formed an
'1 :II~dustrial and Information Group headed by Cross.
Within that group
- jwas ~he Information Systems Division, headed by Rader.
(OX 13668,
'? :~pp. J.~, 33.)
In 1966, still another new division was formed, called
- :tthe Industrial Process Control Division, and Rader was transferred
~ \from the Information Systems Division to the new division to become
!its General Manager. Cross re~llained group executive of the Industrial
J.A 'land Information Group and at the same time served as Acting General
~ ,Manager of the Information Systems Division.
(Wei~, Tr. 7223-24;.
,:; '(PX 327, pp. 9, 33.) Early in 1967, J. Stanford SmJ.th, formerly Vl.ce
... :1

·1

'I

I

:\

,,

.,

'I
:1

-516-

:1

t.

L: projects begun were abandoned and no continuity of purpose or product
!

2

development existed.

t

But the problems went deeper than that.

According to Weil, one of the "major mistakes" which GE

,

4.1

made· in manag.inq its computer business, stemmed from GE' slivery

:!~

strong" belief

,..'i
:

"in the philosophy of professional management. This basically
is that management is a profession and a good. manager can
manage any kind of business.

8;

"This in fact works quite well for a mature or gradually
declining business, where a man put into a business can model
his behavior upon that of his predecessor's and then make
adjustments as he learns what's really going on. In a rapidly
evolving business, however, his predecessor's behavior, especially if it was unsuccessful, is a very poor model. And since
he knows nothing about the business, he is a professional
manager and came from Toasters or Welding, or whatever it may
be, elsewhere in the General Electric Company, he really could
not understand what he was managing.

9t
i
I

LO[I
11

:1

!Z.lfif·
!

13 :/1 _ _ _ _ _ _ _ _ _ _ __
t~~ President of Marketing and Public Relations Services, became the
General Manager of the Information Systems Division.
(DX 13668., p. 33;
~ ; PX 327, p. 33.)
In January 1968, GE again changed its organization,
11 going from 5 groups to 10 groups and from 29 divisions to 46 divisions.
16 :;Hershner Cross's Industrial and Information Group was split into two

._ !

I

I

:t groups. Cross remained Vice President and Group Executive, heading
- I
17 ;!up the Industrial Group which included the Industrial Process Control
:fDivision led by Rader. Smith was promoted to Vice President and
lS iiGroup Executive in charge of the Information Systems Group, and John
'\ Haanstra, who had recently come from IBM, became General Manager of
!
19 '1 the Advanced Development and Resources Planning Division within ~~at
i
:tgroup. (R. Bloch, Tr. 7755-56; OX 13669, pp. 27-29.) In 1968,
!
ZQ, :1 ~aanstra became General Manager of t.'1e Information Systems Equipment
!
'I Division (PX 328, p. 28) and
Richard M. Bloch replaced Haanstra as
Z! !General Manager of the Advanced Development and Resources Planning
:\ Division (later the Advanced Systems Division). (R. Bloch, Tr.
zz. :~ 7623-25; PX 328, p. 28; OX 556, p. 30.) In early 1969, Hilliard w.
:1 Paige, who was Vice President and Group Executive of the Aerospace
Z3 \Group , replaced Smith as head of the Information Systems Group.
(PX
[328, p. 27; DX 556, p. 29.) Later ~~at year, J. F. Burlingame
2.4. '\ succeeded Haanstra, r,,,ho was killed in a plane crash, as Vice President
;tof the Information Systems Equipment Division. (DX 556, p. 30.)

I
I

Z= ;\;
:
~f

'l
'I

:;

f

!

I

:1

,j

Ii

-517-

It
!

ZiI

"But if you have a series of these managers above each
other, they feel they are in trouble, they now must do something. What can they do? They do not understand the business
w~ll.
So the only thing they can do is to replace the man
working for them.

3' !
i

t

4- I.'
I

~I

"SO the' net .result of this was, as we got into difficulties·,
especially in bringing the 600 to market thereafter, we had a
sequence of people running General Electric's computer business,
none of whom, except when we come to Dick Bloch and John
Haanstra--and, again, they we,re not in charge of the computer
business but were key people--none of whom were experts in the
computer business. Furthermore, we had a new one every eighteen
months or so.

I

6;

I

7' ;,
tl

8!

~I,

lO

!
I

II

I

"So that General Electric never developed experienced
management that understood the computer business, and I believe
this was a major part of why General Electric never learned how
to manage the business properly." (Tr. 7247-49.>

i

;

This philosophy led to General Electric having Ita great

121I
!

deal of difficulty • • . in entering dramatically n'ew fields",
although it was "extremely successful in managing mature businesses
and declining business".

(Weil, Tr. 7259.)

This is undoubtedly

associated with GE's decision, ,discussed below, to remain with its
l7 !I

"core" businesses rather than continuing in computers.
GE's management problems were perceived outside of GE as

18 :,

!I

J.-9

well.
a
H
"

20 J
:1

:1

2l :\
:i'.
22.j

23

11

II

Z~ 'I
2S

:i
"

Withington testified:
"I recall that General Electric, consistent with its policy of
rotating managers between divisions, changed the senior management of its computer systems business at intervals of approximately three years and I recall feeling that this was a poor
practice as the incoming managers rarely understood much about
the business at the time they would take it over."
(Tr.
56731.)
John Jones, of Southern Railway, testified

-518"

t

II
;1

;1
:I

:1

although

Southern Railway was a "very large customer of General Electric" in

I

:1

t~at

1

other areas, Southern Railway "did not seriously consider their

Z

computer equipment".

(Tr~

79352.)

In the middle to late 1960s,

Jo-nes reached the conclusion "that General Electric was not a viable
competitor, not one that I would consi.der selecting in the environ-

! ,- ment that I was in at the Southern Railway Company and with the
I

\
5- 1 project that I had before me to complete".

(Tr. 79353-55.)

He

I

711 testified:
i

8i

i
9-1

I

lal

11 !I

n[T]hrough personal knowledge at several levels in the
company, I- was at least to some extent aware of the activities
of the Computer Division of General Electric, and it was my
view that there were some serious problems in terms of how they
were managing that function, and it was my concern that I would
not be able to obtain the support and continuing responsiveness
from General Electric that I would judge to be critical in the
system that we were considering installing.

t

12.

I,
I

131
I

1

"As a result of those concerns, despite the fact that we
had been a large customer- of General Electric in other areas,
it was my conclusion that I did not want to take on the risk
of, or what I perceived to be a risk, of considering installing
General Electric equipment."
(Tr. 79354-55.)
Jones' views crystallized in middle to late 1967 (id.), about the
same tLme that General Electric's difficulties were being made
public in the form of the "hibernation" of the 600 system.*

(Weil,

Tr. 7221-22.)
In 1970, GE's future product plans (then known as APL)
recognized that among the "negative factors" which affected GE's
image in the computer industry were (a) GE's "management indecision
and replacement",

(b) GE's "professiona.1 manager" image,

(c) GE's

* Jones based his views on his personal contact with General
Electric at the tL~e.
(3. Jones, Tr. 79355-60.)
-519-

"lack of longo-term commitment" and (d) GE' s "loss of key personnel

1

(PX353, p. 45.)

~

"

!.

1!

Rotation of management meant a lack of continuity in decisio

I

4-

It •

j. making' over time, but

anoth~r difficulty, as already o-bserved, was

i

5'

I

decentralization of decision-making responsibility at the same point

1

6

1

I

7 I~

S:

I

:

9-1
La !
I
'1 !
i,,

•

121

1311
14.

!i

- i

15:

I

161!

in time.

Bloch testified that

"GE operated in a de-centralized fashion, with profit
centers usually at the departmental level, and for reasons which
I do not pretend to comprehend, the top management of the
company a~lowed these growths to occur of quite competent, in
their own right, groups, both here and overseas.
"Overseas, of course, one can understand some of that,
because there was outright acquisition. But even here there
were a multiplicity of centers and there was a proliferation of
activity; multiple peripheral devices of the same general
character being developed at different places at the same time;
a lack o·f coordination from any central area whatsoever
e-

"Our plan was, indeed, to make use of the facilities
worldwide but to have it completely controlled and specified,
all standards set, from the central operation in New York. And
this was a new philosophy to them entirely. And if this was
indeed a new philosophy to them, then I can understand why they
had problems earlier."
(Tr. 7646-47.)

;t Bloch had "no que-stion" in his mind that "the decentralized organi11 :1
IS zat~nal approach of ~neral Electric adversely affected their

l
iI

19

II attempt to develop an integrated line of computer products".

He

AO :1 encountered "substantial resistance" to his attempt to limit the
'-

;1

'I

:1

21 ;!

decentralization.

(R. Bloch, Tr. 7759-61.)

GE's decentralization

J of responsibility within computers reflected its general management

22

:i

__ ;1

23

philo sophy.

GE's 1968 Annual Report stated that "General Electric

-I

24 ] had 170 decentralized operating departments focusing on separate

:i aspects of world markets in

25 ~I

1968.

.1

!\
:1
-,I

-520-

Its production ranged over seme

1;

3, 000 differe·nt categories of products and 200, 000 different models

~

Z

i

i
I

l

~!

and sizes."

\

(P X 328, p. 7.)

The Computer Department was always buried deep in the

I

4---\ organizational. stru.cture.

Back in 1963, the Computer Department had

i

!

I been within

the Industrial E'lectronics Division which in turn. was

I

a! part of the Industrial Group.
7

I

i

Weil testified that there were "some-'

thing approaching a hundred" departments in GE at that time.

(Tr.

I

I
8! 7153-54; OX

~I

485~)

In 1968, GE formed the Information Systems Group,

one of ten groups containing 50 to 60 divisions and, in turn, 130 or

10' \ 140 separate departments.

:

(R. Jones, Tr. 8794-95.)

Because computers

II ! had been so far down in its organizational structure and because it
i

i

I.Zl had so many other products to attend to, GE failed to mobilize its

II
l~ i

13

i

resources in computers to the extent necessary_

Weil testified that

among the "major mistakes which GE made in the management of its
computer business" were two which related to this.

First,

"a lot of ambitious and difficult tasks were attempted which
turned out to be more difficult and more ambitious perhaps than
was appreciated when we started.
"Secondly, General Electric was never fully committed to
its computer business. It was always a business . . . that
General Electric could live without. So that if troubles came
or budgets were suddenly bigger than had been expected, there
I'
was always this reconsideration of 'Is this really a business
t
we want to be in? And how do we prevent this from draining the
profits of our other businesses?' It was not the strong commit- I
ment felt by those of us actually in the computer business of
Ii
General Electric."
(Tr. 7247-48.)

I

I

He testified that there were differences, for example, between GE's
commitment to the computer industry and its

commi~~ent

to the atomic

power business to which it "manifested a greater commitment to

II

II
I

I

-521-

I

I
I

I
I

success".

Nuclear power was regarded as "an adjunct to that core of

it business of the company" consisting of the supplying of power genera~
tion equipment.
i' business' was:'

"It wa·s clear that the mission of the nucle'ar power
We don't know whether' there is a busines.s, but if

f

:.:,.[ there wil~ be a nuclear power business, you will be one of the
leadinq competi to-rs • ..

On the other hand, the "equivalent charge If

for the computer business would have been, "We are sure there will

;1

:1 he a computer business, now you must demonstrate that you can compete.

n

(Weil, Tr .. 7174-76.)
Similarly, Bloch testified that, when he joined GE in

"They were in the business. They had been in for some
period of time furnishing general purpose computing equipment.
My feeling was, however, that it was always tainted with some
tentativeness or speculativeness on the part of the company as
a long term commitment to the field. My feeling was that if it
turned out to be a great success, the company would be delighted;
if it turned out not to be a great success, the company could
extinguish parts or all of its activity in the field without
necessarily any great remorse." (Tr. 7623-24, 7616.)

i ;i

:\
J

Reginald H. Jones, Chairman of the Board and Chief Executive·

:1

:1

'r Officer of GE at the
I ,!

t~e

of his testimony and a member of the

il

l Ventures Task Force which recommended GE's exit, as described below,

I;

, :! testified that he (and his predecessor, Fred J. Borch*) had agreed

I ';

i

.

iwith their predecessor, GE'S former Chairman, Ralph Cordiner, who

~

I

,

j said about GE' s computer business:

:

"General Electric's mistake was

"

- '1
)

!

i-----------------------

I * Fred J. Borch was Jones' predecessor (R. Jones, Tr. 8752), not
!his "successor" as Jones mistakenly says at Tr. 8870 .
,

.

:

'\
!
'j

l

'I

I

!

-522-

I...; that it failed to realize the opportunity and therefore made an
inadequate allocation of resources, both human and physical, to the

2:

,
I

business".

3':

(Tr. 8869-70, 8751, 8752 .. )

I

Jones tes·tified that "as
~

I increased
!

• "
a-i

subs~taritially

the

ear~y

technica~

as the 195'0' s, if we had

manpower assigned to the busi-

ness, if we had increased at that time the financial resources

:f

7:f required for the business, they would have been much smaller in

8:i
9-

terms of abso·lute numbers than they would have been, let's say, some

!.

fifteen years later."

(Tr. 8875.)

Jones said:

"We never did make

10 ; the allocation of resources to the business that were warranted."
i

(Tr. 8874.)

ll:
r~

The contrast with both IBM's commitment to the business

in the 19505 and its investment and risk-taking with System/360 in

if

~J

13]
1.4..

the 1960s is striking.

1
.~

f.

GE's Position in the Late Sixties.

In 1964,

I

!'

General Electric obtained approximately half of Compagnie Bull

:5.

General Electric and Societe Industrielle Bull General Electric

15 :!

1.7:1

for $43 million •. (OX 13667, p. 16.)

By the time of the Honeywell

'f merger, revenue of the Bull companies was $206 million.

lS.:t

.

fQ

..-

zcr

'I

(DX

554, p. 10.)

In 1965, General Electric acquired the majority

i

;
;1

.f interest in Olivetti-General Electric for about $12 million.

This

i

.!
I

Zll

subsidiary was formed from the electronic data processing business

I

;i and the electronics laboratory of Olivetti of Italy.

(DX

13668,

P.

Z2~

.i In

1968, General Electric changed the name of Olivetti-General

23 ';
I::

Z!
~:

Electric to General Electric Information Systems Italia when it

.! secured full ownership of the Italian-based computer affiliate.
i

"'- .j
I
I

~!

,i
t

I

.ii

'I

-523-

By

3. )

li 1968, General Electric had research, engineering and manufacturing
!

Z Ii facilities at 13 loc·ations in five countries with a worldwide sales
!

l! and service organiz.ation of

.
I

f

8, 0·00 employees.

(PX 328, p. 18.)

As-

.

~I has been noted, the Bull subsidiary produced the GE-SO series and
i

~II the 400 series" and the I·talian subsidiary produced the 100 series
I

6:;

and the 130.

(PX 328, p. 18.)

In 1968, General Electric also

i

711:1 broadened its line of input/output and storage devices and extended

II
8i its time-sharing services,.

By

the end of that year, more than 50 GE

I

I

9-1

wI

j

II

time-sharing systems· were in place serving about 100,000 customers
in 17 countries around the world.

GE reported that this area of the

business was "growing even faster than the compute·r equipment sector"·.
(PX 328, pp. 18, 21.)

I2.

GE also reported that "the company's investments in computer

131

Ii

l~;

technology have given us an expanded worldwide base in what has been

i

I
lSI characterized as the world's fastest growing business.

i

Again, our

developing capability to serve this industry is leading to further
new opportunities."

(!£,,:., pp. 3-4.)

GE's 1968 sales of information systems were "well above
those of 1967 and with operating losses substantially reduced".
(Id., p. 18.)

For the year ended December 31, 1969, the General

Electric computer operations which Honeywell acquired showed a
profit.

(Ingersoll, Tr. 8329-30; DX 554, p. 9.)

continued to show a profit for Honeywell in 1970.

Those operations
(DX 148, p. 1;

* The 400 was also produced in Japan and the United States.
328, p. 18.)

-524-

(PX

1

2

OX 13977.)

In 1969, GE announced the GE-655, "the most

t

powerfu~

i

~! member of the large-scale GE-600 line" whi.ch had -"had its best year
I
I

~I-

in shipme.nts and orders".

According to the GE 1969 Annual Report,

i
t

Sl the GE-400 line also had a successf.ul year .
•
I

(OX 556, p. 13.)

Despite these improvements, GE was still in trouble.

6. (I.

i

Yet,

7' lJ if GE "did not appreciate the problem that was building in the late

:,

8 " Sixties" (R. Jones, Tr. 8876), others did.

Withington wrote in

i

9-\ 1969:
i
"During 1968, General Electric was able to demonstrate completely
10 r
I

111
I2.
13
i

15:

successful operation of its GECOS-III operating system for the
625 and 635 computers • . . • The 625 and 635 (recently joined
by a smaller 615) are continuing to sell largely because of the
success of GECOS-III, but the machines themselves are obsolescent
from the point of view of cost-effectiveness. It is to be
presumed that General Electric has in development compatible
successor machines which can capitalize on GECOS-III, but which
will show better performance. When this new line is announced,
General Electric will be in a position to make a strong resurgence in the large machine area."
(PX 4834, p. 29.)

I

t

16

!~

Withington judged the GE-400 line "obsolescent" as well and said,

17

~

"General Electrid's future position is dependent on the timing and

18

II

success of the new line."

19

:1

;1

20

:1

'1

21 :!
:~

23

il

I
:1

24 ii

15

machines" and was not, in fact, "in a position to make a strong
resurgence" .
As of 1969, GE had several incompatible lines, which had
been "developed at different times in different places, and to a
great extent under different management

:1 PX 328, p.
:i

As we have seen, GE had made

several false starts to the development of "compatible successor

;j

22

(Id. )

18.)

lt
•

(R. Bloch, Tr. 7787-88;

Bloch, who came to GE in 1968, concluded that the

i

,
i

:1

!{
:1.j

tI

a
;,:1
"

-525-

I

i

I

I

i

I

i

I

l

II

L; GE 100, 200 and 400 series computers
!

2iI

"were beyond their useful time in terms of state of the art.
They were in place doing their work, except that we were simply
facing the natural problem of the field, and that is wi-th time.
You get to a point in which the price/performance is s·o improved
over equipment o-f daY$ of yore that it is clear that those
users are going to move to new equipment, and either you are
going to p·rovide that new equipment or your competitors are
going to provide it."
(Tr. 7761-62.)

!
I

3:

t

I

4.1
i

I

5-1

I

6· !
!

As Jones put it:

!lII

the price/performance of the existing competition because you knew

7 !I

:~

"You had to bring out something that would exceed

full well that they were going to be moving ahead of you.

,- constant leap frogging game."
10

!

I
1l j

I

12!I
131i
14.-

It-is a

(Tr. 8866-67.)

Bloch testified that although the larger 600 series had
come out more recently than the other lines, the importance of
smaller systems "far outweighed the significance of that 600 series,
looking toward the future".

This was because Bloch foresaw a tendency

I
!

I

toward increasing decentralization and smaller processors, "which

~-

I
~I

I are smaller physically, they are smaller dollarwise, but they cer-

-tainly aren' t
17 il earlier days".
15 a
i

18 \[
!I

in terms of power when contrasted with the

(R. Bloch, Tr. 7762-67.)

Thus, while the 600 "would

be more appropriate for extremely large, powerful systems that are

19[1i meant

20

sm~ller

to be operated on a highly centralized basis", Bloch felt that

:!;1 GE needed to pay more attention to the smaller members of the line.
21 il
:! (R.
Bloch, Tr. 7768: see Weil, Tr. 7252-54.)
;1

22.r1

A~
~

The Ventures Task Force, organized in late 1969 to consider

:\

!!

GE's future in the computer business, reported in April 1970 that

"

24

:1

"most current product lines are obsolete" and that GE had a "lagging

25!

:I technical position in mainframes, peripherals and manufacturing

:1
:1"

:!
:1
:1

-526-

L

process technology".

2 1I

(PX 331A, p. 18.)

This was not a secret held within GE.

GE's reputation in

I

I

3':

the computer industry had suffered badly from its management failures

!

4.j and product obsolescence.

Thus, the Advanced Product Line Master Plan

in January 1970 recognized that GE's image in the computer industry

.
6.l was poor:
I
I

:

7 11
:1
8!
9-

"GE's image is one of failure to follow through, as characterized by:

10

fI
An enviable image in the banking industry was
built through the success of the ERMA project and GE's
leadership in development of Magnetic Ink Character
Recognition standards. This image was subsequently lost
due to neglect.

11

121

!I

13i

!

"
In 1963, GE assumed a leadership position in the
area of communication systems and communications control
concepts with the announcement of the DATANET-30. Subsequently, GE has lost its leadership in the field by not
following up with any improvements until the recent announce
ments in 1969.

l~ il
15

II

l6

:l

17

il

.

"
In the area of system capability, GE coined the
phrase, 'The Compatibles'. When the GE-400 line was
introduced, it was characterized as the GE line of the
future which would be compatible throughout. Although GE
announced four members (GE-425, GE-435, GE-455, GE-465) of
this line, it. delivered only two.

l8 :f:1

19

11

20

ii'I

;l

:I

21 :,;1
2.2. U
,I
23

"General Electric has the reputation of the 'sleeping
giant' of the information systems industry, with vast capabilities and resources which have yet to be marshalled for a
determined attack on IEM.

ij
I

2.4 :\
:\

25 ,\

"
Since announcement of the GE-400 line, GE has
made two other major line announcements: the GE-600 line,
which is not compatible with the GE-400 line; and the GE100 line, which is compatible.with neither. In fact, GE
currently supports seven mutually incompatible product
lines.
"
In 1964, GE recognized the way of the future by
an aggressive advertising and promotional campaign with
regard to direct access.
It indicated that direct

J

il
I

:,
:1

i!
_ 11

-527-

I

access was the way of the future and announced a line of disc
storage devices to support this assertion. Since then GE has
not followed through on this commitment even though the initial
prognos.tica.ti.ons proved to be· accurate.

.J

"'A brief summary o:f GE' s image with respect to the various
product lines includes:4

"'GAMMA IO--an ideal model for a beginner.
"GE-·SO--excellent for new users, but no compatible
upgr-ade ..

r

"GAMMA 30--an obsolete machine with no compatible

upgrad~.

a

"GE-2QO--an obsolete line with no compatible upgrade ..

~

"GE-IOO--a good family of products.

l.

i

"GE-400--a relatively obsolete line with no compatible
upgrade.

I

1:
I
i

z!

~

"GE-600--a reasonably good line with a need for a
higher member (a la the GE-655). Good operating system
software--among the best in the industry.

~.

;·1i

,4- :

-!
!

i
,

"As long as the user is able to remain within a given one
of the seven product lines, he is reasonably satisfied.

':i

,6

'I
~I

.7

'I

,8 :,.r

;i

.9 ~i
~

"Measures of customer loyalty appear to fluctuate from
year to year, but are generally below IBM and appear to be
consistently .below the industry average. This loyalty is
understandably low when customers must move up from the produ~t
line which they are currently utilizing." (PX 353, pp. 43-44,
footnote omitted.)
Unlike IBM which had integrated its product line in 1964

'I

·lwith a single compatible line conceived, developed and marketed on a

.,

~ .!w~rldwide basis, GE in 1969 still had several incompatible lines
~

~

.

"lwith fragmented development and inadequate worldwide coordination.

i

g.

The Advanced Product Line (APL).

Plainly, if GE was

f

Z~ .!to overcome its problems, it needed a new product line.

Bloch's task when he joined the company in 1968.
-528-

This was to

(R. Bloch, Tr.

1:

7757.)

!

2 ,i

This new line, "initially called the 700 line and eventu-

I

3'

ally called APL • . • was his conception of a worldwide, broad

4.

spectrum computer line·".

5'

I'

(Weil, Tr. 7243.)

It TNas to be Ita sing'le

integrated line to be marketed on a worldwide basis".

(R. Bloch,

,
I

6

t

Tr. 7798; Ingersoll, Tr. 8104.)

GE' s plan was to achieve the "number

two position" in the field:
"We could not also see a company such as GE being satisfied
with a. $50,000,000 business, say, in some convenient corner of
the field, even if it were able to make a. profit there, which
might indeed happen, because a business that size is insignificant in the GE scheme of things."
(R. Bloch, Tr. 7648-49,
7799.)
'.
As a result of this goal, GEts APL was to be "a:l attack" "across the
board" •

The new line was to "attack" everything from the $500-a-

month rental to the $70,000- or $80,000-a-month rental, which, as
Bloch put it, "is a tremendous range", "well over 90 percent of the
total range".

Of course, GE was attacking IBM and "in particular

attacking the IBM 360 series, and not only the 360 series, but what
we surmised was coming soon, and which became the 370 series."
Bloch, Tr. 7647-48.)

(R.

Bloch testified that, had the APL line ever

I

been completed, it would have been a "more ambitious . . . or broader,

!

more comprehensive, line than any that was in existence in the year

I

I

1970--or '69 • • . with the exception of IBM".

(Tr. 7803.)

Bloch felt a sense of urgency. about this mission and sent

I

I

II
I

telegram to various parts of the GE computer organization (including!
Haanstra in Phoenix and Weil in Bridgeport) creating a special task
force.

(DX 540.)

Bloch testified that he felt the situation was
-529-

1:

urgent because

t

i

Zi

"the company was on a timetable if it was to enter the field in
a fashion which I thought was necessary, which meant that we
had to fix the s.pecifications, characteristics, and get the
ass.ignment·s made, devel.opment of assignments and so on, throughout the world, certail\ly be.fore the end of that calendar year.

l

4-

51

i

"The importance was simply that of time costing the company
its future position in the field. By delaying the time at.
which we could announce and ship these systems, we would be, it
was my feeling and generally agreed, losing some of our current
base.

I

a:
7

8

II
\f

il
1

!

"Secondly, IBM was, I thought, much more vulnerable at the
earlier time within this period, that is, in the earlier seventie ,
and that every month that could be compressed with respect to
the schedule meant an ability to tackle IBM more readily and to
preserve our customers . . • the present GE CPL [current product
line] customers who had obsoleting equipment. And there was
the danger, thus, of their moving elsewhere."
(Tr. 7792-93.)

i

9-!
i

1Q

i

11

1

I

121

The APL line was not to be compatible with the earlier GE

!

13'

lines.

(R. Bloch, Tr. 7873; see also PX 353, p. 119.)

Users of

earlier GE lines converting to APL would encounter conversion problems

lS!

i of the same kind that an IBM user would in converting to APL--and

l6

:t

l7 ii' GE, of course, would have faced the same problem IBM was confronted
with in 1964 when it announced 360.

18
19
ZO

Z,

:1
II

It was planned that about 35%

of anticipated worldwide shipments would be made to users of earlier

:! GE lines, with another 35% to be shipped to users of competitive

:I
;1

:, systems, chiefly IBM.

'I

The remainder were to go to new users.

(PX

"

.I

.. '!

'i

353, pp. 53-54, 57.)

To effect the necessary conversions, GE planned

to offer various emulation and conversion aids.

(R. Bloch, Tr.

7881-84; PX 353, pp. 53, 62-63, 67, 118, 119, 164-65, 171, 175, 178,
179. )
In order to induce IBM users to convert, the APL line had
-530-

l.i as primary targets, "the 360/20, 25 and, to some extent, the 30 and,
Z I to still a lesser. extent, the higher level machines in the IBM line,
~

and als'o another !BM line".

4.

targeted these users because of the difficulties that the users of

:

the lower ma.chines· in the IBM. line would have in converting from DOS

e

to 05/360' CR. Bloch, Tr. 7867-68) and the fact that most of the

7

~

(R. Bloch, Tr. 7663-64, 7866.)

GE

programs written for such systems were written in higher level
languages'.

S;

9-

(R. Bloch, Tr. 7868-72, 7880; PX 353, p. 64.)
Bloch testified that he and "the top programming experts"

10.

at GE believed that the conversion objectives of the APL could be

II

achieved, although it was "an extremely ambitious task".

(Tr.

7889-90.)

t.,;

-;r
1

O!

To induce IBM's users to move to the new'GE systems, a

i

t~i'

price/performance advantage of 20 to 40 percent against the 360 was

,

t=: thought to be required, and Bloch thought that it would be necessary
~

l6 :t for GE to match IBM' s peripherals as well.

17

Basically, what

II

(R. Bloch, Tr. 7654-59.)

GE was intending to do was to duplicate IBM's 360

15 :( plan of attack some five or more years after its announcement.
;J

'9
.I.

The strategy for APL preferred by the GE Information

:,1

~

t

"

! Systems Group was the "A-F strategy" providing for the offering of
ZOI
"

71

J the entire line at once, a "full across-the-board strategy", with

--

,I

-,-, :\ shipments beginning in early 1973.

This .would have required an $858

:: :t, million expenditure before taxes, with an after-tax investment of
~

~A'
.I
'-- I

$429 million for the years 1970-1975.

i
i 362, ?
1Si

4.)

Roughly half of the required investment was the financing

'I

1

!
I

:1

:1
i
I

!
I

d

(R. Bloch, Tr. 7695-96; PX

-531-

that would be r.eq-uired for the 80 percent of the APL line that was

1.,

,: expected to be leased by customers.

As Bloch testified, it !,resumed

3. ~ a s,uccessful. APL wi.th a large number of systems on lease:

4.\ one of the prices y'ou

:-!,
=:I

view, o·nce those

it

(Tr. 7699 •. )

"And from my

were out in the marke·tplace·, we were going

(Tr. 7929 •. )

"[I]n no sense did I consider 858 to be

the exposure of the company."

~

Indeed,

9

Inge~soll

(Tr. 7703.)

testified that, during the period when

he was associated with the Ventures. Task Force, it was "a. general

.0
~

m~chine·s·

II

to keep them out there, which meant tremendous income coming a.t a

7;1 later time."
S

pay fo;:- s·ucc::ess.

"It is

assumption" that the announcement of APL would have the overall

1

,

effect of increasing revenue and income from GE's current product

I

:2i
i
~~

line during the years immediately following 1969, with an increase

:

~:
i

of $177 million from the combined product lines in 1970-1975 (IngersolI, Tr. 8378-82; PX 362,

.=~

~ !l

~6

7935-36; see

J expected

als~PX

362, p. 10.)

TO ~l

Subst~tial

(R. Bloch, Tr.

net profits

~~

to be earned in the late 1970s, after which a successor to

~I

...

10), a positive effect not taken into

it account in the $858 million investment estimate.

L7~
~S

p~

the APL was contemplated •

(R. Bloch, Tr. 7908-10; PX 362, p. 5.)

'j

:t
20 .,::

The APL plan, then, was an ambitious one, requiring large

It contemplated an across-the-board attack, even
I expenditures.
ll·' .
J·though profits might have been made in a "$50 million business"

.,.,

.~

-- :t without such an attack.
"".....
... l
/4

, In
r

Z~ :j
I,
23 !

Further, it had to be pursued immediately.

the event, it became just another false start.

I

·1

I

i

'i

I
I

!

,!;,

.t

-532-

I

l.:
.,;
-

h.

The Ventures Task Force and the Decision to Disengage •

The Ventures Task Force was formed by GE Chairman Fred J. Barch in
-the last quarter of 19-69-.

It was as-ked to review GE' s computer

business ,. commercial jet enqine business, and nuclear energy business.

Its -mission was n-to analyze those businesses and, to present to the
corporate executive office some plans that would outline the alte-rnates and options available to the corporation with respect to those

s9

specific businesses".

In particular, the Task Force stated in its report that

i

1a:i

(R._ Jones, Tr. 8756-57.)

Mr.

Barch "specifically impressed upon us the urgency of our finding

ll:! some way to arrest the heavy continuing drain on our assets resulting
from these major new venture·s".

(PX 331-A, p. 5.)*

The Task Force

"adopted two broad criteria as the bases for our efforts to evaluate
each available strategy; the risks and potential rewards inherent in
each strategy and impact of each strategy on corporate earnings".
(Id., p. 6.)
Corporate earnings were a problem.

GE's earnings per

share had "plateaued" from 1965 to 1969, creating "a dismal record".
(PX 33l-A, p. 5; see also DX 550, DX 551.)
declined due to an "extensive strike".
also PX 33l-A, p. 5; DX 556, p. 3.)

The 1969 earnings had

(Ingersoll, Tr. 8266-67; see

As a result, the GE stock price

had declined 34% from 1965 through 1969( compared to a decline of 17%
for the Dow Jones Industrial Average, 8% for Westinghouse, and an
increase of 3% for the Standard & Poor's Industrials.
Force put it:

*

As the Task

"Stockholder impatience is indeed understandable."

"Major new ventures
businesses. (Id.)

ll

were distinguished from GE's "core"
-533-

(PX 33l-A, pp. 5-6.)
The members of the· Ventures Task Force, Jones, Jack
I

McKitterick, and Robert Estes were corporate officers, but not one

3~

Ll of them had had -any responsl.bili ty for the computer business or the
I

The
:I It GE Information Systems Group. * (Ingerso.ll, Tr. 8267:"69.)
~ !{ Ventures Task Force studied the- companies that GE met in the market~ :1
7- J place only "in a superficial way" in order to understand the strategy,

s

types of equipment, and the "markets" attempted to be served by "each

:1

9,1

of the major entrants in the business".**

(R. Jones, Tr •. 8778-79.)

Jones testified that the Task Force was a "part time"
i
I

~:

assignment for its members.

tZ

completeness of the work done by the Ventures Task Force in the

11

He characterized tJ.1.e thoroughness or

:3; following way:

"When you look back and think that we worked together for
a very limited number of weeks, and when you recognize that the
computer industry is a very complex business, and when you
recognize also the fact that none of us had any experience in
the computer business before we went into this, certainly it
was not an exhaustive analysis of the computer business. It
was an analysis that I think developed a fair comprehension of
General Electric's position in the computer business, but I
wouldn't characterize it as an in-depth study." (Tr. 8767-68.)
Of the three new "ventures"--computers, jet engines, and
nuclear enerqy--the Ventures Task Force studied computers first.

* At the time of their Task Force assignment, Jones was Vice
President of Finance, McKitterick was Vice President of Corporate
Planning and Estes was Vice President, Secretary and General Counsel.
23'I (Ingersoll, Tr. 8267-69.)

22\
I

,I

z~ I

** The Task Force studied IBM, NCR, CDC, Honeywell, Burroughs,
(R.

:! Univac, Xerox, ICL, Siemens, and several Japanese companies.
25 :\ Jones, Tr •. 8778.)
I
i

i

!

:\

-534-

1

This wa-s because, as Jones testified, GE was "in a position in

2.; nuclear where we had so many contr-actual commitments that our options
and our alternates were rather re·stricted.

3

The same thing held to a

lesser- degree in the commercial aircraft engine business, whereas- in .

~ !I
(5

il

the computer business it seemed to us that we had a good deal more
freedom to select from a rather wide range of alternates and options

7-11 as to the future course of the business".

This was so because the

compute-r business "did not. have long-range, long-standing contractual

a

commitments to deliver product[s] over an extended period of yearsll.

9:

(Tr • 87 5 8 - 5 9 • )

10

The Ventures Task Force "attempted to evaluate the risks·

11

associated with the APL plans •

• from a broad business standpoint.

• • • [It] did not undertake to verify the accuracy of specific
details of the cost estimates, for example."

(Ingersoll, Tr. 8431.)

The Task Force ultimately reached the conclusion that GE
should "disengage by combining its computer business with that of

17! some other computer manufacturer" (R. Jones, Tr. 8801) despite the
18

fact that it found that in the computer market "great size and very
:i

:1

rapid growth make for a challenging opportunity" with the O.S. and

19 .1

""'0
'\I
,
:1
,j

21 ilor

European businesses projected to double in the next five years.
3 3l-A, p. 9.)

(PX

It listed a number of negative factors affecting GE:-

"substantial operating losses", "heavy debt obligations and interest
burden", "obsolete product lines", and "poor reputation and image"
(PX 33l-A, p. 49), and stated that GE had
"Limited technical strength other than in data management and
multi-processing software and communication equipment.
-535-

1

I

II
"Major product lines obsolete, complete but incompatible.
Not vertically integrated. Weak in peripherals, mass storage
and term·inals. n
(PX 37l-A, p. 39.)

i

Zi

Among listed "Critical Future Problems" were

3

"Across the board system obsolescence.

~
t

!,I',
1-

5 ;l
7 \!

"Vulnerability of PARe [installed base] to competition--lack of
specializ·ation. Customer loyalty now under 80%, lowe.st of any
competitor.
"Lagging technical position in main frames, peripherals, and
manufacturing process technology."
(Id., p. 40.)

;I
I

s!!

Its installed base was termed "already obsolete and vulnerable with

9!!

the conclusion:

,

"Time is not on our side."

(PX 33l-A, p. 20.)

The

10.:! Task Force stated that "we need to be realistic about the relatively
!
l1 :I poor reputation and image we enjoy as a computer equipment manufacI

l2.1j. t ure r" .

( I d., p. 3 4 • )

: it

Jones concluded:

" [W] e were not doing the job that was

,I satisfying the customer to the extent that certain competitors
15!

I were."

16

;1
:i

17 !l

19

.1

.j

'I
:i

·1

il

ZC
21

The Task Force evaluated the APL plan.

It concluded that

that plan

:1

18

(Tr. 8886-87.) *

'1

J

:1

"conceptually recognizes the current needs of the business and
presents a goal that, if realized, would indeed place the
company in a strong position in the business computer field.
It is our conclusion, however, that the APL entails very high
risks, and that it is doubtful that it could be kept to time,

:1
;1
:j - - - - - - - - - - - - - - - - - - - - - -

* Jones also testified: "(I]t is my experience that in business
you succeed when you satisfy a customer and when you do it in terms
:1 of giving values that are highly satisfactory from the standpoint of
2A ,! the customer. And I use 'value' in the sense of conveying reasonable
~ -I price, quality of product, features of product and performance,
25 ~ overall performance of product."
(Tr. 8868.)

22 ;,:
_
Z3

~

.,:\
Ij

.1

t

l

,I

.,il

:i

~i

-536-

cost and syst.em performance schedules. Even if General Electric
were in a position to undertake such an ambitious program, we
would not recommend that it invest the requested sums in such a
hazardous project predicated on an all-out a·ttack on IBM, one
of the world's strongest corporations.

1
23-

"·Faced with the lack of earnings growth, but seeking to
retain its image as a growth company, General Electric cannot,
in our opinion, undertake any ha.lf-billion dollar venture, such
as APL that·produces substantial immediate net income losses ....
(PX 33l-A, p. 7, emphasis in original.)

4.

The APL plan, acco·rding to the Task Force, called for a fourfold
expansion in GE total shipments in six years with an expansion of
I
9-! 60% to 70% per year of its sales force and "even so, productivity of

i
10 l GE['s] sales force must be twice as great per man as that of IBM".
I
11 1 ( Id., p.. 28.)
,

1

Jones testified that one of the reasons that the Ventures

121
I

13 : Task Force "felt that the APL plan was one fraught with risk" was

!
14-: that it called for technology beyond the current state of the art,
;

15 ! which required "invention by schedule in order to achieve its objecI

16

17

il

ti ves" ·

:i

(Tr.

If it "had not been so ambitious in a techno-

logical sense and· in a timing sense it might have been a somewhat

11
II

18 :1 better plan.
19

8769.)

i Tr.

za \1

It might have had a chance of acceptance."

(R. Jones,

8 790 • )

In fact, Weil testified that by late 1969, APL was not

'I

21 i\

"well along" in its design and development and that "the software

:1 was still in fairly early specification form".
(Tr. 7244-45.)
At
22 :\
Z3 :!the time of the Ventures Task Force "detailed engineering specifica-

24 :Itions" and "firm cost dstimates" were not available.
:\Tr. 8370; see also R. Jones, Tr. 8768;
25 :\
1

'I

1!
i
t

it

p. 15.)

Yet the world would not wait for GE to corne up with its

11

;1

PX 363,

(Ingersoll,

-537-

l; 360.

Jones testified that "it was our experience that every time we

!

2.!

went out to sell a computer there were a lot of other people knocking

I
3. i on the· customer's door ,attempting to sell him a. computer.
i·
I

4-1

sense- it was·

high~y

compe·titive."

(Tr. 8861 •. )

In that

He testified that

I

! I· "it wa.s the opinion of the Venture·s Task Force that some of the
I

I

6-; companies in the field would find it necessary to combine •
7 II the [business computer systems] business was competitive • .

that
• and

8.!If that it would continue to be competitive and it would be those
I

sl

competitive pres.sures that would c·ause some combinations to take

i

(Tr. 8864-65.) General Electric believed
10 !! place in the field."
'''that one of the characteristics· of the business computer systems
11 t
! business was that competition constantly forced suppliers to come

,

out with better product·s at lower prices in order to keep the custoi

1~1

mers that they had and to get new customers".

(R. Jones, Tr. 8865.)

The Ventures Task Force called IBM Ita moving target" which
Ingersoll interpreted to mean that "we at General Electric should
assume that IBM would not be a stationary object, it would be a
dynamic situation, and the conditions . . • might well change".

"(I]t

was in effect a high risk to assume that the conditions and evaluations • • • would remain constant, that is, that the comparisons
would be subject to change as IBM made plans and introduced its own
products."

(Ingersoll, Tr. 8128-29; PX 363, p. 15.)

Similarly, the

Ventures Task Force and its support staff felt that "it was a high
risk assumption" to assume that corLlpetitors other than IBM "would
stand still with respect to market share".

-538-

(Ingersoll, Tr. 8127.)

As a result, Jones testified that the Ventures Task Force

1

2-

concluded "that the life of a family of computers was quite limited",

3-

some·thing in the range of

4.-

bring out a family of products that simply met the price/performanc-e

=-1 cha·racteristics of

~our

to s'ix years, "and that you did not

the then existing competition.

You had to bring

I

I

out something that would exceed the price/performance of the exist-

6 :,

711:, ing competition because you knew full well that they were going to
I

81

be moving ahead of you.

~l

8866-67.)

lQ

!

11

i

I

,
15:
!
i

It is a cons·tant leap frogging game."

(Tr.

It was a lesson which GE learned too late and IBM had

learned well before.

(See PX 1077;* OX 4806;** pp.

493-94, 531 above

Indeed, the APL plan itself stated in January 1970:
"One of the key aspects of technology in the computer field is
its high rate of obsolescence. Never in the history of technology has the pressure of competition and the lure of highly
rewarding markets created such a dynamic evolution. While this
characteristic is forcing rapid technological progress, it is,
at the same time, imposing on the computer manufacturer a heavy
financial burden and the necessity of planning products with a
narrow margin for error." (PX 353, p. 23.)
.

~I

1S

11

11

II

The Ventures Task Force, of course, had not been called
together simply to consider computers.

'I

Ingersoll testified that he

18 :riI
;1 - - - - - - - - -

19:1

* Thomas J. Watson, Jr.:

ItI believe that whenever we make a new

2D h machine announcement, we should set up a future date at which point

we can reasonably assume that a competitor's article of greater
capability will be announced. We should then target our own develop... :, ment program to produce a better machine on or before that date."
Z2 :1 (PX lO 7 7, p. 2.)
:1

2"

:'1:

-!l'I since
** Thomas J. Watson, Jr.:
"I think it important
we seem to have suffered for a few months or

to note, however,
even years because
:1 our machines predated the effective competitive machines now in the
Z4 ~lmarketplace, that we now make these machines good enough so they
:j will not be just equal to competi tion, for I am sure that once they
25 :1 are announced our competi tors will irnmedia tely try to better them.
,This is all to the good and I am for competition, but I want our new
:!line to last long enough so we do not go in the red.
(DX 4806.)

23

1

II

:\

'\
:1
:1
:1

'I

:1d

-

-539-

believed that GE's management was concerned with improving the
profitability of the company as a whole, based in part on the experience of the late 196.0s in terms of stationary and then declining
.!

earnings..

r :.

APL on GE I

~:[

projected to be negative.

• :1

It was th-erefore C!:once-rned with the immediate impact of
S

earnings which impact, from 19'70 to 19·75, the APL plan had·

(Ingersoll, Tr. 8271-72.)

The Ventures Task Force concluded that "General Electric

rJ

]

!

can

:.

for position in this. industry, basically because of the needs of

J:

other businesses within its scope".

1

I
~

il~

afford the financial resources needed for an all-out drive

(PX 371-A, p. 73.)

The "core"

businesses needed "more rather than less support, and the company's
immediate earnings goals· can only be met from these businesses".
(Id., p. 76.)
As

Jones testified:

"At that point in time we had ~~ese two tigers by ~~e tail
other than computers--that is, jet engines and nuclear--and we
had this host of other ventures that we were trying very hard
to bring on, all of them spun out of this common technology of
our electric'al industry and electronics industry.
"We were increasing or had-been increasing our debt substantially through this period, so that our debt-to-capital ratio
has been climbing. And we just said, you know, there is a
breaking point where we will lose our triple A rating as a
corporation if we continue to pile on debt and if we continue
to try to do all these things that we have got on our plate
right now.
"This was the one where we had you might say the least
commitment
• in terms of contractual cormnitments." (Tr.
8831-32. )

The Ventures Task Force also had concluded that:

.,~

~:

"For the first time in our generation, at least, we face t.~e
necessity for an allocation of corporate resources ~vhich are

'j
I
I

:!
i

:\,i

'I

i
i

·1

I

:1

:

-540-

.-

1

not adequate to meet all of our readily identifiable needs-during a period when the company is under special pressure to
demonstrate its ability to grow earnings. The general economic
climate is not favorable;' the capital markets are severely
depressed; credit is costly and may be assumed to. become progressive·~y less available;. inflation has forced hJ.gher labor
co·s.ts on the· company following the longest strike in the company's
his·tory.,"
(PX 371-A, pp. 75-76, s:ee also pp. 7, 10; PX 33l-A,

2.

,

3'.\

I

~

i'.

!

I'

i

p. 7.)

ail
j

I

7

GE could not do everything at once:

back every hors·e.

\1

H[Nle can't afford to

We just don't have limitless resources."

(R.

t

S I Jones, Tr. 8843.)
!

g.1i
10
II

Disengagement in nuclear energy and jet engines was "not

! an

available option" because of GE' s contractual commitments.

I

i 371-A, p. 76.)

(PX

While nuclear reactors were considered part of GE's

f
I

; "core business" ("essentially those that dealt with the generation,

Ulr

n r transmission,

and distribution of the electrical energy in terms of

~

14-: the equipment to do all those jobs, plus the equipment that would

utilize electrical energy") and jet engines were considered "a spin-

15
t

16:loff of the core, but •• · very closely related", General Electric
never "viewed the computer business as being part of its basic
17 i
:lcore".
(R. Jones, Tr. 8838-41.)*
11'

is
•

:1

ii

19 :t

The Ventures Task Force did consider the possibility of

!

il

ZO :,

retrenchment, rather than withdrawal, with such retrenchment taking

:1 the form of moving to a more snecialized product line.
However, it
21 :!
1:'
:/was decided that this was not an optimal strategy for General Electric,

22. :;

•

23:1 - - - - - * It is instructive that in its "core business", nuclear reactors,
(Ingersoll,
.,Tr.8288-91.)

:l

24 :\GE had invested for 20 years without making a profit.
25 :1

I

:\
II

:1

;,.;
.,;;
:1

!!

-S4l-

~l

I
a~thouqh

'I

it would have required less investment money_

(Ingersoll,

Tr. 8144-45, 8-150-51, 8188-89; R. Jones, Tr. 8801, 8881-83, 8796! -

-;

97.)

I

"We had sold our- equipment to almost every- marke·t. W-e
had not- conce-ntrated <;)l!l banking or manufacturing or retailing.
we- had either of our- own manufacture or through resale a substantial. and wide ranging line of peripherals, and because our
product offerings over time had been so eclectic ,- we fel t that
i f we- were _to withdraw to the role of a specialist, we would be
in effect abdicating many of the cllstomers and many- of the
markets-that we had been serving.

•i

I

I

S

As Janes testified, this was in part because:

I

"Of course, the result of that would be a substantial
reduction in our overall market opportunities."
(Tr. 8797.)

~

The decision _was- made to merge a large part of the business

J- ;

L i:- with Honeywell by both companies transferring their business computer

operations to a new Honeywell subsidiary.

(DX

555, p. 3.)

GE retained

3; an interest in the new company and, as is detailed below, successi

4.- fully continued its "own independent development of businesses in

the promising areas of process computers, computer time-sharing and

~;

- :.

,a ":1 data communications equipment."*
,7

il

(!£.:.)

(See pp.

544-46 below.)

As we have seen, the GE decision to disengage was taken in

:( part because of past GE mistakes and in part because General Electric

.S ;,

, II had other fish to fry. **

I
t

.9 ::

\

,t"f

I

:I _ _ _ _ _ __

~I

:1

:\
* GE would have liked to have taken a controlling interest in the~ :\ n~w venture but feared the disapproval of the Antitrust Division.
~ (See Ingersoll, Tr. 8242, 8252-53; OX 7259, Barch, pp. 13-14.)
,., 1\
:
~

Z~

** Jones testified that he "perso~ally knew of na acts or activities
:\ of IBM that would have caused our d~sengagement", and none were
,I brought to his attention during the activities of the Ventures Task
:1 Force.
(Tr. 8867-68.)
,t

:1-r

25
1

'I
:i
:l-,

-542-

I
t
I
i

t

I
;

i
[

I

I

I

L:
2.

Could General Electric have succeeded had it remained?

~

Bloch testified that he thought GE had the resources necessary to

1 ! become "a clear No. 2 in the supply of computer systems used for
1

4--;'busines's da.ta processing purposes".

He .tfelt at the time that it

I

~ \.Iwas
-

(Tr. 7811.)

a mistake" not to implement the APL.

Withington,

who, unlike Bloch, was not personally involved, testified that GE

I

i,
7 Jhad

sufficient assets to be successfu·l if it chose to invest them in

a lithe

general purpose computer systems business.

Q

(Tr . 5 6 7 3 2. )

Indeed, General Electric did not have much trouble raising
money in the years after 1970.

10

rnately $625 million by long-term debt.

II
I

•

;~nvest

tz.t

!.Z

From 1970 to 1974, it raised approxi(OX 553.)

It chose to

those funds elsewhere.

!I'I

i.

Did GE. Lose Money?

It is questionable whether GE lost

:lmuch, if any, money in the course of its

1~:1

compute~

operations or, at

[least, whether it would have lost money thenceforward had it not

15;

lsold part of its operations to Honeywell.
16 :\
ii
A report, by Peat, Marwick & Mitchell, General Electric's
17 !
- :putside auditors, showed that GE's domestic business computer opera-

rs

:1

• 'ttions lost approximately $163 million in the period 1957 through
19 ii
.
(PX 380; see Ingersoll, Tr. 8353-56.) Jones testified
'ISeptember
1970 •
.
20 !
(Tr. 8756.) Ingersoll
'~hat this accorded with his recollection.
\

21.;\

"".,

.

~testified

that this figure included allocation of corporate overhead

.

"

""kxpense to GE's domestic business computer operation, involving
.,_ :i
~bxpenses which continued after the transfer to Honeywell and which
Z:!.

z.:

:l

I

~ere

II
'i
i

not directly incurred in the operation of GE's domestic computer

'\

!

:1I
I

,I
,I

!

-543-

operati.ons.

(Such allocation amounted to 10% to 15%.)

(Ingersoll, Tr.

8359-60, 8365-66.)
Furth.er, Ingersoll'testified that PX 380 "reflects the
~

cost of developing the eq.ui.pment incurred by the Domestic· Busine·ss
I

f!'

COmputer Operations. that were s·ubsequently transferred to Honeywell--

I

I

i;

the deve'lopment, that is, through the date of the transfer".

,,:1

8377-78.)

S !~

(Tr.

Hence, in order to evaluate whether GE would have ultimately

::

made losses had it not sold part of its operations to Honeywell, one

o

must consider the profit stream

1

those sunk expenses.

i

As

which would have resulted from

Ingers'oll testified, "because of the rela-

tively long life of computer equipment, • • • in order to properly

2.:
I
i

I

evaluate the total results' one should look toward the full life of
....
'
~I
the equipment" •

.~:

He agreed that it is "generally true that in the

!

manufacture and marketing of new lines of computer
-=:I development,
equipment that losses are sustained in the early years and profits

.6

:!

.dI.

derived in later years".

(Tr. 8199-200.)

According to GEts proxy statement, that portion of GEls

.S :1:1
. :\ computer operations which was sold to Honeywell had an after-tax
.9 :1

profit
ao J:.,

Further, in December 196-9, GE's Information Systems Group estimated

~i
.;

that the net income from its current computer product lines for the

- i years

!3.

a4

(OX 554, p. 9; see Ingersoll, Tr. 8329-30.).

I

U. :!

,.,

for 1969.

J

1970 to 1975 would be $173 million (this estimate also included

a positive impact of APL on current products).

(PX 362, p. 10; see

I

\ Ingersoll, Tr. 8378-79.).

The Ventures Task Force in April 1970

-544I

,I

.\
;\

1

estimated that the current product line would bring in $821 million

2

in revenue and $164 million in net income in the years following

3

1969, regardless of APL (it was evaluating the business from the

4-

point'of view of a prospective buyer).

s-

Ingersoll, Tr.

II

(PX 331-A, p. 32; see

8~76-77.)

i

j

The terms of the sale, which was announced on May 20, 1970

e :1

The two companies fonned Honeywell
i ij {PX 323 (DX 14502», were as folloYTs.
!l Information Systems (HIS) and GE received an 18-1/2 percent interest
Sl
1

in it.

i
~i

i

common stock and $110 million of Honeywell subordinated notes (later

LO~
U

In addition, GE received 1.5 million shares of Honeywell

I converted to additional shares of Honeywell common).
l

(OX 555, pp.

22-24; see Ingersoll, Tr. 8393-96; OX 14073, p. 32.)

At the time GE

recorded a profit of $1.7 million on the transaction.
1.4-

That amount

was quite conservative, GE having undervalued its minority interest
t

I and the value of. its Honeywell stock.

15;

(DX 555, pp. 26, 31.)

IngersolJ

I testified that the market value of the 1.5 million shares of Honeywell
I

le if
17

1~

• .oil

stock received by GE was "in the neighborhood of $130 million".

II

(Tr. 8388-89.)

lJ

it

Ingersoll testified that GE valued its minority interest in HIS at

19 ;t
Z!l

"approximately $32 million", "substantially less than the net book

11
;1

:1

value of that minority interest as determined by Honeywell" which

:j

valued it at "at least a hundred million dollars".

Z!. ;1I,

22. '\

~-.

~

In addition to that and the $110 million in notes,

(Tr. 8393-96.)

In fact, the 1,500,000 shares of Honeywell stock had an average

;1
~

market value of about $120 million as of the last quarter of 1970,

!

-545·l
;/
.1

'1
j

r

1

traded during that pe-:r.:iod.

(DX 555, p. 31; OX 14064, p. 164.)

In

2i

1971, GE received 1,025,432 shares of Honeywell stock in exchange

311

for the $:110 million in notes.

I

(DX 14073, p. 32.)

Those shares had

4 !! an averag-e market value of about $:113.2 million in 1971.

5

j1

6

I'

p .. 164; OX 14131, p. 172; ox 141-32,. p. 172; OX 14133, p. 173.)*

I; 1916, GE exchanged about
I

(DX 14·130,

one~third

In

of its interest in HIS for 800,00'0

71

shares of Honeywell stock and, in 1977, the remaining two-thirds of

8\
91:

another 1,400,00'0 shares.

i;

10

!

(OX 13980', p. 40'; DX 13981, p. 40.)

The

Honeywell stock received in 1976 had an average market value in that
year of about $35.6 million (DX 140'62, pp. 2, 4, 6, 8); the stock
received in 1977 had an average market value in that year of about

11

121

$68.5 million.

(DX 14·0'63,. pp. 2, 4, 6, 8 •. )

GE sold the Honeywell

I

i

13

I

stock over the years, disposing of the last in 1978.

14

I

40; OX 13887, p. 40.)

15 \
16
17

(DX 13981, p.

Taking all these things into account, even allowing for

,I the difference in

t~ing

and inflation between the expenditures made

!.

II in the early sixties and the returns received from the Honeywell

1811

sale, GE appears to have been a net gainer in the computer industry.

II
II
20 II
19

I

21

i

221
23

II

I'

241
25

* As used herein, the average price of Honeywell stock in a
given year is the average of the high and low prices at which it
traded during that year.

11

II

il
II

t

-546-

L

42.

RCA.

As we have seen, the 1950s were a stagnant

2

period for' RCA's computer busin.es·s.

3

experienced several problems' that continued to retard its growth in

4.

compute·rs., in particular the f'ailure of the 601 and its on again-off

!

again peripherals development.

a

middle of 1963, RCA had stopped marketing the failed 601; the Sal

7

was "starting to decline" and RCA was marketing only one comput.er

S

model, the 3 01.

9-

3301 computer system.

10 ;

a.

I

.- .

T' ! 1963.

During the early 1960s RCA

(See pp _ 196-207 a·bove.)

(McCollister, Tr.. 9622.)

RCA 3301.

(OX 580, p. 1.)

'It

Toward the

RCA then announced its

The RCA 3301 was announced on August 20,
The 3301 was an "interim product", designed

!2: and marketed by RCA ,. to round out our overall product program • . •

!

13; (by] tak(ing] the place of the 601".

(McCollister, Tr. 9247, 9622.)

i

The 3301

l4- ~

-.• -

I

"was not a new design. It wasn't intended to be the
foundation of a future line of products; rather, it
was a product that we could develop relatively quickly,
at re~ativel¥ low engineering expense, (**] that would

!
~
'

15 :1
17

il

lS ·f:t

:1----------

19 .1
* E. S. McCollister joined RCA in 1961 as Vice President of
'0 .!Marketing for the computer division. He held that or a similar
- "position until December 1971 when he left RCA. He then joined the
21 ,\Burroughs Corporation in January 1972. (McCollister, Tr. 9161-62.)
;

** McCollister recalled that the engineering development cost

~

22 :i for the 3301 was "in the order of about $·2 million for the

_ Jprocessor and for the associated control units".
Z3 \Tr. 9623.)

Z! ~
.i

zs

'1

.\
I

'i

'1

::
I

J.1

q
;1

-547-

(McCollister,

give us an additio.nal offering to take the place of the
6.01, and tha.t in a s·ense wou~d give us time to get on
w·ith a complete new product program. in the longer
rang.e future."' (McCollister, Tr. 96·22.-23.)

.

RCA de'scribed' the 3301 a,s· an 'ta~l purpos'e computer t '

:: "fe-atures advance'd

communica~tions

that

devices and arit."metic circuitry

to make it equally powerful for scientific equation solving, super
fas·t bus'iness da·ta· proces·sin.g, instantaneous (real-time) manarrement
'':1

;,

!

control, and' high-speed data communications".
also Beard, Tr. 8994--95.)*

(DX 580, p. Ii

see

In addition, the 3301 could perform

applications "which were in other circumstances performed by multiple
installations of special purpose compute·rs".

(Beard, Tr. 8994-

95.)**

!

"i
~ i

success

wa~~::i:e:o::r s:::e:::::n:~Od:::r t:::i:::r::~' an~e i::O

l
's

: '\ "eclipse" by the announcement of the Spectra 70 series less than a
r ~ year and a half later.

I

i ;1
:.

r

RCA

on its 501 and

(Beard, Tr. 8458-60, 10276, 10307.)

had been beset by problems with the peripherals used

30~

systems.

(See above, pp. 195, 201.)

itS-fUl~

Although RCA had

Ii
I

:! resumed manufacturing its own peripherals in 1962 (see above, p.

i

!:i on the 3301 "prevented the computer system from achieving

:\

~ "! throughput capabilities".
!

The peripherals

(Beard, Tr. 10276.)

T .1

I

.. :!

I

, '\

I

~

- :'

i

* The 3301 was not as versatile, however, as System/360.

(Beard,

-~i1Tr. 10266.)

j
I

I
~.i

** A. D. Beard, Chief Engineer of the RCA computer division from
:1962 until 1970 (Beard, Tr. 8447-51), used the term "special purpose
_ ; computer" to mean "real time" computers such as SAGE (Tr. 8995-97),
.: i "communication equipments" , and "small and medium sized scientific
!computers".
(Beard, Tr. 8996.)
1

'I
:1

1

-548-

w~.~

1

202'}, time and continuity of effort had been lost and

2

largely "constrained to live w·ith the peripherals that were then

R(;A

l" . existing on the 301 or' which could be made available from outside

suppliers".

4..

!

(Beard, Tr.900·4, 1.030 7 : see also McCollister, Tr.

Ii 9622-23.) *.

,
s(

RCA also experienced problems with a peripheral unit of its

;

7 iI own manufacture,' the RACE mass storage unit.

a i:1 storage

Those cards

"had to be extracted from a magazine, put in a channel that
carried it to a revolving drum, held on the drum while it
rotated past a reading head, where the information was read or
reported, and then the card had to be returned to the magazine
from whence it came.

~!
I

I

10 i
i

11

device that used magnetic cards.**

The RACE unit was a

t

,

"And this was a very, very complex mechanism and a very
difficult technical task."
(McCollister, Tr. 9657.)

lZ!
13;

RACE was designed to provide random access stora.ge for the

~~!13301.

Compared to IBM's 2311 disk drive,f announced by IBM with

.J..::2

1lsystem/36o in April 1964, RACE was "much smaller" in terms of storage,

•

'I

J.S :~but "considerably faster" in terms of access time.

:,

Thus, for the

l7 11 application mix of some users, RACE, when operating properly, would
I
18 '!be superior to a disk drive and under other circumstances, the disk
~I
19

:1----------------------

20 .,

* According to McCollister, "In the 3301 (RCA] used a card reader
from Uptime, we used the ICL, or lCT I believe it was at the time, a
21 :lhundred-card-a-minute punch, we used the Anelex pr~nter, of which we
2Z :j.~ bought the complete printer sub-system from Anelex." (Tr. 9622-23.)
_;1 ** The RACE unit came in two models, the 3488 to be used with the
~1330l processor and the 568 for the later Spectra series.
(McCollister,
:~Tr. 9656-57.)
:1

Z~

i

:l

f

25 :i 3301 .

RCA did not have a disk product of its own to offer with the
(Beard, Tr. 9046.)

~

!I

,t

.1

·i
.1

.,I
'I

:1

..
,j

I

-549-

drive was superio.r.

(Beard, Tr. 904·6-47.)

The major problem with RACE was that it was not reliable.
Thus, Withington classified RACE as "a major product failure" (Tr.
56511), and McCollister explained why:
t

I;

""(Tlhecards wore- out • • • the cards were damaged in transit
• • • sometimes there was a failure to select the proper card
. . • it was a tedious process to replace a card in the f'ile
when it was beginning to we-ar out and, indeed, to detect when
it was beginning to wea:r.out." (Tr. 9658.)

;,
\f

il

Moreover, even when operational the RACE unit was "unable to meet the'

i

speed of accessibility that had originally been specified in the p.roduct".

(McCollister, T'r. 9658.)
Second, the s·uccess of the 3301 was limited by RCA's intro-

r

duction of a new series only a little more than a year after the 3301

I

• II

,~ II.t

was announced.

I;

..

December 1964 "eclipsed" and "superseded" the 3301.

r

8458-59; PX 4830, p. 25.)

,

!

RCA's announcement of its Spectra 70 series in

Thusi potential customers of the 3301 were

encouraged to obtain Spectra 70 series.

i :J

r:I

(Beard, Tr .

For example, RCA provided

emulation of the "301 on the Spectra 70 but not on the 3301.

a :I,I.

4830, p. 25.)

(PX

Another sign to RCA's users that the 3301 was a dead-

end machine was RCA's failure to provide a "growth machine" for users

;1:t of the

J .:

,I
I

~!
....
.\

3301.*

(Beard, Tr.

998~-87.)

Because RCA provided no emulation

from the 3301 to Spectra 70 or to any other system, 3301 users had

;

., "
"

~ .\

~

·t

I
i

....

,~

t

I
,j

* A "growth machine" is one "which allows the programs to be moved
from the predecessor machine to the growth machine [with] a minimum
of re-programrning effort".
(Beard, Tr. 9986-87.)

I

5:;1
i

!

'\
I
j

,I

,
I

-I

:\

-550-

II
!I

II
nowhere to go in the RCA line without converting their programs.

il

L
2 'J

(Beard, Tr. 8458-59, 10235.)
b.

.3

The Spectra 70 Series.

4-! on April 7, 1964.

IBM announced its System/360

Beginning "shortly" after the announcement, RCA

/

=!~ formulated the "design specifications" for its Spectra series.

Those

;t
a;t specifications were done "in (a] preliminary fashion" around July or
t

I

7;1 August of 1964.

a 11:t

(McCollister, Tr. 9624.)

The Spectra 70 series eventually comprised eight mode1s--

9

l

the 7'0/15, 70/25, 70/35, 70/45, 70/46, 70/55, 70/60 and 70/61.

10

I

sizes of the processors increased in numerical order, and the .70/46

11

:1

12

II!

13:
14- il

and 70/61 were intended to offer time-sharing capabilities.

The

In

December 1964 RCA announced the 70/15, 70/25, 70/45 and 70/55.
(Beard, Tr. 8483-85; McCollister, Tr. 9635-36; OX 669, p. 11.)

The

I

il

70/35 was announced in September 1965

(DX

670, p. 16); the 70/46 was

announced in 1967 (PX 338, p. 22); the 70/60 and 70/61 were not

:5
announced until 1969 (OX 674, pp. 8-9).
15 ;!
No prototype of any of the systems was in existence at the

ld time of the announcement.
~

lS

I

:1
·i

A prototype of the first machine was not

:l built until the middle of 1965 at which time prototypes of most of

TQ
....
.[
t
za:

the control units were also built.

(McCollister, Tr. 9635-36.)*

.j
;

./

"'1 I
~';

Z2 .:
~

23 ,1
....04

"--

-,=
.....

* During 1965 through 1966 several n~w peripherals were also
designed. (HcCollister, Tr. 9635-36.) During 1965 and 1966 RCA's
total engineering budget for software and hardware \vas approximately
$15 million annually, out of which came engineering expenditures
for the support of older products as well.
(McCollister, Tr. 9634-35.)
Compare the status of RCA's Spectra at announcement with that of
IBM's System/360: By the time of the IBM 360 announcement there
were prototypes of all models of the processors.
(Brooks, Tr .
-551-

Deliveries of the "small systems" began in 1965 and the "larger
\t systems" in 1966.

(Beard, Tr. 8460.)

Four aspects of the Spectra 70 series are particularly
important:

_I'

its attempt at compatibility with System/360, its ability

I

-I' to perform commercial and scientific applications, the problems RCA
I

, ! encountered and the success of the Spectra 70 series.

'I

~

,

• 'I

il

(i)

Compatibility with System/360.

In a decision that

I:

affected both the Spectra 70 and its succeeding RCA Series, RCA

f!

decided to

,, i

use the same application programs'with little or no modification,

l!

with IBM's 360 systems.

,

mak~

its Spectra 70 series compatible, that is, able to

By making its Spectra 70 compatible with IBM's System/360
RCA hoped to be able to persuade substantial numbers of 360 users to
move to the Spectra series. (Beard, Tr. 8461-63; McCollister, Tr.
9269-70; Rooney,· Tr. 12117.)

In particular, RCA expected to target

22695-6; Hughes, Tr. 33995.) Most of the processors and some of the
peripheral equipment were in the early stages of product test
(McCarter, Tr. 88382-83; JX 38, '1 19); all, or almost all, the
memories had undergone technical evaluation testing (Brooks, Tr.
22699); microprogramming and multiprogramming had been tested on
the Hodel 40 (McCarter, Tr. 88382-83); four estimating, forecasting
and pricing cycles had been completed; and the "componentry,
systems and product testing program alreadv completed . • . [was] ·more
extensive than the entire program ever [previously] undertaken for a
system" .
(OX 1172, p. 2; see also OX 1165.)

* J. W. Rooney joined RCA as Vice President for Marketing Operations
in 1969. He became the Vice President of Marketing for the Computer
Systems Division in 1970 and was President of the Divis~on from 1971
until he left to go to Itel in 1972.
(Rooney, Tr. 11687-88.)

.-,-...

-552-

:
I

~

L

its marketing efforts at those 360 users who wanted to obtain
larger or more functional equipment.
i

(Beard, Tr. 8526-28.*)

To

3i

those users RCA wanted to offer better price/performance on its

4-1'

Spectra 70 equipment than IBM did on its 360 equipment and thus

5';

persuade the user to acquire Spectra 70 equipment.

(Beard, Tr.

I

i

6;
7

10103; Rooney, Tr. 12117.)
Thus, during this period RCA attempted to offer a price/

\1

~t

;

performance advantage of between 15% and 20% over IBM's systems.

8f
9;

(Beard, Tr. 8493-94, 10095; Rooney, Tr. 11826; see also Wright,**

f

LO ! Tr. 13083.)

RCA's strategy to be compatible with IBM and to go after IBM users.

tl

• --

RCA's pricing methodology was the direct result of

* RCA believed that compatibility had become a more useful
marketing tool after introduction of 360. Prior to 360 RCA had a
. "sales opportunity" whenever a customer wanted to go to another
computer because:
!

~i

f

16' :,'.

ld
15 :!
:t

"As the computer industry evolved, ordinarily even
in moving within the line of one manufacturer, within
the line of 'IBM, there was conversion that was necessary.
And since a customer was facing • . . a conversion in the
case of IBM, we could argue it won't be any more difficult
to convert to RCA."
(McCollister, Tr. 9273-77.)

19 :t,I

Since users of 360 tvould be able to move up to a larger IBM
360 computer "relatively easily", it would be to RCA's
za ,': advantage "to make it almost as easy as we could for the cusI
,I tomer to move to the RCA product line as to move up within the
Z!.! IBM product line".
(McCollister, Tr. 9273-75.)

,

.1

Z2 ;;

** v. o. Wright joined RCA as Vice President and Regional Manager
of Federal Government Marketing in the Computer Division in 1970,
~- :\ became head of Systems Development in 1971 and left in 1972 to go to
~!
Amdahl.
(\-'lright, Tr. 12785.)
Z4

I!

.,: 'j

-- I
I

'\

I
:1,

I

;1

I
i

-553-

II
I
I

.1-

n[I]f you are going head to head with a competitor,
such as IBM, and you essentially are going to offer the
same function and if the competitor is in a stronger
position in the marketplace than you are, you would
offer· a price advantage to move your product." (Rooney,.
Tr~ 12415, see also Tr. 12414, 12420-21.)

I
I

il
~,

\1

il

The pricing methodol.ogy was based upon two assumptions:
(1)

RCA assumed that in many cases Spectra would be

offered to displace existing IBM computers and some
inducement would have to be offered to persuade the
IBM user to go to the trouble of replacing his existing
IBM computers and install Spectras (Beard, Tr. 10103;
Wright, 13083-84)*; and
(2)

Spectra was delivered one to two years after

IBM's System/360, and customers expected a new offering
to have a price/performance advantage over older computers.
(Beard, Tr. 10103-05.)
If RCA had not adopted the compatibility strategy, other pricing
strategies would have been available:
"If you did not have compatibility, you would be
going with your own product line, which would have its
own unique characteristics and functional capabilities.

* This "was needed in order to compete with IBM and in
order to obtain business from people who were currently using IBM
systems, to displace IBM systems. If a customer has a fairly
substantial investment in software, he has to have some reason and
some motivation to move to another vendor, and we felt that that was
the margin of motivation that was needed to get them to move."
(Wright, Tr. 13083-84.)

-554I

I

J

!

i
--- .. _____ .__.1 .

"If you felt that you were matched in those unique
capabilities and functions by IBM, you would probably
price your product·s for comparable systems in the same
range but not necessarily under IBM. ,

I

3:
I

"If you felt you. had a unique product, then you
would not be guided by IBM r s pricing. policies. You
would then price' based upon your analysis of what the
market would bear for that functional capability."
(Rooney, Tr~ 12421.)

1

4.;. \.

51'
I

I

5 11
7 \t

RCA employed the technique of "straddling", placing its
machines in terms of performance "approximately midway between a

s :1

~ il

pair of IBM machines".

(Beard, Tr. 10106-07, 10113, lU121-22, see

also Tr. 10097-99.)
10

"Generally what was done was to pick what
appeared to be the most commonly used configurations
of equipments: so many tape drives for a small
system, so many tape drives for a large system, and
so forth, to pick several of what were considered to
be representative points around which you would expect
a large number of customers to cluster.

II :
!
I

12.\
13

!I

t4- \1

!.5:
i

16<1
17 :1
•

15 ;t

I

:t
19:~
:,
ZO '1
'i••

Zl ;l
oj

Z2
~

~!

.. i
"

~!

"Based on that simplified set of system considerations--that is, not taking all the possible
combinations into account, but some of the most probable
ones--evaluations were made on a system basis, that is,
not only the. speed capabilities of the main processor
but also what range of peripheral speeds you would put
on each of these system configurations, determine what
the relative overall performance advantage or disadvantage was, and set the prices accordingly.
" • . • [T]here would be some possible configurations
whereby you would not meet your price/performance goal
of 15 to 20 percent; you would only meet them on the
specific points that you had evaluated.
"There would be some cases where
you would
•
exceed that price/performance advantage.
There would
be other cases where perhaps the advantage would go

t

.1

24 'j
;(

-555-

the other way."
Tr. 12129-31.)*

(Beard, Tr. 10092-93; see also Rooney,

As discussed at greater length below, RCA's attempt to offer
better value to the customer than S.ystem/360 failed even though it
may have been able to anno·unce that it provided more throughput per
dollar (better' price/performance) than some of the 360 systems with
which it competed.
RCA also believed that the compatibility strategy would
have a good chance for success because it could take advantage of the
situation where IBM users were leasing from IBM on a short-term
basis, which leases could readily be terminated and RCA equipment
substituted.

(Beard, Tr. 10073; see also Rooney, Tr. 12126-27.)

A number of arguments against the compatibility strategy
were raised at RCA:
~:

First, if IBM customers could switch easily to RCA machines,

=;
"" ,

then RCA customers could also switch easily to IBM machines.

II

Beard

6 :! called t.t,.is a "two edged sword It • However, RCA fel t that it 'Ihad more
7 :i1\
to gain . . . than to lose" because IBM had many more existing cusS :11t tamers than did RCA.

(Beard, Tr. 8519-20; see also Rooney, Tr.

"

9 :t 11857.)

:0 :
I

I

~!

1 * Thus, the Spectra 45 was placed between the System/360 Model
and the Model 50, and the Spectra enjoyed a price/ performance
._.l advantage over the 360 Model 40. However, the performance of the
~

~

'A

.-

~

'!

,1
!

!
-i'

360/50 was sup~rior to the Spectra 45. The same was true with
respect to the comparison between the Spectra 55 and the System/ 3 6 0
Models 50 and 65.
(Beard, Tr. 10106-07, see also Tr. 10097-99.)
The Spectra 4S and 55 were bid against the IBM System/360 Models 50
and 65.
(Beard, Tr. 10113, 10121-22.)

I

'I

i

I

'l

-\
t

i
-I

;\

40

-556-

Li

Second, the similarity between Spectra and 360 "sharpened

Z~

the comparisons" between RCA and IBM, making it "easier for the cus-

1

tome.r to analyze- and quantify the differences" and putting "RCA in a

4-i·

position where its products could easily be criticized versus what

I

i-

!i
I

\

IBM was offering . • • . If there were any deficiencies on RCA's
part they would probably stand out as weaknesses."

(Beard, Tr. 8526.)

Third, RCA could have chosen "the most natural alternative
an extens-ion
9

0

f

the 301, 3301 systems".

vided two advantages to RCA:

This would have pro-

it would have given it Ita certain

!

10 ; advantage" in marketing to the existing 3301 user base, because of the
i

U;

"software investment that [the users] had made in those machines".

I

ttl
!,

(Beard, Tr. 8524-26.)*

~!

"superior architecture to what IBM had chosenlt.**

lJ.';

8524-26.)

.-,.

And -it might have enabled RCA to provide a
(Beard, Tr.

!

,.

RCA considered this important decision only briefly.
McCollister testified that "because of the press of time in this case,

* As noted above, RCA chose to forego this "advantage" and did
not provide any emulation on the Spectra 70 series for the 3301
user.
** According to Beard this possibility did not seem to be very
likely:
"However, I think most of us felt that it really didn't
make that much difference to the customer what particular
machine instructions were made available; that the 360
set was a complete set, it included most of the things
we had thought of and perhaps some that we had not thought
of; there were some things that were missing, but these
Tllere secondary in our minds."
(Tr. 8524-26.)
-557-

• :' I am not even sure that there was a formal product proposal".

t!
r;

9630-32.)

(Tr.

The compatibility arguments prevailed, and two or three

weeks after the announcement of System/360, RCA decided to make its
Spectra series "'as compatible with the 360 as the circumstances permitted".

(MCColiister, Tr. 9273.)
With the compatibility approach that RCA chose, its Spectra

series had the same instruction set, instruction format and word
length as 360.
i

However, "in terms of the engineering implementation

of this architecture, it was quite different between RCA and IBM.

I

:J!I · · · · If you took these machines apart, they were totally different
i

1; machines •

RCA used a completely different set of components."

(McCollister, Tr. 9644-'5.)

1

2.iI
!

(ii)

Commercial and Scientific Ability of Spectra 70 Series.

~.

As discussed above (see pp. 290-96), IBM's System/360 was aLmed at

-..

all users regardless of application.

!

'
-!
'

;

the Spectra systems for "commercial as distinct from scientific

.6 :(

.7

,I

.S

.f

purposes . . • it· was a stated strategy to all of our marketing people
that we were selling to the business environment and precisely said

a

'Q :1
... 'l
;1

..i

,.,

.1I

.~

':

=
~

.1t

Z!

t
I

... _
~=

that we did not have a computer to compete in the scientific arena".
(Rooney, Tr. 11802-03; see also Beard, Tr. 8460.)

!OJ.,
'"
-

Initially, RCA planned to market

I

While RCA initially chose to concentrate on marketing to
users who used computers for commercial applications, the design of
the Spectra, as with IEM's 360, was flexible enough to be used for
many purposes.

Beard wrote in 1965 that among the "salient points"

Ii incorporated in the ,"basic design philosophy
I

·1

!

:1

i
,\
.i.,
I

-558-

0=

the RCA Spectra 70

I

Series" was a "versatility for handling data processing, real time,

1..:

Z 1 and scientific applications from the small user to the very large".
!
(OX 617, p. 2; se,e Beard, Tr. 9099-100.) Beard testified that

3:

r
I

4.! the "primary reason" for making that a "salient feature of the design
I

!.

philosophy of the Spectra 70" was:

:::. i
-

I
1

I

"We felt that as the customer world became more sophisticated that there would be a consolidation in the
computer type operations of more than one type of
function and therefore this versatility, which allowed
fo,r engineering and scientific type problems, communications problems, data processing, batch problems,
information control systems . • • could be merged into
one computer complex.

e \J
7-

J

8

:1
I

10 :

"It may be a relatively small computer, if the
operation is a small one. It could be a very large
computer, if the operation had a large volume of data
to be processed. There would be configurations where
reliability was e,xtremely important and it would be
necessary to have multiple processors in order to have
redundancy in the system.

i

ll:
I

!2.[

'I

13

;J
I
I

l~;'

"It would be an advantage, from what we saw in the
field emerging, for the hardware as well as the software
to accommodate these various functions in one system
as opposed to having distinct unique systems for each
of those functions."
(Tr. 9100-01.)

15;

16 ~l

"7
:t:1
•

Very soon after the initial delivery of the Spectra, the

is J consolidation

.~9' :\j

of the various types of functions which was anticipated

in "the design philosophy of the Spectra 70" had come to pass with

'r

ZO '\ "some of the more advanced customers . . . ready for ~~ese types of
:\

21 ,! systems in the latter half of the sixties, and certainly that trend
j
:! has continued into the seventies". (Beard, Tr. 9101-02.) By 1970

.

,?
23

'f
1

RCA was advertising the versatility of the Spectra 70:

t

I

2~ '\

25 \
"

"The emergence of third generation equipment with
increased speed and storage capacity has brought us
to the realization that scientific applications are

I

,I

-559-

within reach of almost every computer user. In the
past these app2ications were confined to the big
and expensive machines.

1;
I

i

i

Z;

..

I

i

3.;

I
I

~!
I

,

::- I:.

,

*

"For all your. da·ta. p.roblems--from simple accounting to mz;.nagement sci,ence programs--Spectra 70 offers
a complete systems approach'.

I

"Linear programming • • • statistical analysis
• simulation .. • . automatic machine tool control
. all are key elements of management science
operations. Spectra 70 handles these applications
and your' normal data processing at the same time."
(OX 619, pp. 1, ,,39, emphasis in original.) *

6.;

l

7 II

;1

8
9-

To assist its cus·tomers RCA offered its "Systems Scientific Services":

10

"Systems Scientific Services provide a broad range
of support to RCA customers in software areas.

II
1

12.

il

13
11

"By supplying generalized scientific, statistical,
simulation, and mathematical software, Systems Scientific
Services assist the user in achieving efficient use of
his system • • • right at the start.

;1

!.4- :
I

!

"Also available are scientifically oriented prosystems." (Id., p. B.)

gra~~ing

lSi
i

16 [!

(iii)

Problems with Spectra 70 Series.

The Spectra 70 series

,
1t suffered from various problems that hurt its performance in the
.7
18 :I marketplace. Much of the equipment of the Spectra 70 series suffered
il

ii
;1

19 ;t

20 ;1.,
'I

1

21 il

from reliability problems which users took into account in choosing
--------

* RCA also explained the new field of management science:
"Along with the advancement in equipment, the
technology and management science has made significant
advances to the point that it is an integral part of
modern, efficient, organizational management.
"Management science has a broad definition that
includes mathematical, statistical, and operation
research techniques that aid in effective decision
making on the part of management."
(DX 619, p. 1.)
-560-

L

i between RCA and IBM computers.
!

2.!

(Rooney, Tr. 12190-91.)

Rooney com-

plained about RCA's equipment as late as June 1970:

I

"RCA equipment apparently requires larger amounts of
dedicated preventive maintenance time than that of our
main competitor, IB~I. Customers that have both our equipment and IBM equipment are aware of this, and this works
to our detriment in the· marke.tplace."
(DX 621; see also
Rooney, Tr. 12186, 12202-03.)

I.

Moreover, according to Rooney., RCA's equipment was

~:
- : ".
i

La

~

l2.!

For example, RCA's disks were "more sensitive to air conditioning"

r~.;I
~.,

to!.

"apparently more sensitive to environmental fluctuations
than that of competition, particularly to IBM. This makes
our customers somewhat sensitive to the differences between
our maintenance policies and theirs. I am told, for
example, the 360/30's can be left without any maintenance
whatsoever for weeks on end. Yet, most of our systems
require that we take the system from the customer for
periods of time every day."
(DX 621: see also Rooney,
Tr. 12145-48.)

than those of IBM, "so, if you did not have the adequate amount of

,I air conditioning, that could lead to the need for more preventive
i

15:

maintenance".

16 a

17

\1

.-

tQ

RCA suffered problems during the installation of the
Spectras.

lS ]ij

(Rooney, Tr. 12197-201.)

In that regard Rooney testified that:

"RCA equipment was more difficult to install because
of certain environmental factors. I remember the RCA
equipment required more air-conditioning and power and
I remember a problem of size, physical size of the units
being involved, in terms of: if we replaced IBM, certain
of our units would require more physical floor size than
IBM equipment." (Rooney, Tr. 12175-76.)

~I

.~

i
,rr
:
-- ,i
.i

"'1 .1
~,!
~

22 .; These problems made it harder for RCA tnan for IBM to install its
t

.... - :1
~

I
~

equipment.

(Rooney, Tr. 12204-05;

I

2~

.1

\ Rooney in 1970 that:
.!
1:\.\

I

,I

:j

-561-

DX

620.)

It was reporte d to

"In the area of installation, the RCA-IBM comparison
is not restricted to just power and air-conditioning
requirements. The problems are more p.rofound, and
bear directly on the equipment designed.

;'

I

"The installation of RCA data processing equipment
has historically been more difficult and more time, consuming than. that of our competition, particularly IBM's.
Since the RCA marketing strategy is to sell to the IBM
replacement market, the installation of RCA equipment
is constantly being compared against IBM in an unfavorable light." (OX 620; see Rooney, Tr. 12205-06.)
During 1968 a portion of the marketing force was diverted
from seeking new business to coping with problems of installation.
At that time the marketing force was

.-..

;

"very, very heavily occupied in working with existing
customers on the installation of equipments which has
[sic] been ordered at an earlier time . • . . [D]uring
the year 1968 about 75 percent of [the time of] the
marketing organization • . • was devoted to working
with existing customers as opposed to seeking new
business . . • • And this made very heavy demands upon
the time and capabilities of our field marketing
organization, and this impacted to some degree our
ability to get new orders." (McCollister, Tr. 9647-50,
9653.)
RCA also found that its marketing force had to take time out from
their normal selling efforts to deal with n[t]he problems of training
customers in the programming of the equipment, in working with the
customer in

~~e

installation of the equipment and the conversion of

his system of processing work to this new method".

(McCollister,

Tr. 9649-50.) *

* The amount of effort expended by the marketing force on customer

-...,

training was related to the fact that "the Spectra 70 equipment was
new to the user". There was a demand for the services of the marketing organization to deal with problems in systems programming for
Spectra because there were new programming products and, as McCollister
-562-

1;

In addition to the problems that pervaded the entire Spectral

I

I
I

2:

line, RCA experienced problems which were uniquely associated with

I

I pa,rticular models.

3.:

Those problems caused the Spectra product line to

I
I

4-1

vary greatly in it·s degree of success.

j

The Spectra 70/15 and 70/25.

S'\

First deliveries of the

I

smaltest computers in the Spectra series, Spectra 15 and 25, were made
6 ;~
(McCollister, Tr. 9640.) The 70/15 and 70/25
7' il;1 toward the end of 1965.
I

S\

had less function than the rest of the Spectra line.

9

them to be brought out earlier (Beard, Tr. 8460):

This permitted

"They did not use integrated circuits • . . [i]t
was a means of protecting us against any risks that
there might be in the use of integrated circuits in
the larger systems.

10. '

11

12

"Secondly, we felt that there might be some customers who are interested in a system that did not
have a complete instruction set and was simpler to
operate."
(McCollister, Tr. 9719.)

13 ;
!
I

14 t,,1
The 70/15 and 70/25 were "relatively poor competitors"
15 ;,
16 a (Beard, Tr. 10110) and thus not very successful.
(McCollister, Tr.
17 \1 9642.)

The lack 'of a complete instruction set--one of the reasons why

18

1\

the 70/15 and 70/25 were introduced--and the limited capability of the

19

1:1

systems were two of the liabilities of the 70/15 and 70/25:

20 :1
:1

"
21 \,.',
22 ;j
Z3

"It turned out that most customers wanted the
systems which had the more complete capabili ties, and
also the 70/15 and 70/25 did not have the communications capabilities that the larger systems had and they
did not have the programming language capabilities that

~! -----------------,I

put it, lithe experience of the industry in general is that there
(Tr.

:1

2~;\ is always work to be done on new programming products".
:\ 9 6 51- 5 2 • )

ZS,\
:1
'I

~~

:,
,I

,i
:,'i

!

-563-

il
II
the larger systems had".

(McCollister, Tr. 9719.)

In addition, "there was no COBOL capability provided at all" on the
-

70/15 and 70/25 (McCollister, Tr. 9730-31), which was anomalous

I

,

-: since the 70/15 and 70/25 processors "in general left out the
t

II

scientific type of instructions, and concentrated primarily on the

r:1 data processing instructions".
:1
r ;1
~

(Beard, Tr. 9071-73.)

In November of 1968 the product planning organization of

l the RCA computer division* made a similar observation:
"[T]he Spectra 70/15 and 70/25, are basically sound
processors, however, minimal software, no communication
facilities, no random access hardware or, software
facilities and the lack of slow speed/low cost card and
print devices were the prime reasons for poor competitive position." (PX 127, p. 77.)

~~
l

The 70/15s and 70/25s were also hurt by RCA's absence of

1

"marketing emphasis".

(McCollister, Tr. 9729.)

McCollister testified

4-; that the competitive position of t.~ese two systems "really wasn't that

~

:-

.. I important to the RCA computer division".

They were "insurance

:1

6 i!policies" using "existing technology that we could bring to market,
7 ildeliver to customers before we could deliver the larger systems".

a ':1.
-.

(McCollister, Tr. 9740-41.)

As a result RCA put little effort into

'j

9 jmarketing the 70/15s and 70/25s:
:!

D:

1----------During the period 1964-1972 the RCA computer division had three

'I

~ 'T

~

I

.~

.I
'i
:i

. *

different names:
~?
from 1968 to 1970
,_ :l and after 1970 it
~ :\ it will generally
J "Computer Systems
• A

~...

,=
••

t
!i

from 1964 to 1968 it was called the "EDP Division";
it was called the "Information Systems Division";
was called the "Computer Systems Division". Here
be refe=red to as the "computer division" or
Division" unless appearing in a quotation .

I

:1

i
t

-564-

1

"These were relatively low cost, low margin systems,
and when we had a finite amount of marketing field
manpower, it made better economic sense for us to
concentrate· on the larger systems, where we had larger
unit .sale·s value .. " (McCollister, Tr. 9'724-25.);'

2'!

The shipments of 70/15s and 70/25s turned out to· "trivial n

:,

_to

(MCCollister, Tr. 11355.)

I

,.

•

And RCA produced the 70/l5s and 70/25s

I

~I

~

It

7

\1

"only during part of the total life cycle of the Spectra 70 family·'.

<&)

8;

The Spectra 70/35, 70/4·5 and 70/55.

~:

The Spectra 70/35,

70/45 and. 70/55 were larger processors than the 70/15 and 70/25.

t·

10.'

Deliveries of those systems were about "fifteen months or so behind

II

IBM".*-*

(McCollister, Tr. 9646.)

The 70/45 turned out to be the

!2.i "most successful" of RCA's Spectra series.f

(McCollister, Tr.

,t

13

9665.)

i

The 70/55 was less successful than the 70/45.

It suffered

i

l~:

from several problems:

l
~C'

- II

16' .,'t

17

:(

;, In distinct contrast to the RCA lassitude with the low end of
its line, IBM constantly attempted to grow the market with its low
end computers. ThUS, the 1401 (announced in 1959) and the 360/20
(announced in 1964) were the largest-selling IBM systems of their
time.
(See above, pp. 141-42, 399.)

;t

:r

15

.j

:1

19

.i

** The Spectra 45 was first installed in July or August 1966 and
Spectra 55 first installed toward the end of that year. Deliveries
.\ in quantity of the 70/45 began in 1967.
(McCollister, Tr. 9640-42.)
Z!. \ .
.1
~geard wrote in 1965 (and testified a~ to the accuracy of his
Zl:; statement) that "the Spectra 70/45 is a medium-scale processor with
;\ a high performance capability for business, scientific, communications,
Z3 land real-time applications", giving airline reservations or brokerage
tquotations as forms of real-time applications.
(Beard, Tr. 9080-81i
Z~ 10x 617, p. 7.)
'f

za : the

,C:

....

Ir
i

1

.II
f

-565-

1;

(1)

i

The 70/55 "had serious memory problems . .

2;I

We would get repeated errors in memory due to tech-

11

nical failure in the memory it!self and this would

~i

bring the system down.

51

difficulty in maintaining the gear and keeping it

I
i

I

[We] had a great deal of

I

a:

up.

711
It
8t

exchange of memories • . • some early number of the

~!

(Beard, Tr. 10111-12.)

II

(Roone-y, Tr. 12139.)

It

In fact, "there was some

first machines- had to have their memories replaced."

i

1Q

Ii

II !

RCA experienced "manufacturing pro,blems

(2)

with the [70/] 5"5s, which gave us an unusual amount of

i

i

12!

field maintenance attention during the first year".

13 il

(Beard, Tr. 10112.)

I

!.4. 1I
!

15:

(3)

The 70/5_5 was difficult to install and

relocate.

I

l6

:t

17

!I
1

(4)

(OX 620, pp.

1, 3-4. )

The 70/55 came out approximately a year

after the 70/45 and tended to be "eclipsed" by the

l8 iI1

70/60 and 70/61 which RCA brought out shortly there-

19

11

after.

20

!!

(Beard, Tr. 10109-10.)

(5)

The 70/55 was hurt because it did not offer

"

:i

21 J

any emulation capability.

22. "

that emulation capability
was important to the success
\

':j.

23

:i
'l

24 :\
:!

25

Notwithstanding the fact

of the 70/45 system, the Spectra 55 did not emulate
I

anything.

(Beard, Tr. 10109, 10233.)

'!
"

,I

,I

i\

i
ii
:i

II

-566-

1

The· result of these failures of the 70/55 had a "dampening

2

effect on the [RCA] sales force" and led to customer cancellations.

l

(Beard, Tr. 10111-12; see McCol.lister, Tr. 11216.)
Whj.lethe. 70/35 provided for emulatj.on of the 301, that

4.
/

emulation "did not work success'fully because the Spectra 35 was priced

=1

I

I

at such a high price that it was not a logical move for the 301 user

a ;1

to move up to the Spectra 35 system • • • • [Thus,] 301 users did not

7

:1

move up to the Spectra 3.5".

a~

(Rooney, Tr. l2137-39.)

!

The Spectra 70/46, 70/60 and 70/61.

9!

Re~ort described the 70/60 as a

!

10 ;

..

T'T

~

RCA's 1969 Annual

r

iI

"[llarge-scale • • • batch processor, which is designed
to handle retail credit and reservation systems, automate production control, and service government and
industry data banks. II' (DX 674, p. 8.)

i

.

The 70/46 and 70/61 were tLme-sharing systems.

RCA began its work on

time sharing during 1967 by attempting with the 70/46 "an expansion of
the 70/45".

(MCCollister, Tr. 9673-74; DX 672, p. 2l.)

McCollister

testified that the hardware for the 70/46 was "in its elements iden-

17; tical" with that of the 70/45 with "the addition of some faster
18

.j

registers in the machine".

19

:1

effort of the 70/46 was "in the order of $2 million . . • because we

,I

t

,

20:1. made so much use of what
Z!. .\ (McCollister, Tr. 9679.)

Z2

i relationship

-,

He estimated the hardware development

w~s

already existing in the 70/45" .

The Spectra 70/61 had a comparable

to the 70/60 in terms of deiSiqn approach as

t

?-:

:! the 70/46 had to the 70/45. (McCollister, Tr. 9680.)

24:1

RCA, like GE and IBM (see above, pp. 417-18, 505-06),
i
ZS '\ went into comput.er time sharing because of the changing demands of the

I

'I

'I

:1

:i
/
I

I

:1

;i

-567-

.' industry.
~;

The introduction of the 70/61 "was in response to accel-

erating indus't:ry shift from traditional batch orocessina to

t.! computing, a system in
~

wh~/ch

rp.m~t~

a large central computer accepts and

t

\ almost,' simultaneously feeds back data to numerous remote terminals".
(OX 6 7 4, p. 8.)
As a result of

It

[tJhe growing acceptance of remote com-

puting" , RCA foresaw "excellent potential for sales of data communications terminals and other peripheral equipment as well as for computer hardware" and expanded its manufacturing capabilities for

9;

peripheral computer equipment.

!

(Id. )

0:

i

'T

~

However, orders for the 70/46 and 70/61 during the years

:
;

.4- .
i The marketing forecast was "excessively optimistic".

(McCollister,

:J;!
.,...,

~S
L7

;

I

, Tr. 9695.)
iJ

it

.

:tdevelop~ng

~S

RCA, like GE and IBM, ran into substantial difficulties

the time-sharing software.

RCA's time-sharing software was

it called the Time Sharing Operating System (TSOS).*

The development of

'1
~
~

i1

:l

;
i

(Conrad, Tr. 14130.)

RCA reported that it lost approximately $241 million before taxes on its computer systems operations for the
years 1958-1971*.

(PX 410.)

In September 1971 RCA set up a reserve of $490 mil-

t :

lion pretax, $250 million after tax, to cover prospective

.

losses in connection with the sale of its computer division.

I

,

t
:

-

-

.. 1

;

)

,

The losses that were anticipated related to disposition of
assets "such as- inventory, receivables, plant", "discharge

,

of claims and obligations for commitments to employees for

..•
.-

joint venture with Thorn Electrical Industries; Meyer Bros.
Parking Service-s i United Exposition Services (a subsidiary
of Hertz that engaged in services related to exhibitions);
Cushman & Wakefield: the design, manufacture and sale of
microwave communications transmitters, receivers and multiplex
equipment in the United States; electron microscopes:
Service America, which offered to service televisions of all
manufacturers: RCA Alascom; and Random House. By 1980 Banquet
Foods was also up for sale.
(Conrad, Tr. 14022-27; OX 13854,
p. 15; OX 13860, p. 8: OX 13902, pp. 2, 36-37.)

* RCA's losses in the late sixties had "to do with the
investment that we felt we had to make and the engineering
and programming for future profitability in order to grow
in i-he business", as well as to RCA's accounting for leases.
n[P]rofitability was governed primarily by the rate at which
RCA determined that it would like to grow", about 20% a
year, "somewhat faster than the general growth of the market".
(Beard, Tr. 8535-38.)
-614-

l.;

severance ar..d release", and other purposes.

In December

1973 a review indicated that the disposition was going better
l. :

than expected and the· reserve was reduced by $78 million,
leaving

a

!.

e.

(Smi t.:.i., Tr. 14 2 47 - 4 8 . )

After the S'a1e to Sperry Rand.

The story of

RCA's participation in the computer industry after the 1971

6.:

7

pretax rese'rve of $412 million.

if

]

sale to Sperry Rand has two parts!

RCA's activities and

8!

Sperry Rand's success with the computer division it purchased

9 !

from RCA.

i

(i)

10:

II :,

t~

RCA's Activities.

As it had

heavily in other businesses in the 1970s.

p~anned,

RCA invested

Conrad testified

that from 1972 through the end of 1976, RCA invested approxi-

\1

-iJ

mately $130 million in satellite communications (Tr. 14009-10),

13:

i

more than $250 million in the same period in Global Communica~

-

tions (Tr. 14011-12), approximately $200 million annually in

'

~.

the purchase of automobiles for Hertz (Tr. 14102-06), and $150
million in Alaska Communications.

(Tr. 14008-09.)

RCA also continued in or entered computer-related
businesses.

Conrad testified that:

"In our S~lid State Division, we manufacture, design,
engineer and manufacture integrated circuit devices
called microprocessor chips, which can be and are
used in data processing applications, as well as communications applications.
"We also continue to offer and perform service
on a variety of data processing or reservation system
terminals, which are owned by others.
nNe continue to from time to time design, develo9
25

iI

!

'i
I
I

dI

,
i

·1;

-615-

and ma·nufacture spec.ial processors which are sold to
the government in c.onjunction with tracking devices,
such as radar." (Tr. 14048-49, see also Tr. 14157-58.)
(ii)

.i

Division.

. 5eerry Rand I s Success with RCA's Computer Systems

Sperry believed ·that its acquisition of RCA's

Computer Systems. Division was "a sound business" and a
"wise" decision.
p. 9.)

(MeD.onald, Tr. 3873-74; OX 63, p. 1; OX. 71,

!n its 197·3 Annual Report Sperry reported:

"More than 90% of these RCA customers remained with
us·, and more than $130 million in new equipment was
shipped to th.e.se users durinq calendar year 1972.
We are continuing to build 'bridges' between the RCA
sys·tems and Sperry Univac I s line, and we are confident that many of these customers will eventually
convert to Sperry Univac's systems." (OX 63, p. 1.)
In December 1974, 77% of the original RCA customers acquired
by Univac were still using their RCA equipment and 5% of
the original customers had moved to Univac systems, and the
RCA equipment had yielded a "revenue stream (sales, rentals
and maintenance) for 3 years of approximately $370 million".
Univac believed" that "these benefits will certainly not end
at this point".

(OX 68, pp. 11-12.)

By May 1975, approxi-

,

mately 76% of the RCA equipment acquired by Univac was still
on rent.

(McDonald, Tr. 4045-46.)
f.

Conclusion.

Like General Electric, RCA was a

large company with a small computer business.

In the

last full year before its sale to Sperry Rand, RCA's U.S.
EDP revenue was $226 million.

(DX 8224, p. 2.)

RCA's

venture into computers was a failure; but it need not have

-616-

l

bee'n.

As we have seen, despite RCA's great technological

capability in the 1950s, RCA only placed nine computers in
that dec'ada. RCA's inactivity in, the 1950s and early 1960s
r

I

4..1
. I

cost them dearly..

s: r',

Spectra, patterned after IBM t s 360 was a mixed succes's.

I
.-'

~,

!

But RCA still could ha've succeeded.

The

Reliability problems and inadequate peripherals limited the

r

acceptance of the systems.

But even then had

RCA

understood

the need to push ahead with technological development, to
commit its ample resources to new, more advanced f'ollow-on
systems, it could have succeeded.
Ins'tead, it introduced the

RCA

Series--yesterday' s

technology at lower prices--and it chose that vehicle to
spearhead its drive, to "gain market share" and "become number
2 in the industry".

But the RCA Series could not compete

with the more advanced products of IBM and others and was a
"major product failure", blowing the Spectra series "out of
the water".
At the same time, the management of RCA changed
hands and the company sought to transform itself into a
conglomerate.

The result of its conglomeration was that

all the various corporate mouths needed feeding at once
and as the company entered the recession of the early 1970s,
it found itself stretched too thin to pay adequate attention
or commit sufficient resources to save the computer business
from the RCA Series debacle.
-617-

:1

In sum, the story of RCA, like the story of
General Electric, is the story of missed opportunity, bad
management and product failures.
I
I

-,
,.

!
• 1

I
I"

I

-618-

43.

Honeywell.

The history of Honeywell during the period

Z

1964-1970 was buil.t on the success of the Honeywell 2.00--a product

1

which gave· pirth to a compatible family of comput.er systems and in
turn sparked e·xpansi.on of Honeywell's peripheral line and service
capabilities.

Despite some difficulties along the way, Honeywell

ended the sixties with a large and successful array of electronic
data processing products and services with rising revenues and profits
derived from them.
a.

~!

The 200 Series.

In December 1963 Honeywell had announced

10 :1 its 200 computer system, along with an "automatic program conversion
I

11! package, called 'Liberator'''.
LZi who led the Honeywell

te~~

(OX 198, pp. 25-26.)

Richard Bloch,

that designed the 200 (Tr. 7886), testified

It

13 If to the strategy behind it:*

___________________

~!I

•.

* Richard Bloch, who was Vice President for Product Planning at

15 \ Honeywell for most of the period he was there, 1955 through 1967,
testified about Honeywell.

r

16

His duties as Vice President were to

:! develop product, pricing and marketing strategies for the products

il of

the EDP Division.

(Tr. 7575-76.)

17 \

-

II

:f
James H. Binger and Clarence W. Spangle were the other witnesses
I
lS :twho testified about Honeywell. James H. Binger was Chairman of the
l,
:\Executive Committee of Honeywell, Inc., when called to testify.
(Tr.
19 .~ 4489.) An employee of Honeywell since 1943, he became chief executive
Jofficer of Honeywell in 1964 and held that post for the following
!
'1 decade; starting in 1965 he was also Chairman of the Board of Directors. !
I (Tr. 4489-90.)
I

i

za

AT :,
4.:. 'j

I

•

J
Clarence W. Spangle was President of Honeywell Information Systems
Zl:!and Executive Vice President of Honeywe1l~ Inc. in 1975.
(Tr. 4882.)
;\Spangle, too, had been with Honeywell since the 1940s.
(Id.). From
23 :.1965 through 1969, Mr. Spangle was Vice President and General Manager
\ of Honey~vell' s Electronic Data Processing Division, responsible for
z~imarketing, manufacturing and development of data processing systems.
f (Tr. 4887-89.)

..

""': ~
~
:\

I
'\
t

fit

I

'i

:1

!

-619-

!
I

!l

Li

~[T]he 200 was conceived to represent a next step for 1400
Series users in the IBM line, and we really designed that
machine from the outset to be attractive to that user community.

r

2" :I

II

"One of the attractive features had to be a means of
getting the user to br;ng his programs on to the new machine,
and' that required conversion facilities and conversion
offerings, which we intended and indeed did develop." (Tr.

I

4-1

s:1

7578. )

i

-

i

6ll Honeywell

felt this strategy would give it an "accelerated move into

7 lithe [general purpose business data processing] field, which we needed."
I

8~ (R. Bloch", T"r. 7585-86.)

In 1963 Honeywell's EDP revenues were only

i

9-14% of its total revenues, and it had yet to make a profit in that

la !I area.
11

! p.

(OX

132, p. 11; OX 198, pp. 4-5; OX 8224, p. 387; OX 14484,

Rl; OX 8631, pp. 31; 37.)

!

The 200 was designed to make conversion from the IBM 1400

12.

U series as easy as possible.

(Binger, Tr. 4823; R. Bloch, Tr. 7886.)

An effort was made to replicate closely the file structure, media and

l~

15: formatting of the 1400 (R. Bloch, Tr. 7605-06; Spangle, Tr. 5025) and

I

16 ;!the LIBERATOR conversion aid was developed.

(R. Bloch, Tr. 7606.)

17 !IThe LIBERATOR enabled 1401 programs to be converted to 200 series

18

,I programs by means of assembly language and object code translators.
:\

19;t"I (Id.;
Goetz, Tr.
--

17652-53.)

Because the conversion required only

:1

20 :!a very small amount of manual intervention, it resulted in a high
~I
I

21 i! degree of efficiency.

(Spangle, Tr. 5021-22; Goetz, Tr. 17652; see

:j

22 'talso R. Bloch, Tr. 7888-89.)
;j

The LIBERATOR successfully accomplished the conversion for
!
(Binger, Tr. 4823; R. Bloch, Tr. 7888-89; see
24 :lwhich it was designed.

2:S

'I

I

25 :~also
Goetz, Tr. 18780-81.)
,I

Thus, the 200 offered users both an easy

;1

'f

:1
:1

-620-

l.!

,it
i

I

1:

conversion method* and price/performance superior to its competitors,
including the 1401.

(McCollister, Tr. 11237, 11365-66; Evans, Tr.

101187-88; PX 6204, p. 4; DX 167.)

Both of these characteri.stics. led

i
I

4.1-

the Honeywell 200 to e·normous success.

(R.

Bloch, Tr. 7602-03, 7888;

McCollister, Tr. 11235-36; Withington, Tr. 55863-67; J. Jones, Tr.
78989-95.)

Withington wrote in October 1964 that Honeywell had

obtained many hundreds of orders'for the 200, ana'that no computer
manufacturer was gaining ground as fast as Honeywell.
20-21. )

(PX

48,29, pp.

IBM reports called the 200 an "outstanding success",

allowing Honeywell to expand its marketing and other personnel and
to turn a ?rofit for its

ZDP

Division.

(PX

3481, p. 69.)

McCollister testified that Honeywell expanded its sales force during
the early sixties so that by 1965 Honeywell had 50 to 75 percent
more people than did RCA, although the two companies had started the
sixties equal.

(Tr. 10962-63.)

Sales were made to all kinds of

customers; Gordon Brown testified that as a Honeywell marketing
representative he sold 200s to an insurance company, an aircraft
company

an~

a service bureau; Honeywell reported sales to the Internal

Revenue Service and to

u.s.

Air Force Major Air Commands. (G. Brown,

Tr. 50985; ox 13849, p. 27.)
Within IBM, the Honeywell 200 announcement provoked heated
discussion on how soon IBM was going to ,come up with a better performing product with which to respond.

Immediately following the

* The 200 was also compatible r.vith "most r.videly used
small computers".
(DX 167; OX 198, p. 26.)
-621-

1
2.

announcem.e!'tt, T. V. Learson, IBM's Senior Vice President, wrote to T.
J. Watson, Jr., its Chairman, and A. L. Williams, its P·resident, that

I

:

l.!

i
4- i
i
5'

the Honeywell announcement was I~even more difficult than we antici:-pated~.

I Market
I

(:eX 1079,.,)

Shortly thereafter, M.- T. Hague, IBM Director of

Programs, wro·te to Dr. J. W. Gibson, IBM Vice-Pre·sident and

!

6-\ Group Executive, that the 200 nrepresents the most severe threat to
I

7

8

!l

I
1

IBM in o·ur his·tory"-.

(PX

3912.)

Evans testified that the marketing

force and others dealing with the 200 regarded it as a real challenge

I

9: to IBM· (Tr. 101186), and both he and Knaplund testified that the

I

1Q : marketing organization put a lot of pressure on the development

II

organization to announce the 360/30 as soon as possible in reaction to

12. the 200.

(Knaplund, Tr. 90475; Evans, Tr. 101190.)

On January 28,

U i W. C. Hume, President of the Data Processing Division, wrote to Dr.
!
14- i Gibson:

lS!I
•

16

;!

17

!I

"We must have an answer to this system immediately . .
The best solution to this problem . • • is a 101-H [360/30]
machine with a competitive price to the H-200 and a
performance equal to or greater than the H-200, ready for
announcement by mid-February."
(PX 1090; see pp. 353-57 above.)

Of course, by April 1964 IBM was able to respond to the

18 :1'I

19 :tH-200 with the 360/30--which was two or three times more powerful

~O :!than
,I

~

,I

IBM's 1401 at less than one and a half times the price.

21 ijTr. 33924; JX 38, p. 33; ex 573, p. 6; see pp. 280-31 above.)
!j

Z2 :;the announcement, Honeywell continued its successful course.
23

,I December
.,

.. I
Z.,
I

"

';1I
i

-622:1

I

;1

a'1

Des~ite

In

1964 T. V. Le arson wrote to T. J . Watson, Jr. that" the

I

25

(Hughes,

L!

Honeywell 200 story" had led to 300 losses to date for tape-oriented

..,.

:til

..

I

systems, with 1,000 such si.tuations in the doubtful category, 40% of

!

l

~_
,

which he estimated- as. losse-s.
Ho~eywell

(PX

1288, p. 2.)

spent the remainder of the decade enlarging on

I

I.

:!

and solidifying the 200's success.

I

In a 1969 speech, Binger outlined

j

his strategy:
"In the beginning we made a conscious decision and adopted a
strategy to compete in a broad segment of the computer
marketplace, and to make significant penetration through a
wide array of products and services. Our highly successful
Series 200 computer line is the prime example of this
strategy. " (DX 132 ~ p. 12.)

8\
~- ~ .
j

to

it

1111
r"
I

-i~

13

~l

it

14- :1
I

In June 1964, after IBM's announcement of System/360,
Honeywell announced the 2200 and followed it in February 1965 with
three other compatible new members of the Series 200, giving it a
"family of computer systems": the 120, the 1200, the 2200 and the
4200.

Honeywell stated that "[t]he family concept of these new

15'
I systems gives our customers the assurance that they can meet
16 ;1
.I.

;j'\

lS

:1

"7

-.
:l

'I

problems of growi;h by expanding through an extended range of central
processors, continuing to use the peripheral equipment already in
their EDP system."*

(DX 13849, p. 27.)

The 200 series

L9

:1

:i

was also, through hardware design and programming adaptations,

za

-!

"accessible to [Honeywell's] 400 and 800 [users] who can shift to

,I
I

the higher levels of the newer series with a minimum of adjustment,
and with the protection of a substantial part of their prior

* The compatibility of the 200 family meant each model was also
compatible with the IBM 1401. (Withington, Tr. 56375-76.)
-623-

" i programming and file investment."

{DX 199, p. 32.}

Spangle testified that the 200 line was priced so that the:

I
I

I

. !

!

.1

three-year le·ase prices would be "roughly equal to those of IBM for
equivalent price/perfonnanceon a system basis", with the one-year
price "slightly above that of IBM" and the five-year price "·5 to· 10
percent below the one-year price of IBM".

The consideration of what

the price should be was based on the price for the system, although
the individual elements of the system were priced individually.
(Spangle; Tr. 5056.)
According to Richard Bloch,

Hon~ywell

gauged its pricing

"against the nearest competitive IBM line or the IBM equipment which

business that was presently in IBM's hands".

{Tr. 7596-97.}

Honey-

well priced its product so that it demonstrated performance advantage
over IBM "that might be measurable in tens of percent" with a price
equal to or less than the IBM price.

Where, on the other hand,

Honeywell felt that it did not have any substantial performance
advantage, it considered that it would certainly have to have a
significant price advantage.
price.

This meant 90% or less than the IBM

However, there was no "automatic rule of thumb".

(R.

Bloch,

Tr. 7599-601.)
As IBM improved the capabilities of its 360 line (see pp.

I
I

above), so did Honeywell with further improvement of the capabilities

o:r:I

:

-624-

the 200 family through peripheral and software announcements.

A numbe

of new products, both hardware and software, were announced for the
Series 200 line at the end of 1966, covering mass storage, data
communications and expanded multiprogramming, including
four magnetic
...
disk devices for "random access information storage and retrieval"*
i

II

and a number of terminal devices.

The tempo of announcements accelerated as the decade went

, If
11

(DX 199, p. 31.)

on.

In its 1967 Annual Report, Honeywell stated:
"Product lines of the Electronic Data Processing and
Computer Control Divisions(**] are being broadened continuously to assure competitiveness. In 1967, for example,
more than a hundred hardware and software products and
product modifications were added to the Series 200 EDP
line and the control computer line." (OX 200, p. 31.)

.,

Binger and Bloch testified that Honeywell's competitors in
the 1960s were IBM, Sperry Rand, RCA, Burroughs, GE, CDC, NCR and
DEC.

(Binger, Tr. 4527, 4593-94; R. Bloch, Tr. 7592-94; see also

Spangle, 'I'r. 4933-34.)
(Binger, 'I'r. 4515.)

SDS was a competitor "to a limited extent".

Honeywell also faced efforts by Fujitsu, Philips

and Nixdorf to sell their computer equipment in the United States.

I

(Binger, Tr. 4516-17.) f

I
*

These were acquired OEM from CDC. (See below, p. 628.)

I

I

I

** See below, p. 633.

I

f Other foreign competition was encountered, too; for example, HoneyweJ
bid against Siemens, among others, in 1968, for an accounting and
I
payroll system for the U.s. Army.
(OX 7556.)
i
!
I

i

I

-625-

Honeywell's 200 series was sufficiently popular to be
marketed by leasing companies.

Thus, Leasco dealt in Honeywell

equipment beforel967 (Spain, 'rr. 8874,9) and Finalco was leasing
HoneyWell 20'Os and 12.00s, a fact which made Patton, a Honeywell

--,
I

Reqional Sales Manager, 'ta little ne'rvous over what could happen if
i

those systems come off lease".

; Itit

(Spangle, Tr. 5191-92; DX l61A .. )

:1

· ~I Transamerica, also leased Honeywell equipment in the late 1960s.

~:i

f

(Spangle, Tr. 519-0.)

!I

l :\

.i

b.

Problems and Solutions.

(i)

Other Systems.

this period, though.

I

Honeywell was not without problems over

One of these was the 8200 computer system,

;

,

,. which was planned to be the most powerful computer system in the
_t
! 200 series. (OX 13849, p. 27.) The Honeywell 8200 was announced

l

i

,

'in 1965.

It was intended to bring together the Honeywell

200 line and the Honeywell 800 line, the latter of which was in-

:i:

6

~l

i

~,tI

8

(Id. )

stalled at that time at about a hundred different sites.

(Spangle,

Tr. 4997.)

"At the time of the announcement the development of the

1

:t

:\ machine had not begun.

9 iI
~

,~

,0 ,I,I

And as the development was undertaken, it

turned out to be much more difficult to do those things than had

I

been anticipated," and Honeywell spent large amounts of money, more

~

than it had planned, to develop the equipment and to develop the

J.!

software to supply with the equipment.

(Id. )

Honeywell was not able to achieve the objective of having
that system be an upgrade path for the 200 line so, according to
Spangle, "its market became limited really to those 800 customers

-626-

1

2

who wanted to continue largely in the batch processing mode and
wan,ted higher throughput I f .

t

(Spangle, Tr. 4997-98 .. )

I

I

/.

As a result of all this, Honeywell was able to shi.p only

3' i.

i

4.1i

about 40 of these machines which Spangle testified was no,t enough to

s: I' ma·ke
o·

I'
IJ

the whole investment and development worthwhile.

problem that caused the 8200 to

fa~l

The particular

short of its objective was the

7 11 need for two operating systems in one compute·r system--Honeywell

a

could not get it to work.

(Spangle, Tr. 4998.)

Honeywell tried to aid its customers with 800 systems

10! installed
II

I

! was

in another way--by the provision of a larger system which

compatible only with the 800.

Thus, it announced the. 1800 in

lZ

I

1962.

13

II

the 1800, designed to accommodate the growth needs of the 800

14-1' users,

(See p.. 189 above.)

However, according to Wi thington ,

"sold in only very small amounts".

He attributed this to the

\

15 ! fact that the IBM 360 and GE 600 series, available at the same time,

I

l6 a "were regarded as superior to the Honeywell 1800 by users and

17 ilHoneywell users who outgrew their Honeywell 800 apparently more
l8

j/

frequently left Honeywell for a competitor than accepted the 1800

ii

19

It instead".

The 360 and GE 600 systems were felt to be superior to

:1

Honeywell 1800
-'0 lithe
:,
21

;1

"because they offered early versions of operating

systems whose primary initial virtue was to permit multiple pro-

22 :!gramming · · · plus automatic control of peripheral equipment in

..,~

~

i!ways which would simplify the users' programming requirements".
;1

24 :1 (T r · 5 6 4 9 1- 9 3 • )

:!

25 :\

II
:1

q

.,

Ij

d
0'
:1
I

;1

-627-

.

(ii)

'

Peripherals.

In the early sixties, Honeywell still

~ I believed that magnetic card devices would be competitively superior

[;

.

to magnetic disk drives.

It had under development magnetic card

'- i· device,s whi.qh had 'been ,anno''m.ced, to custome'rs.

However, the slow

f ! speed and unre:lic3.bi.lit.y of the card devices caused difficulties and
I

I

I
•

I

:: ,I

il

hurt Honeywell in its marketing of systems.

i II 95.)
11

~i

(Withington, Tr. 56494-

Finally, the effort was dropped, termed in IBM reports Ita

dismal failure".. (PX 3481, pp. 75-76.)
Honerwell made- its decision to abandon the magnetic card

~

mass storage devices following IBM's announcement of the 2311 disk

0,

drive for the System/360. Withington testified that this was "a
-, ! major
change for Honeywell, because at the time there was no expendi'

211
3 lJ ture whatever for disk drive development, all of the mass storage
;

.~;

development efforts being put into the magnetic card devices, so

=:

Honeywell had to start a new effort from scratch and also search

.. 11

the industry for OEM sources for suitable disk drives".

_

i

(Withington,

.Q ~I

.7

it Tr. 5856 2- 6 3 • )

By 1967 CDC was shipping its 9492 disk file to

11

'f Honeywell, who then became its principal customer for CDC 9433 apd

.S !!il

:i 9434 disk drives, taking in excess of 4,700 units.

19 :1 51033-34, 51056-57.)

ao

'I
.j

(G. Brown, Tr.

Honeywell began to manufacture its own disk

packs in 1967, but continued to purchase the drives.

(G. Brown,

Tr. 51056-57; DX 200, p. 31.)
Honeywell had already begun efforts to produce itself all
of the peripheral devices contained in its EDP systems in the mid-

--

sixties.

(DX 13849, p. 28.)

During 1965 it started deliveries

~c:

-628-

L

of its own card reader, and was about to start shipment of its

2

own card punches.

3

purchased IBM card. reade.-rs and card punches and offered them with

4;.. ~.
I
,

i.ts own c:::omputer system·s:., includi.nq the 2'00.

5·r·

(DX 13,8-49,

p. 28.)

Prior to 1965 Honeywell

I.t

planned, however,

in that t±me period,. to develop its own manufacturing capa-

t

I

bility in punch.·card equipment, a decision which was accelerated

ail

1 \, by the announcement in late 1964 that IBM would no longer lease
t
i

such equipment to Honeywell and other manufacturers planning

al
\

to re-lease them to customers but would only sell.

9i

(Bi.rlqer, Tr.-

\

La : 4512-13, 4549-50; Spangle, Tr. 5102-07.)
i

During 1965 Honeywell. introduced new models of printers

11!

, and tape transports and started deliveries of a variety of communical2. l'
13 ![ tions terminals as well.
(DX 13849, p. 28.)
However , it
i

continued to acquire software or software development from

1.4m-"

I

·it

puter company, having' d4veloped and marketed relatively few EDP

;

products. (See above, pp.

~l

227-28.)

Beginning in 1964 Burroughs

'ii shook up its operations, reduced expe-nses and, while remaining profitI

:1

able, increased i.ts investments in research and development. The

,

r l

results we·re aprollferation of new products, substantial growth and
1: increased profitability over the decade.

a.

Burroughs in. 1964:

Burroughs'

situation in 1964 did not look promising for future growth in the

~!

- ;r
i

!.; computer industry.
~;\

~ \1

.. II

S· :t:1
7

Problems and Changes •.

l;,t

s:i Those

Indeed, as R. W. Macdonald* wrote in 197"5:

n[I]n 1964, some analysts who observed the developing computer
industry, had serious doubts about the ability of Burroughs to
survive in the new environment as a computer company. Even some
members of our own Board of Directors were concerned, and a
highly respected financial journal predicted flatly that Burroughs
either would have to merge into another company or fail."
(DX
427, p. 2.)
serious doubts were based on two factors:

Burroughs' mediocre

:1

:, record in computers and the perceived strength of its competition.
S 'I
Burroughs' record in computers as of 1964 was not strong.
!t"!
I

.U

I
:i

~!------------

j
* R. W. Macdonald, a director of Burroughs since 1959, in 1964
'\ became Executive Vice President, in 1966 became President and Chief
] Operating Officer and in 1967' became President and Chief Executive
~ ,Officer.
(Tr. 6882-83.) Macdonald testified at trial by deposition.
~

-638-

comple,te~,

L

It had begun, but had not

Z:

mechanic·al office equipment to electronic computer technology.
(OX 4·27, PI'. 3.-4; s·eeabeve, Pl?

l

the "major. transformation" from

227-28.)

Its computer product

'line was limited.. , consis.:f:inq mainly of the B 200, B 5000 and' 0 8'25

40

compu,ters.· (See' 'above;

p. 227_)

Its financial record since

1961 had been poor; its revenue,s had "remained on a platea,u" and its
7;i earnings were· "unsatisf.a:<:tory".

s ;:1
9i
I

(DX 427, p. 3.)

The doubts abou,t Burroughs I future were also based on the
"size, profitab·ility and technical achievements" of the "many compa-

ta :

nies (who] had aspirations to be mainframe manufacturers". Regarding

Ll

the size of those companies, Macdonald wrote:

t'" i

"'itI

1:3;
I

"We faced giants such as RCA, with 1964 revenues of over
$2 billion; Honeywell, with over $600 million; Sperry Rand,
with its Univac Division, with $1.3 billion. IBM in those days

had revenues of over $3 billion, but IBM was not the largest
company we faced in terms of total revenues. General Electric,
with serious intentions and a major program in computers,
already was an industrial giant with revenues in excess of
$5 billion ... · (OX 427, p. 3.)
In contrast Burroughs' total annual worldwide revenues were less
than $400 million.

(OX 10260, p. 22.)

With regard to technical achievements, Macdonald wrote
that by 1964 IBM was "well on their way to development of a truly
impressive research and development capability" and "General
Electric had been exploring the uses of the electron for years in
both electrical and electronic applications".

By contrast:

"Although [Burroughs] had been engaged in electronic research
and had achieved initial success with a few very advanced
new products, the products on which our revenue and profits
depended remained primarily mechanical."
(DX 427, p. 3.)
-639-

1

Starting in 1964 and continuing through the 19505

2.

Burroughs set about to achieve its objective of "profitable growth"

3

and "moderate growth commensurate with maintaining proficability" in

~

computers.

5:

step, in 1964 Burroughs' President Ray Eppert formed the Profit

5

Improvement Committee.

7

"with respect to all aspects of marketing, manufacturing and engine'er-

a,

ing operations, and the establishment of clear product developme,nt

9-

objectives".

As a first

The Committee was' to consider reorganization

Its "primary charge was the swift improvement of the

company' s profitability".

10

(OX 4 2 7, p. 5.)

The changes instituted by this Committee (of which

11 ~

Macdonald was a member) and further changes instituted by Macdonald,

!Zit

13

(Withingt'on, Tr t 56732; OX 10262, p. 6.)

ii

!I who, in

1964 was given "broad administrative responsibilities"

(DX

14-(1110260, p. 4) and in 1966 became Chief Operating Officer (Tr. 6883),

15!
•
16

were intended to accomplish two things: first, reduced expenses, and

II:1 second, improved development of computer products.

l7:!
18

if

6883-91;

ox

(Macdonald, Tr.

427, pp. 7-8.)

(i)

Reduction of Expenses.

The Profit Improvement Committee

~1

19

it found that Burroughs' '" problems' lay in the efficiency of its
~

i

2.0 ,! operations" and not in "spending levels associated with research
.,
.i and development".
The Committee instituted several changes* to
21 :!
:j

Z2

Ii ----------------------

_i

* These changes contrast with the policies implemented at RCA
At RCA expenses increased, the importance of
,1 financial controls was not emphasized, product development was not
241',encouraged, and market share rather than profitability was considered
25 :1 the goal.
(See pp. 581-89 above.)

23 :j during the late 19605.

~i

1
I

I
'f,I
:1,I
'I

.1

.J
.!

-640-

t

increase efficiency:

2.

Pirs·t, the productivity of the sales force was incr·e·ased.

l:

To do this, the. Committee reduced salaries and commiss·ions for

~ .

S'alQsmen, reorganized the s.ales ~rqanization* and- moved unpro--

~.

ductive s-alesmen out of-- the division.

Burroughs found that:.

"The combined effect of these organizational changes
gave us the e.quiva·lent of: adding 500 highly productive
salesmen--with no increase in budget costs." (DX 427,
. p.• 7.) **

6·

l'

a

'Second , the- Conunittee found that manufacturing costs

g

I

'''had been increasing as a percentage of revenue every year for

1Q

years", and the Committee undertook to reduce those costs.

11

It did this by reducing the number of managers at its plants,

1.2. It

specializing the plants by products, introducing a series

il
14- I'

a "profit center", modernizing exi.sting facilities and build-

15 :1

ing 17 new plants.

16 :1

costs were reduced by more than five percent of revenue and

17

continued downward in ensuing years.

13

of financial controls, designating each marketing district

. il

18

11

:r
;i

With these changes, by 1966 manufacturing

(DX 427, pp. 7-8.)

Those reductions of expenses soon benefited Burroughs:

:1
19 :1

20 :1
:1

* Burroughs created additional sales offices, established sales
zones, reduced the number of salesmen reporting to each manager, and
gave each manager' a personal sales territory to cover.
(OX 427, pp.

21 :1
";i 6-7. )

22

1;

23

il

Z~

** In its 1965 Annual Report Burroughs reported that its "marketing
realignment program [had] contributed to the sales success of
:1
Burroughs' business machines and systems and improved profitability
,I of the Corporation in 1965". (DX 10261, p. 8.)
;f

25 d
:1
[I
:1

,I

:1

I

11

;1

-641-

ten

I

I

1

ti

"The combined effect of these major changes, along with
reductions in marketing and G&A expenses: and other economies
resul ting from s·tricter overall control, produced an increas-e
in net earn-inqs o-f over 2-00 percent in two years, from $10
million in '19'64, to $31 m'illion in 1966." (OX 427, p. 8.)

i

2,i

i

l,

I
I

4-

(ii)

I

!

I' matter

Inc;rea·se.d P'roduct Oeve Iopmen t .

As a threshold

the P'rofit Improvement Committee decided that Burroughs' lack

1-

0.1

of profitability did no.t result from too much spending for research

7

and develo.pmept

i
\1

e-

(OX 427, P

e

6.)

In fact, the reduction of expenses

I
S I discussed above allowed incre'ased expenditures in research and
!-

9-1

development:

la!
111

I

i

I2.iI
I'

I

13i

"Removal of these excesses re·sulted in greater profitability, which in turn made more money available for research
and development, allowing us to spend more in engineering,
leading to further cost reductions. Since 1964, we have
increased our commitment to Rand 0 each year • . . • " (OX 427,
p. 8.)

I

In 1964 Macdonald began to have "greater influence" in

l~l

i Burroughs and his "principal activity was to utilize these resources

lSi
I and developments to a much greater degree than they had in the
16 il

:- past"
In additi-on, he made sure that Burroughs would "pay a great
111
: deal of attention to product development". (Macdonald, Tr. 6886.)
18 I,
Burroughs pressed ahead with its computer developments in
It
19 ~ two ways: First, it expanded its "product program to become more of
20:1;! a f ull range company'.
•
(Macdonald, Tr. 6888-89.) Second, it offered
e

21;,
- ligreater
22 ::

d '~ncreased the
capab'l'
~ ~ty an

:t products ·

ZS!

(Macdonald, Tr. 6889-90.)

,.

d~vers~ty

of its computer

The addition of new products,

in turn, made more money available for research and development, as
2.4 !
.. ; Macdonald explained:

25

I

-642-

I

"In 1964 we were operating on a research budget, an Rand
of approximately sixteen million dollars and as we
our business we were able to afford an expanded Rand
and as we were able to do this we expanded the range
of products which we felt we could successfully undertake • • . .
(Tr. 6889.)
-

1\I

o budget
expanded
o budget

21,
3\
4.\I
!

By 1969 Burroughs' annual spending in research and develop-

I'I

al

ment had doubled to $35 million.
The

i

1\1
I

!

at

that Burroughs began in the mid-1960s, par-

ticularly its increased research and development and improved manufacturinq capabilities, required new investment.

I

sl
10

c~anges

(OX 10285, p. 3.)

Macdonald described

those investments between 19p5 and 1972:

I

ul

"Since 1965, Burroughs had spent some $250 million in R&D.
These funds came entirely from our own resources and were used
for the development of our commercial and trademark product
line.

131

"Over the same period, we have also invested just over one
billion dollars to expand the manufacturing and marketing
facilities to sell the products resulting from this R&O expenditure. Approximately $750 million of this represented a
marketing investment. It went for facilities, inventory,
receivables and lease funding. The remaining $250 million was
for manufacturing facilities, men, machinery and equipment. I
should also point out that this billion dollars was in addition
to the $500 'million that we had already invested by the end of
1965. Of the billion dollars invested over the last seven
years, $250 million was generated through retained earnings and
the remaining $750 million was raised in the financial markets
through loans and equity issues."
(OX 426, pp. 19-20.)

I,
12.1

1
L4. 1

I

I5i

I

1S \I
i'

17

I
I
t

15 :\:,
19

11

20

II

21

\1

b.

Computer Developments 1964 - 1969.

Burroughs moved to

extend both the breadth of its product line and to increase the

I,

22

1\

capabilities offered by its computer products and by the end of 1969

Z3

~

had succeeded in adding many new products.

This discussion traces

..,,. \ the development of Burroughs' computer products in three parts:
,~

25

!

i 500

Systems, its smaller computers and its peripheral products.

-643-

its

!

The 500 Systems Family.

(i)

LI

Z:

An important factor in

Burroughs ,- s'ucces:s during the 19605 was the success of its 500

l!

Systems fami-ly. 'Nine

~_:

the BO SOO,* B 2S:0;(l, S,3-S0:0"E 450-0, B 55-00, B 6500, B 750-0, B-8300--**

!

and B 8500-..

I
I

I-

syst~

in that family were' eventually announced:

Becaus-e' of problems that Burroughs-,in common wi.th

i_

I

all
711

o.ther manufacturers, experienced with its larger machines, the B
7500, a. 8"3:00', B-a-SOO we-re, either not delivered or not operational at

it custome-r- locations, and the B 6500 was delivered late.

The B 4500 was

al

i9-[ also never 'delivered.

I

10:

I

"lJi

(DX 14506), Pierce, p.

62.)

S,till,

by 19-69- B-urrotlqhs- was- able to- report that "this family o-f balanced

l~!.general

,~

(PX 5048-D

purpose

commercia~

data processors have helped the Corporation

establish an excellent position in the EDP market".

(DX 10264, p.- 5.)

1.3!

However, while Burroughs promoted the 500 Systems as a "family", they

t.:

were not machine-language compatible as was the IBM 360, but were only

I

I

lS'

l

compatible through the use of higher level languages.

(PX 5525-A,

16 Ia p. 218; OX 10264, pp. 6, 8.)
I·

ld
is il

in August 1964 announced the first member of the "500" System family,

19

the B 5500.

11

Four mo-nths after IBM announced its System/360, Burroughs

(OX 13920.) f

Burroughs described the B 5500 as a

20 :1
!I

* Burroughs sometimes promoted the B 500 as part of the 500
21 ,I Systems (OX 10264, p. 6); it was, however, more closely related to
~ the B 200 and B 300 and is discussed in that section.
,., :1
;i
I,

-'j

** Burroughs did not describe the B 8300 as a member of the 500
Systems
family. However, it was closely related to the B 8500 and
:\
is therefore discussed in this section.

23

1:

2~

:1

25

~I

f Wi thingtoncommented that, by announcing only one new model,
Burroughs had not "attempted to answer Systern/360 across the board".
: (PX 4829, p. 22.)
:1

1I

;\
'i

:i

it

a
,I
;1

!!

-644-

1

"modular data processing system of advanced design for both com-

Z

me·rcial and scientific app.lications in the medium to large scale

.3'

categ:c;)ries" •

4;.

l026~O,

p. 12.)

Burroughs reported that it had "up

to three' times more· producti vi ty than its predec'essor I the B 500.0" ..

;

5\'
5

(OX

(Id.)

I

I

B

S500s were indeed used for commercial and scientific

i

7!

applications, as well as in aid of the space program..

During 1964 a

i

I.

S::. B 5500 "join.ed the famous. Atlas ground guidance computer in the
i

9-t
1Q

nation's space program" and was used to track the Saturn missile ..

I

Two Burroughs' B 5500s were also used in "tabulating and projecting

!

11! national election results for the American Broadcasting Company".
I

!2.1

Those B 5500 S"ystems "operated in the same manner for the election

I

13

I

as all Burroughs' computers do in projecting business trends,

f

statis~

I
14-1 tics, competitors' activities and other information on which manageI

I

15! ments make decisions".
16

I
11

(~.:)

By 1965 Burroughs reported that its

orders for the B 5500 had exceeded forecast and "included many

17:1 diverse

applications in national and state governments, advertising,

18 ~f manufacturing, shipbuilding and research".

(DX

10261, p.

9.)

ii

19 11[i

za!!.,

During 1965 Burroughs' Defense, Space and Special Systems
Group* announced the B 8500.

The B 8500 was marketed for "high

:1

?1.. !;1
_
;t

22. ~

'* Burroughs had two groups that marketed computers, its Business
it Machines and Defense, Space and Special-Systems Groups. In 1968
23 I, Burroughs described the functions of its Defense, Space and Special
I Systems Group:
2~ \\
"The Defense, Space and Special Systems Group produces
:\
and
markets special data processing systems and advanced products
2S
for the military and other government agencies. It manufactures
I

I'

il

II

IIq
:I
:1

-645-

volume, time-sharing, on-line:· bus'iness, scientific and government
applica.tions" and pl:ovided for "·manag·eme·nt information processing,
incLuding the ftiU. complement of busines's da-ta processing,

,i. . and. messaqe haadlin.q. as we·II as

centra~iz-ed

reportin~'

or decentra·lized. sci&n-

for gove:rnment, commercial, .educatio.n-al
The Group also produces visna·l
display systems, memory systems and e·lectronic components."
(DX 1.02.63, p .. 17 •. )
super-compu.ter

s·ystems~

and scientifi.c applications..

The relationship between -the Defense, Space and Specia'l Systems
GroUp and B.UJ:l:ouqhs-' commercial. business was close and involved, _
marketing and de·signing the same or similar products'. B.urroughs
described the· relationship in its· 1964 Annual Repo'rt:-

. i

I
i

l

"[tlhe Corporation's programs for various military and civilian
agencies I' coupled with large investments of its own in research
and development, have yie~ded important technological advances
which are being utilized in Burroughs' commercial data processing
systems and accounting machines as well as in defense and space
projects" • (OX 10260, p. 19.)

.!
I

~

l
II
!

.\ Similarly, in its 1965 Annual Report, it stated that:
~

I

-

;1

"[t]he Defense and Space Group was expanded in 1965 to include
the development, production and marketing of custom-built
large-scale electronic data processing systems for commercial,
industrial and special applications. These systems to a great
degree now parallel the requirements of high performance computers employed in major defense and space programs where
Burroughs has had many years of successful experience. 1t (OX
10261, p. 17.)

J

Products designed and marketed conunercially often were later

,

I
• '1
: :1
'I

) :1
;1

;

;~

J :\ modified or further developed and marketed for military use, and

vice versa. For example, the B 5000, the foundation for the subsequent
".sao" product line, grew out of military work (the Burroughs 0-825).
J (Withington, Tr. 55976-77, 58527-28.) And when the Defense, Space
1:1 and Special Systems Group was awarded a contract to produce a mobile
;1 communications system for use by the U.S.
Army, it modified four B
3 ;\ 3500 computer systems which had been developed by the Business
.~ Machines Group.
(DX 10716 I p. 8 i DX 13665, p. 19.)
:i

1 :\

.4. '\

I

At the end of 1968 the Defense, Space and Special Systems Group

S ; took over ·the responsibility of marketing, in addition to specially

I designed equipment, all of Burroughs computer products to the Federal
': government. (OX 13665, p. 19.)
I

:lI

i
:1
:i'1

I

-646-

1.

tifj.c and engi.nee·ring computati.ons".

2

B 8500 was a "logical e-xtension" of the · concepts of "modularity,

3

multiproce'ssing and automatic- scheduling programs us:ed with the

4- .13. 5500· and.' D 800· s.e:ries· sy·stems-.. *
:

'. monolithic integrated ci:x;cuits.

According to Burroughs, the

The B 8:500 also made use of
(DX

10261, p. 17.)

I

I

0:
7

By 1967 Burr·ouqhs. reported that:

1

"Broadeninq customer inte-rest in the giant self-regulating B 8500
system confirms the importance Burroughs has given the development and production of this- supe-rcomputer. It has the unique
abilj.ty to multiprocess a number of batches of accounting
routines·, solve engineeJ:ing and scientific problems, and deal
with transactions as they occur, all at the same time. The
interest of potential users in the B 8500 has greatly increased
for on-line, real-time business and scientific applications. 1I
(OX 10263, p. 9.)

!I
I

i

g::

1

il
t

!I
11 !

10

r

i

i

However, Burrouqhs experienced problems developinq the

lZi

13

l'

B 8500, and none was ever delivered.
(DX

L~

14506), Pierce, p. 62.)
I.t was not until 1966 that Burroughs began to turn its 500

15.
1

16

Systems into a fami~y of computer systems somewhat comparable in

11
I'I

.

17\1 breadth
18

(Perlis, 'I'r. 2001-02; PX 50·4&-0

i,

to IBM's 'System/360.

In that year Burroughs introduced

three new "members of the 500 systems", the B 6500, the B 2500 and

il

19 It B 350 0 •

w!

(OX 1026 2, p . 8.)

Burroughs reported that the B 6500 was "taking [its]

II

21 :! place" between the "medium-sized" B 5500 and the "giant" B 8500.
:1

Z2

iI

-----------------------------

* The 0 800 series included the 0 825, a computer developed for
:\ the military.
(See above, p. 227.)
Macdonald testified that
ij a good deal of the B 85005 "architectural concept came from the 825"
Z4 and it "was intended to be' an enlargement and iii. terms of size and
speed from the generation of equipment which fw'las the 0825".
(Tr.
! 7556-57.)

ZS \\

[III

'_5 ;.

:l

:\'I

I

::

,I

:1
if

II

Ii.I
;!

-647-

1) The B 6500 central processors employed monolithic integrated circuitry
!

Zl! throughout; had core or thin-film main memories; were "equipped for
I

3.!
4- i

true multiprocessing, parallel processing, and real-time and time-

I
I

sharing operati.ons"" and had a "'comprehensive, automatic operating

i

~I system· for program control, completely coordinated with the hardware
I

I

0;,

elements" •

It
7 !I
!I

10262, p •. 8.)

The B 6500 was not delivered until 1969.

!l

a. :

(DX

(OX 10264, p. 8.)

Even. then its "full deve·lopment" was delayed by problems in its

~! system software.

(OX 3269, p. 3.)

i
lOt corrected those problems in 1971.

Burroughs reported that it had
(!£.:.)

I

!
llt
!

The B 2500 and B 3500 were released for sale in April

1.2! 1966. (DX 10262, p. 3.) Demonstrations for these systems "were
13 i made on a broad range of business applications programmed in COBOL,
I

!I

!

1~1

including remote processing and multiprocessing under the automatic

i

15 \ control of the Master Control Program".

(Id.)

Burroughs reported

I

16!! these

systems would be sold "in the medium-priced range".

p. 8.)

17

if

l8

il number

19

li

(!£.:.,

By 1967 Burroughs reported that it had received "an impressive
of orders" for the B 2500 and B 3500 from users in "such

diverse fields as finance, manufacturing, government, retailing,

20 :1 insurance and publishing".
:1
:1
:1

(OX 10263, p. 9.)

In 1967 Burroughs announced the B 7500.

Burroughs reported

21
22

:j that its release "stimulated interest in other EDP products and

23

:1

strengthened the Company's position in this highly competitive

'I

f·~e Id" ·

z~:1

( DX 10263, p. 11.)

However, the B 7500 was never delivered.

:j

25

;1

(PX 5048-0 (DX 14506), Pierce, p. 62.)

:1

,I

:1
;1

·1
i\

:\

-648-

In its 196-8;' Annual Report Burroughs reported that during

L:

z;·

19'68 it h-ad installed the B 8300, "part of the· B 8500 deve·lopment

1 ;- .program'·, to provide

If·

a- cerl.:tral passenger ·reservation sys·tem for a

t·

40- L- majo·r wor'ld airline".

ThcJ:'tt- in·s·talla·tion used Itthree central pro-

I

!" \. cessors· functioning Wlder the automatic' control of a sin'gle softwa·re
I

j

a:.

operating system"; there were more than 21'00 input and display

7:J terminals throughout the

a !. cathode ray tubes
;.: the compute·r'·.
i

United States with keyboard input and

"to dis-play data transmitted. to and recei.ved from

(OX 136 6S, pp.. 3, 5.)

The airline at which Burroughs installed its B 8300s w-as

10 :

i Trans World Airways (TWA).

II ;

(0

I

Neill, Tr. 76014.)

The B 8300s at

!'

, TWA were ne·ver operational, however, because the B 8300s "could not

tz.:
!J
I.3 i accommodate the projected workload" and Burroughs "had not demonstrated
i'

adequate availability or reliability of the system".

1.4- ;

\' 76015.)

15;

I

•

if perform the reservations function.** (O'Neill, Tr. 76013-14.)
,I

il

19 :1;i

-------------

~f

* The litigation was settled in October 1972 with Burroughs
agreeing to assume certain payments to a leasing company and either
J to make equipment available or to pay a sum of money to TWA. As a
:! result of the settlement, Burroughs' earnings were reduced by
:~ $4,813,000 net of taxes.
(DX 10265, p. 42.)
:\
~t
** Burroughs was not the only company that had difficulty installing
" an airline passenger reservation system during the 1960s. Sperry
I Rand was also unsuccessful at installing such a system at United
··jAirlines. United, like TWA, then acquired IBM equipment.
(O'Neill,
!Tr. 76015-17, 76231-32.)

za :,
Zl

Z2.

Z3
Z4

,=

(O'Neill, Tr. 76015.)*

In 1971 TWA installed one IBM 360/75 and two IBM 360/65s to

:.·t·

"7
:i
..

rs

'Neill, Tr.

The effort was terminated, and in late 1970 TWA sued

Burroughs for non-delivery of the B 8300.

i

16 ;i

(0

'j
-- J

I

'\

(

:\

J
:J

.J

,I

-649-

By 1969 Burroughs reported that the production of its
"'500 Systems' reached an all-time high during the year".

Burroughs

described some of the reasons for the success of the 500 Systems:
I
I

·i
~

\,
I

,.
,

~

1

I
I

,
1

"Our systems software provides self-regulated operation
which assures Burroughs customers of maximum work output through
the techniques of multi~rogrammirig in which a number of different
programs are handled at one time. In the larger systems,
simultaneous parallel processing of programs is achieved by use
of multiple central processors. Another important advantage to
users of our medium and l~rge systems is a modular architecture
which enables them to add processors and increase main memory
and input/output capacity in increments as needs expand.
Upward compatibility--from one '500' Systems computer to the
next largest in size--is assured through the use of higher
level programming languages. COBOL is used for business applications on the entire range of computers. For engineering and
scientific applications, FORTRAN is used on the medium-scale
B 3500 and B 5500 and the large-scale B 6500 and B 8500, and
ALGOL on the B 5500., B 6500 and B 8500. PL 1 will be available
on the large systems and other special languages will be added
as they are required." (DX 10264, pp. 6-8.)*

~,

These characteristics, of course, were much the same as

~ithose

IBM had earlier employed successfully in its System/360.
(ii)

Smaller Computers.

computers in three lines:

Burroughs marketed its smaller

its line of B 200 successors, its E

Series and the L/Te Line.
Burroughs had introduced the B 200 in 1961.
p. 53; see above, p. 227.)

(PX

5525A,

In early 1965 Burroughs introduced

* Burroughs reported that it had been able to obtain a design
advantage with the Burroughs 500 systems:
..
"[w]ith the Burroughs 500 Systems, the corporation gained an
advantage by developing the software and hardware in parallel.
Engineers in these two areas combined their efforts as the
systems were developed, closing the time lag between installation
and complete usefulness of the system to the customer. This
advantage also insures the user maximum performance of the
complete system." (OX 10262, p. 10.)
-650-

11
I

l i its B 300 data processing system which was compatible with B 200.
i

2 : Burroughs reported that the B 300 included on-line capacity and that
I

3

its "modular design provides for the simultanec)us use of more than

~

one B 300 processor with a single disk file system".

5

j.

p. 12.)

(DX 10260,

By 1966 Burroughs reported that the B 200 and B 300 computers

I

had been:
"(l}eased or purchased by customers in many fields including
transportation, data processing services, photo supplies,
utilities, insurance, publishing, brewing, school systems,
manufacturing, baking, textile milling, property management,
retailing, wholesaling, distributing, government and public
service, research and finance."
(DX 10262, p. 12.)

I

10 :
11

In 1965 Burroughs introduced

!
t

~he

B 340 bank data processing

system which was smaller than, although compatibl; with, the B 300

12 jI system.
(OX 10263, p. 11.) During 1968 Burroughs introduced its
T3 ~f
• it B 500 computer. The B 500 had an automatic operating system and used
1.41.11

COBOL.

15;1 EDP
16

:~

While promoted by Burroughs as a "member of the '500' Systems

family", the 500 was compatible in assembly language with the B

100, B 200 and B 300 systems but was compatible only through the use

17 :1 of COBOL with the 500 Systems.
18

J
I

During 1964 Burroughs brought out its E 2100 computer.

:i

'\
19: (DX 10260, p. B.)
1

20

:1

(OX 13665, p. 5.)

Between 1964 and 1970 it added to the E Series

with the E 3000, E 5000, E 6000 and E 8000.

(DX 10263, p. 11;

.1

2l

;! ox 10 26 4, P . 1 B . )
lj

The E Series were small solid state computers

Z2 :\ with electronic logic and data storage. · (OX 10260, p. 9; OX 10264,
23 :\ p. 18.)

On the larger E Series computers, the E 6000 and E 8000,

I

I

Z4
25

'I
:1
:1
I

COBOL was available.

(DX 10264, p. 18.)

In 1968 Burroughs took a major step forward with the

.,

:j

:1

,
,

.j

il

il"
I

-651-

t: announcement of its TC 500 terminal computer.

(OX 13665, pp. 1, 7.)

•

2:
I

The TC

sao

was characterized by John Jones of Southern Railway as

3 \1 the firs t "in te lligen t terminal", that is, the .. firs t programmable

~l terminal . . . that had in it a processor, a general purpose pro-

S

I

cessor with memory and input and output, that could be programmed to

I

perform in some way as the user desired as opposed to being hard
6 ;\
(Tr. 79044-45.) The TC sao:
7 ;! wired".
II
:1

8

"(h]ad a keyboard for an operator to input data and a printer
on which data could be printed, a character printer, and a
processor inside of it which could be programmed to give that
device any particular characteristics in its. operation, as well
as do other processing of the data as it was entered or before
it was printed." (Tr. 79044.)

1

910

11

Burroughs similarly described the TC 500 in its Annual Report:,

u:
i
T~i
!
!

15 :

RAn internally programmed computer using integrated circuitry
and disk memory, the TC 500 can operate as a data communications
terminal on-line to a central computer, or function off-line
independently. . . . In addition to data communications,
they can edit and format information and perform functions
which previously had to be handled by the central computer.
(OX 13665, p. 7.)
If

I
16 ;1

In 1969 Burroughs introduced its TC 700 and TC 310 terminal

I'

171,11 computers.

The "TC

sao

and TC 700 have their own computing and
I

:t

lS :imemory capabilities.

:I

19

'i economical

20

:i

They also edit and format information for most

transmission to a central system.

The TC 310, in multiples

is connected to a data controller which then performs the formatting

2l j! and other necessary operations prior to data transmission."
d

(OX

22 ~tl 10 2 6 4 , , p . 14.)
23 !!
,!
Also resulting from the same engineering as the TC computers

24 'lwas the L 2000 computer.
I

Introduced in 1969, the L 2000 was a

,!

25':1 computer, designed for billing, as to which "the addition of a data
:1

'!
'I

!

:1

i

;1

.1

;1

II

-652-

I

,I
I

I
I

I

1

communica~ions

unit converts it to a terminal computer able to

2

communicate with a central computer system".

3

COBOL was available for the L 2000.

Macdonald described the
! I,'

LITe

(DX 10264, p. 18.)

series as follows:

"These internally programmed machines are programmed in COBOL
and can operate under operator control or under program control.

I

I

6f

ft

i

7 il

:1

"These small systems are, in terms of what they can perform,
small full-scale computers."
(OX 10285, p. 6 •. )

i

Sj

t

(iii)

9!

Peripherals.

During the years from 1964 through

10 ! 1969 Burroughs improved upon its existing peripheral equipment.

I

11

1

introduced several models of improved card readers, printers, sorter-

;

i

12.

It

i,

readers, tape transports, multi-tape listers, and tape drives.

(OX

I

1.3! 10261, p. 11; OX 10264, p. 10.)
I
1.4- i

By 1964 Burroughs had developed and was marketing a disk

I
I

IS : file with a head-per-track.

,

(Withington, Tr. 56244; OX 10260, p. 10.)

I

16 :1 This head-per-track file had a slightly faster access time and a

17 :1 slightly higher cost per unit of storage than the movable head
18 :[ devices.
ti

(Withington, Tr. 56244-45.)

I

.

I

During the mid-1960s Burroughs

found that its disk drive was "a significant factor in the growth of

19 :1 the Company I s business in EOP systems".
20

I

I

(OX 13665, p. 5; see also

;1

'

'/

21

:1

ii

"

PX 48 34, P • 31 • )

d
:1

22 ';
~i
23 it

However, in 1962 when IBM introduced its 1311
~Nith

•

d~sk

•
drl.ve

a removable disk pack, Burroughs did not offer a disk drive

:\

' h a similar removable pack, nor did Burroughs offer such a disk
"''-"'!'. . ',I;'I Wl.t

,I

"'S;
"

d,..-1.' ve

..

after IBM followed this announcement with the introduction of

:1
I

·1

:1'
'I

"

I

.j

:!

:,,i
I

-653-

,I

l
I

\

I

I
1
t

I
the 2311 and 2314 disk drives.

Where Burroughs' customers wanted

the advantages of a removable disk pack, Burroughs sought to convince
them to keep their files on magnetic tape and to load and unload the

.

files on to the Burroughs' fixed pack drives.
58802.)

(Withington, Tr.

Finally, in the late. 19605, Burroughs arranged to acquire

disk drives with removable disk packs from Century Data, and in 1970
it began marketing those disk drives as part of its computer systems.
(PX 4445, pp. 7-8; OX 10716, p. 12.)
B·urroughs introduced new peripheral equipment during t..'1e

a! 1960s.
1

In

1969 Burroughs introduced a new electronic reader/sorter

which handled documents both optically and magnetically encoded and a

~

2; new computer-output-to-microfilm system.
,3. ;.

new encoding devices:

It also announced three

the Series N keyboard-to-magnetic tape data

i

encoding machine; the A 149 peripheral card punch, the A 150 keypunch,

~4-:\
!

,~:

and the A 160 verifier for punched card encoding; and the Series S

~e :1

"general purpose character encoding machines · · · designed to

-

encode unit documents • • • to facilitate electronic reading by

.1'

l7 :
~S
f

'i high-speed recognition equipment".
:j

c.

:1

.9 ':
:!

,0 ,I:

(OX 10264, pp. 10-14.)

Burroughs at the End of the 1960s.

By

~~e

end of the

decade the changes Burroughs had instituted in 1964 had begun to

achieve Burroughs' objective of "profitable growth".
(OX 427, p. 8.)
'
J Burroughs had reduced costs and increased efficiency in its manufaci

Zl:!

Z2 ,\
.l turing and marketing operations (DX 427, pp. 6-8), and it had increased
23\

I its

expenditures in research and development.

(Hacdonald, Tr. 6889;

Z~ I

!DX 427, p. 8; DX 10264, pp. 4, 6.)

Aided by those changes, Burroughs

-654-

\

1

had expanded its product line in terms of both range and the capa-

2

bilities offered.

3'

delivered several complete lines of computer systems ranging from

4-

small (E Series; LITe Series) to very large

From a few mid-size computers in 1964, Burroughs

(B

6500) by 1969.

Its

numerous new product off·erings were reflected in its 1969 Annual
Report which described its "broad line of products for the data
recording, computing and processing market" including:

II

n[c]omputer systems, memory sub-systems, peripheral
input and output. equipment, data encoding equipment, data
communications terminals, accounting systems, calculators and
adding machines, business forms and office supplies, customdesigned electronic systems, and data display devices. This
extensive range of products represents one of Burroughs basic
strengths for continued growth in the rapidly expanding data
processing industry." (OX 10264, p. 2.)

l2.

And Burroughs was also continuing its technological development in

13

intelligent terminals, an area that would become very important in

10

14- !
I
!

(See

the 1970s.

lS

ox

10264, p. 14.)

It was clear that Burroughs' management understood the close
interrelationship of its extensive product line.

In a 1969 presenta-

tion to the New York Society of Security Analysts, Ray Macdonald
stated, concerning the relationship among various computer products,
that:
"In 1967, I said that when I had the next opportunity of .
addressing this group we might refer to electronic accounting
machines, electronic accounting systems, terminal units and
electronic computers as one continuous market from small machine
to giant computer. This blending
several markets into a
single broad market has now become more evident." (DX 10285,

of

p. 5.)

Burroughs' financial results, in turn, reflected the
proliferation of its computer products.
-655-

From 1964 to 1969 Burroughs'

1

total corporate revenues did not quite double, increasing from $392

2.

million to $759 million.

3

revenues increased from $61 million to $260 million and its corporate

4-

profits jumped 500 percent.

During the same time its domestic EDP

(OX 8224, p. 1: OX 10260, p. 5; OX 10264,

5 .p. 5.)
6

Writing in 1975, Macdonald looked back on the results of

7

the changes that

Burrough~.

had instituted in 1964:

"Our revenue has doubled every five years, and today, at
$1.5 billion, is four times its level of ten years ago.
"Our net earnings have increased by 14 times during
the 10-year period, and this is the best record of growth in
the mainframe computer industry.

10
11

"Our manpower worldwide has increased from about 34,000
to more than 51,500. We are operating 54 plants in ten countries
and two more plants are under construction."
(DX 427, pp. 2-3.)

12.
13

By the beginning of 1970 Burroughs had made up much of the

14ground it had lost during the 19505 and early 1960s, and was well
15

situated for even greater success in the 1970s.

16
17

18 :\,!
19

II

201t
"

2l

:1
:1

22.

:i:;

23

'I
I

24 :\
:1

25

'j
,I
:1
"

i

!j

:1
:j

-656-

45.

1

National Cash Register.

Historically, National Cash

2 I.Register (NCR) was a company that had concentrated on marketing its

I;"

i --cash
t .
products
regJ.sters, accounting machines and addin·
3 , tra d"J.tJ.onal

I

4- :machines--to customers engaged in retailing and banking.

':

5 :, 1; OX 372, p. 1; see pp., -229-31, 236 above.)

By

(OX 344, p.

the beginning of

I

6 ,;1964, while continuing to concentrate on customers in those areas,

7 I NCR had introduced and was marketing two models of its second
I

8 I. generation 351 computer system which had been announced in the early

91-1960S.

(DX 344, p. 14; DX 382, pp. 3, 10.)

At the same time NCR

I.

10 I: was actively expanding "the functions of its traditional products".
11

r (See
I

above p. 241; OX 344, p. 1.)

In 1964 NCR's domestic EOP revenues

I

12 ! ($46.3 million) accounted for only about 13 percent of its total
I

13

1

14

i

domestic revenues.

I

(OX 361, p. 22; OX 8224, p. 3.)

The story of NCR in the years between 1964 and 1970 is that

I

15

\Of

a company wishing to maintain its traditional business and only

16 jlgraduallY adding the increased capability offered by computers.

This

[I

17 ;ldesire gradually to develop computers to support its traditional
Ii

18 ilbusiness was expressed by the President of NCR, Robert S. Oelman,*
19
20

II •

II~n
tI

a November 1964 speech.

I' undergone

22

i

It

recently It

"the most significant change in [its] long history . . . the

!

21

He stated that the company had
•

advent of electronic data processing."

11-------------------

(DX

342, pp. 2-3.)

However,

II
* Oelman, along with J. J. Hangen, were the two witnesses called by
l!p1aintiff from NCR. From 1964 until he left NCR in 1973, Oelman was
24 I! Chairman and Chief Executive Officer of NCR (Tr. 6117), and from 1964
11 until 1972 Hangen was Vice President of Finance.
(Tr. 6233.) At
25 !I the ti.~e he testified Hangen was Senior Vice President of Corporate
I Affairs for NCR.
(Tr. 6239.)
~

II

I

-657-

1

il

2!

Oe~an explained that this change did not mean the demise of NCR's

"tradi.tional products" --cash reg isters , accounting machin.es and adding

3 ! machines--for two reasons:

!
~ i "being

integrated" into

First, the traditional products were

.
electronic

data process.ing sys terns; the tradi-

I

5

I tional

products serve as an "input medium" for data and are tied into

I

I

6; "the mainstream of the data processing revolution".

Second, NCR could

7 II, use "new technologies to add important machine features and to improve
:\
8

I'

overall perfo'rmance II

!

0

fits traditional products.

(Id., pp _ 3 -6. )

Thus, NCR, rather than recognizing that computers were going

10 ! to obsolete its "traditional business" (as IBM had in the 19505) and

11

I
1

committing itself to the new technology, chose to split its resources

i

~l between computers and its traditional cash register and accounting

~.~ machine products.
1~1l

(See, e.g., OX 361, p. 1; DX 370, p. 16.)

In its

1966 Annual Report NCR reported that:

,I

I

lSi

I

"The Company's R&D program is designed to achieve two
basic objectives:

t

16 1j]

"1.

To improve NCR's traditional position of leadership in the
control' register, accounting machine and adding machine
markets;

"2.

To gain for the Company an increasing share of the rapidly'
growing market for computer systems and related equipment."
(DX 370, p. 16.)

17 It

:t

18 1\i!
19

li"'ll

20 \!

Outside observers also reported on NCR's desire to proceed

21'
· [I gradually in computers.

~

Withington described NCR as following a plan

;1 during the 1960s to proceed "methodically" in computers by using

23,

coml,Jl.lters "to complement its existing product and marketing positions II

24 II NCR did this because

25

I
I
I'

t

I
_I

I

:1

I

:1

1

I

I

J
I

:1
'j"

i

'I

,I

n

-658-

1
2

"(t]he risks and investments involved in introducing highly
innovative products to rapidly achieve a major share of computer
shipments do not appe·al to NCR, and that as long as the company IS
overall position, growth, and profit objectives are supported the
company's computer market share is not a primary objective."
(PX'
4834; p. 34.)

I

i

3:

i
4.1
I

Similarly, an analysis of NCR by IBM employees in IBM's Market

51
I

I

Evaluation Department observed that in 1967 NCR wa·s "still in the

6 ;!

II process of establishing itself in computers [and its] management is

7 II
11

not prone to risk ventures".

8!

Developments at NCR during the period from 1964 to 1970 show

I

9i

a company improving its products gradually and trying to avoid taking

10 [

11

I
!
j

!

12 ,
I

13

(PX 2050, p. 4.)

the risks of producing innovative products.

introduced only a few improvements to its second generation equipment.
During the summer of 1964, NCR announced a follow-on member of the 315

;1

I family, the 315 Rod Memory Computer (RMC).
I
14 i

2.)

i

I

I

with other computers in the 315 line.

16

l!

14.)

18 !!
19
20

Multiprogramming for the 315 RMC was announced during 1966.

370, p. 16.)

(DX

During 1965 NCR announced the Series 500 computer, a

general purpose computer which attempted to combine "magnetic ledger

.f

bookkeeping with various combinations of punched card, punched paper

~!

11
II

'I

i!
:1

22ii
1\

..,~
~

(Hangen, Tr. 6314; DX 361, p.

n

:i

21

(DX 361, p. 14; DX 401, p.

The 315 RMC used thin-film memory technology and was compatible

15

1711

From 1964 to 1968 NCR

tape or optical equipment".
NCR

(Hangen, Tr. 10402; DX 361, p. 13.)

I
I

I
I

also continued to make changes to its existing products_I

Despite the fact that the CRAM file had' been superseded by the disk

ii
:1

II drive (discussed. above at p. 235; see Nithington, Tr. 5646S-70,

24 :\ 56511), in 1966 NCR announced a more powerful version of that product
25 !I
II

(DX 370, p. 16) rather than replace it entirely with disk drives.

-659-

I

11 Following the trend started by System/360, NCR reported in 1966
2

II
1

th.at it was increasing the modularity offered by its 315 computer

I

3;I family:
I

4-!

"When NCR announced the 315 computer family, four basic
processors, three- memory sizes, and 12 periphe-rals were offered.
Today, 315 users have a choice of nine different processors,
eight memory combinations and some 60 peripheral units. Expansion of this fle-xible computer series in 1965 included three new
magnetic tape units, three new high-speed printers and a new
communications controller. This latter device permits up to 100
communication lines serving input or outout-devices to be linked
directly to a 315. It greatly extends the power of the system to
receive inquiries from remote locations and transmit answers.
(OX 368, p. 6.)

I

51
I

I

6

;1

7

H
~I

I

al

1I

9

It was not until March 5, 1968, almost four years afte-r

10

\1

11

r

l2

! generation

13

i were

14

II

IBMls announcement of System/360, that NCR introduced its third
computers, the Century Series.

The first models announced

the Century 100 and 200, and NCR stated

~~at

it intended soon to

announce a Century 400 which would be capable of performing time
sharing.

(DX

348, p. 1.)

The Century 200 was "designed for batch, real-time, and
scientific processing".

(OX 469, p. 2.)

NCR offered the Century 100

and 200 Systems, in addition to sale, on one, three
rental terms.*

(OX 348, pp. 1-2.)

o~

five year

Each system was marketed with a

minimum amount of main memory, a card reader or paper tape reader,
printer and disk drive.

(OX 348, p. 1.)

Other available peripherals

included CRAM, a MICR sorter-reader, an optical journal reader,
punched card units, and visual display units.

II

(OX 421, p. 17; OX

I
* By April 30, 1969, over half of the orders for the Century
were for a five-year term.
(OX 372, p. 4.)

.

Ser~es

I
I
I

I

-660-

!
I
I

I

I

1

469, p. 14.)

2.

NCR promoted the Century Series as its "most important

new line of products"

3

(DX 366,. p. A), asserting that it incorpo-

4-\ rated ma.ny 'advances over its previous machines, including:
I

51

(l)

The Century Series continued the use of thin-film

I

I

5
7

main memory introduced on the 315 RMe.

II
!I

"important 'first I

",

NCR called this an

making the performance of the. thin-film

!I
8~

memory available at a lower cost.

9-[

about a year after the announcement of the Century Series,

!

10

!
I

(OX 366, p. 5.)

NCR replaced the thin-film memory with core memory.

Within

(Hangen,

Tr. 6329- 30. )

III

I

IZiI

(2)

The Century Series used integrated circuits "throughout

all Century computers and peripherals".
13 !I
14- i

I

lSi

I

15

:J
"

17 ItII

(3)

11

It:

11

The Century Series provided for "complete upward

compatability" so that "as a user's needs increase, more
powerful processors can replace original units as required".
( Id., p. 8.)'

(4)

18

The Century Series included more advanced peri-

'I

~!I:!
21 ;\
~

22 '\
23 :\

zJ

pherals--including, for the first time, disk drives:

is an integral part of all members of the family".

·f

!I:,
11

:1

The

Series also included a new high-speed printer and, yet again,
an improved CRAM unit.
(5)

(Id., pp. 6-7 . )

The Century Series had the capability to use both

Ii
'I

"The

philosophy" of the Century Series "is that the disc concept

:1

25

(DX 366, p. 6.)

-661-

I

I

I

I

11

COBOL and FORTRAN* programs among others.**

!

z!I

(6)

I

1!I

The Century Series provided for s·tandardization in

des:ign includinq standard cabinet frames and panels, power

4--1

.
supp~ies

~I

interfaces so that "the many peripheral units available with

I

.

and cable connections.

It also provided for standard

i

I

I

ell

1 ;1

:,
II
81

Century processors can 'interface' simply, and in a wide
variety of ·configurations·".

(~,

p. 7.)

Of course, while these features represented improvements over

I
9-1 NCR's prior products, all these features, with the exception of the
10 soon to be discontinued thin-film memory, had been included in IBM's

!

111
ul

System/360 four years earlier.f

I

In its Annual Report for 1968, NCR announced its marketing

I
I

I

13i plans for the Century Series:

_....

'T _t

!
i

\

i

lS!

I

lsl!

"Over the years NCR has established itself as a
leading supplier of business systems to thousands of
manufacturing concerns, construction companies, wholesalers, schools, hospitals, utilities, hotels and
motels, business service firms, and local, state and
federal government offices.

17
18
19

i,

I'

20]
It

2l

:1
I,:1

;i

"11

* According to Hangen, FORTRAN would be used by NCR users to perform
scientific applications.
(Tr. 10604.)

** On software development, NCR reported:
"Basic computer operating software as well as standard
application programs have been prepared concurrently with
equipment development. This has insured full program compatibility, plus a proper balance between 'hardware' and
'software' capabilities." (DX 366, p. 10.)

23 :1

J f During this period, perhaps because of NCR's late response to
24- ;ISystem/360, NCR "as a general rule . . . attempt [ed] to price [its]
: products slightly less than the comparable IBM system", that is, "5
2S to 10 percent less".
(Hangen, Tr. 63S0-5~.)
-662-

I

I
I

"The advent of the Century Series computer family
has multiplied the company's opportunities in these
fields. As users of NCR accounting machines grow and
their data proces·sing requirements increase, a Century
100 computer system can meet these greater needs just
as the Century 200 can serve the larger organization.
At the same time however, wi th thousands of new small
businesses being established each year, the market for
accounting machines has continued to grow."

1

2
3
4-

5

..

6

7

;1
;1
!,

:1

8'!

i

9:
10

.

*

"The largest single market for computer systems is
in manufacturing. One out of every four Century Series
computers currently on orde·r, for example, is scheduled
for use in this area." (OX 340A, p. 8.)
Hangen, then Vice President of Finance (Tr. 6233), emphasize

IIil in April 1969 the opportunity Century afforded to broaden NCR's
I

I

11

1
!

market~

ing thrust:

I

1

12/1
13

II

141!
i

15

i
I

I

"Although we intend to continue our close relationships with the retailing and financial industries, the
Century allows us to broaden our marketing thrust. We
are offering specialized Century programs for the
Educational, Hospital, Local Government (including Law
Enforcement), and Distribution Industries.
(OX 372,
pp. 3-4.)
1t

16 :! He added that the majority of orders received for the Century were fro
17

18
19
20

21
22

23

24
25

1!

;!

Ii

:1

"non-banking, non-retail industries".

(DX 372, p. 4.)

The Century Series was "largely responsible

ff

III

for the fact

I'

i1

that in 1968 NCRts domestic orders for computers increased 98% over th~

:!
~i

prior years.

..
11
;'

I

ii
q
d

;1

The result of the increase was that "for the first time

domestic orders for computer equipment exceeded those for either cash
registers or accounting machines."

d
:1

n

;j

i1
II

i

II
I
i
i

:1

I.
It

To meet the

demand NCR expanded the Electronics Division plant facilities by 50%

lj

;,

(DX.340A, p. 2.)

I

-663-

and planned a further increase in 1969.

(DX 340A, ?

2.) *

The large increase in orders had an "adverse impact" on NCR's
earnings during 1968- as the 1968 Annual Report explained:

!_

r
I
I

"Users of computer' systems ge-nerally prefer to
rent rather. than buy such equipment. Thus, the introduction of a major new computer family such as the
Century Serie:s tends to have an adverse impact on
earnings initially, since the company must immediately
bear production startup, software, training and depreciation expenses although revenue from rental installations is reeeived only over a period of years."
(DX
340A, pp. 2-:3.)

./'

t

i

NCR

went on to as-sure its - stockholders- that in-future years

i

1 l there would be Ita highly
I

fa~lorable

L~

340A, pp. 2-3.)

,i

marketed were in fact leased.

effect on earnings".

(DX

Ninety percent of the Century Series systems
(Hangen, Tr. 6358-59.)

-t

- II

Throughout the 1960s, NCR understood the importance of

::1

support services--customer training, maintenance, systems design--in

i
~,

marketing computer products.

It stated in its 1964 Annual Report that:

"The user of an NCR business system buys considerably more than the machine units which make up
that system.· In every case, an NCR systems specialist
and in many instances teams of specialists design
the most efficient system possible to meet the
customer's current and future needs, then thoroughly
train the user's staff in its use. After the system
is operational, fur~~er counseling and assistance
including dependable maintenance are provided."
(DX 361, p. 8.)
,j

~

:!

Similarly, it stated in its 1966 Report that:

·i

:2 j

·1

't

~ I

! p.

* The Century 100 was first shipped in the fall of 1968

~!

·i (Hangen, Tr. 6328.)

.-....

I

,

(DX

340A,

B), and the Century 200 was first shipped in June or July 1969.

-664-

L

2,
I'

3!

!

4-1·i

51

I

0'11
7

II
;1
I

Si

'·Today, a • • • requirement for future success in
the marketplace has arisen; that is the need for
business equipment- suppliers to provide additional
guida.nce to customers in utilization of new technologies
for operating their businesses more profitably. For in
the final. analysis, the effectiveness of today's
sophisticated information systems depends upon a full
underst-anding of their potential at all levels of management. To this end NCR's educational programs are being
designed not only to prepare sales representatives to
install advanced systems, but also to provide counsel
and training in management sciences."
(OX 370, p. 5.)
And, with. the introduction of its Century System it realized that
customers needed even more support.

!
i

In its 1969 Annual Report, it

9- ': stated:

!

10 I
11
it

ttl
I

13

II

"Marketing requirements of the business equipment
industry have changed significantly in recent years.
In recognition of this, the company has taken various
steps to provide the greater degree of support which
customers need and expect." (OX 367, p. 4.)
After IBM announced its "unbundling" in June 1969 I NCR' s

1+ II Pricing Committee decided whether to make any changes in its pricing of
lSI

ilsupport services.

(Hangen, Tr. 6364.)

Recognizing that there would be

16 l!problems, "particularly (in) customer relations", the Pricing Committee

17 ildid not take any immediate action.
if

(Hangen, Tr. 6393.)

18 :i1 969 , NCR announced a change in its pricing structure.
:l
19 !iannouncement stated in part:

201f

:t

21 J
2.2.

,j
~i

23

'I

:1

24 t\
:1

15

11

"In addition, NCR recognizes that there is considerable
variance in the level of support required by different
customers. This is a function of the capabilities of

'I

:;
'I

ij

;!
;1

(OX 346.)

"NCR believes that each user of its computer systems
must be provided with a certain essential amount of
software, systems support, and educational services if
he is to successfully install the system and begin
to benefit from his investment. NCR believes that
this basic package of supporting services must be the
responsibility of the equipment manufacturer.

:1
:1

On October 1,·

-665-

The

the customer's internal EDP staff and of the scope
and complexity of the applications to be insta1led.

;f
I

"Accordingly, it. will continue to be NCR's policy to
provide,. a·s part o.f the basic hardware price, that amount
of software and support which will realistically insure
that a prudent uS.er wilt be ·able to install and successfully utilize his NCR computer system.

I

~I

"

; ~t

"Software and sUPPo'rt services requested above the
level whi.ch is inc'luded in the basic hardware price
will be separately priced."
(DX 346, p. 1, emphasis
in original.)

· ~I

~t

~

. . .. .

I

NCR did not change basic hardware prices when it started to charge
separately for those support services.

.

(Hangen, Tr. 6365.)

On January 1, 1970, however, NCR partially reversed

:

its unbundling decision and announced:
"After further evaluation, it has been decided not
to price all basic and applied software and not~
establish an allowance against which such chargeable
software would be applied. The NCR software pricing
plan will be to continue to establish pricing for
software products on a selective basis, considering
the value. to the customer, uniqueness, and other
factors. This approach creates an allowance effect
since the more basic software offerings will not be
priced." (DX 386, p. 2, emphasis in original.)
NCR's computer data center business, begun in 1960, expanded
during the 1960s, so that by 1968 there were 69 centers worldwide.
Many customers of NCR's data centers used NCR cash registers, accountI

1

!

1

ing machines or adding machines to produce "punched paper tape or

.j
~

.; machine readable 'optical' figures as a by-product of normal opera-

:3 :\ tion."
!

The cust:::mers then sent t.'1e output media to NCR' s data center

~~ :\ for processing.

(DX 340A, p. 10.)

I
.1
~

The data centers were "NCR's most

i successful effort in the data processing business" in the 1960s,
I
i

t

\

!
i

,I
I
I

,1
I

-666-

II
II
1

according to Withington (PX 4832, p. 22), and, in addition, proved to

2.

be a "powerful stimulus to the sale and rental of data capturing"

3"

devices.

NCR's use of its traditional products as input devices for

4

5

(DX 340A, "p. 3.)

i its data center computers was an example of NCR's attempt to integrate
I

6

!

its traditional products with its computer systems.

f

In 1963 NCR

I

7 a reported that those products could be used with computers in several
~I
!I

8 i ways:
!

9!

10

11

il
I
I

12i

1311
!l
14_

l~

"Many dif£:erent types of cash registers, accounting
machines, adding machines and other peripheral units
are available as basic input devices for [computer]
systems. Some of these machines communicate with
comp.uters by means of punched tape or punched cards.
Others record transactions or other data in slightly
stylized print which can be read by optical or magnetic
scanning machines. Still others can be cabled directly
'on-line' to NCR electronic data processing systems."
(OX 344, p. 3.)
NCR did very little, however, in terms of developing and

1',"1

marketing on-line systems during the 1960s.

11

During May 1969 H. M.

16 :\Keller, NCR's Manager of Terminal Communications Products, wrote that

'I

17 :1 in terminal and communication products NCR did "not have a great choic
;I

18

:1

to offer our prospects", and he listed only one on-line device, t.~e 42-'

11

19

;,!,

!I

20 :1

500, a bank tellers' console.

;~Keller

(DX 719 , p • 1 , see 0 e 1 rna n,

"!.:

I'Pt

r . 61--4)
t).

noted, however, that a change had recently occurred in NCR's

.1

2.1 J
, tment to on- l'~ne d ev i ces:
:: Co!!llU~
:\

..,~

':

' " ;1::

23 n
;1

24

1\

;l
25 ;;

"Before we knew that our Company committed itself
to creating and offering terminal devices for many,
many purposes, we may have had reasons for not encouraging sales of on-line systems. Now that ~ve know that
NCR is committed, each of us must help to penetrate the
on-line field."
(DX 719, p. 1.)

:1

~f

ii
d
"

f

.1

:1

;1

-667-

In support of that commitment NCR was investing "tremendous

2

I

sums of money in developing" terminal and communications devices.

i

t

31

Keller predi_cted that:

i

4.

"To quite some exiient, our future success in the
terminal field. will depend upon our success with computer
sales and installations. On the other hand, the availability of a complete range of terminals will certainly
further enhance our CENTURY sales." (OX 719, p. 1.)

1
I

i
I

!

I·
I

I
6;~

7

II

NCR

\1

made a similar prediction concerning terminals in its

a :11969 Annual Report:
I
i

"More and more people will be brought into -direct
communications with computers through a variety of data
terminals and data display devices. In fact, it is
anticipated that by 1975 users of data processing
systems will be investing as much or more in data
terminals and related communications equipment as in
the central computer itself. This will create major
new opportunities for the business equipment industry
and particularly for companies such as NCR which has
extensive experience in data entry devices." (DX 367,
pp.9-l0.)

9-\

j

10 !

I

ll-l

I

12.1i
I

15

i(nd:
"A decade ago, almost all business machines were
sold as free-standing equipment. Today, many of these
products as well as entirely new types of equipment are
linked together as "total" systems to meet individual
customer needs. Such systems often include arrays of
compatible computer equipment including communications
networks." (DX 367, p. 19.)

l6 a
li
18

11

if

II

.9

iil!

'0

i:1l

J.

-

21

Those predictions turned out to be accurate.

2S

During the
\

1970s, NCR found that "the caMabilities and Mrice/performance of its

I

Uterminals (were] an important factor in convincing users to take NCR

I
I

;i

11

_

22 II
... _ It computer systems."
~ ;1
,
Z~

I

r:'

r:'

(Oelman, Tr. 6183; see also below pp.

998-99.)

I
By 1970 it was plain that NCR had proceeded "methodically" ini
:i
!
;1 the computer
business, avoiding risks but avoiding also the great
I

.1

I

;1

I
j

I

;(

,I
.\
"'I

'\

II,j

~~

-668-

iI
l
i

i

I

I

success that comes with successful risk-taking.

Between 1964 and 1970,

NCR's most s.ignificant development was the introduction of two models
(the Century 100 a..'ld 200) of a system the principal features of which
had been available on IBM's 3ystem/360 delivered three years
earlier.

With this gradual development, however, NCR reduced the

chances that it would be a failure like GE and RCA and found itself
positioned to turn the corner in the 1970s, which it ultimately did.
8

I

9-

10

NCR's domestic EDP revenues for the year 1969 were $179,298,000, over

I

five times its U.S. EDP revenues in 1963.

~

l

of NCR's total domestic revenues but double what it had in 1963.

tl:

i

t2.i;, (DX 367, p. 6.)
I

I
~

.i
j

25

Even with

that growth, NCR's domestic EDP revenues accounted for only 26 percent

.

\

.....

(DX 8224, p. 3.)

.1I

i
t

•
1
.1

"

I

I

i

-669-

46.

Control Data Corporation (CDC).

1969 was one of rapid e·xp.ansion for CDC.

~.

.

The period from 1963 to \

It added to its two principal

p'roduct lines, the 3000 and. 6000 series; it expanded the applica.tion·$

;

,"-!. capabilitie·s of its computers to include not only a scientific emphasis
~ut

I

f'

.

also busine·ss-oriented software; for the first time, it developed,

I

I

manufactured and' marketed.a. broad line of peripheral equipment, including OEM sales to other companies and IBM plug-compatible equipment; it
expanded its overseas operations; it made a large number of acquisitions, including, most importantly that of Commercia:l Credit Corpora-

9'
;.

; tion, a large financial services company; and, finally, it greatly

o :t

expanded its data center business. CDC's total EDP revenues grew from

1:

~85

2.

million in 1963 to $570 million in 1969.

, revenues
l

(DX 298.)

Its U.S. EDP

grew from $88 million in 1964 to $458 million in 1969.

(OX

3: 8224, p. S.l Its assets increased from $71 million in 1963 to $761
.4..

i

million in 1969.

C:!
-

I part,
!

~5 :1

(DX 302.)

To finance that expansion, at least in

CDC raised over $767 million between 1963 and 1969 through equity

and long-term debt financings.

:1

7 ;
• :,

(DX 300.)

~

The discussion below focuses on five principal areas of CDC's

'8 :\

•

:\'i growth during the 1963-1969 period:

First, CDC's major product

Fa .'

announcements, including, principally, its 6000 and 3000 series, and

... ;1

,0

:1

'1

:i

'\ their success; second, the increasing use of CDC computers to perform

- J both scientific and commercial applications; third, CDC's expanding

,.,

.~

--:iperipheral equipment offerings, both as attachments to CDC systems and
23,I
I as OEM products sold to other companies; fourth, the expansion of CDC's
2~

.!
i

jdata centersj and, fifth, the way in which CDC's growth took place,

2S
-670-

i

:.

r
I

i

!

1

1,

i

_
1..e. , by vertical integration and acquisition.
•

z!I

a..

3,)

(i)

I

~ I·-

CDC's 60,00 and 3000 Series Off-erings (1963-1969).
The 6000 Series.

CDC's most important product in the·

1960s was undoubtedly. the 6600 computer, announced in July 1962 in

i

a\
6'

!

l

connection with a contract let by th.e Atomic Energy Commission's
Lawrence Livermore Laboratory, and first delivered in September 1964

i

7!f (s'even" months later than the date contracted for).

(JX 10, 11 4.)

CDC

I

S.

II

Chairman and Chief £xecutive Officer William Norris* d'escribed the 6600

:

9lQ

I as a "very great risk" since "it was a trip into the unknown" and

!
I

* William Norris was one of the four founders of Control Data in
July 1957.
(Tr. 5604.)
In August 1957 he was elected to the Board of
Directors and to the position of President of CDC.
In 1958-59 he
assumed
the
additional
title
of
Chairman
of
the
Board
of CDC. At the
I
time
of
his
testimony
in
1975,
Mr.
Norris
had
been
Chairma·n
and Chief
131I
Executive Officer of CDC for over seventeen years.
(Tr. 5596-97; PX '
i
1+:i 355, pp. 11-29.) Prior to the formation of CDC, Mr. Norris was General
Manager of the Univac Division of Sperry Rand.
(Tr. 5603.)
I

II

!

lZ~

lSiI

R. D. Schmidt joined CDC in
his testimony, Mr. Schmidt was a
:' CDC, Executive Vice President of
17 Export Strategy Committee.
(Tr.

16

il

I

1962 as a salesman. At the time of
member of the Board of Directors of
the corporation and Chairman of its
27199-201.)

J. W. Lacey had been employed by CDC for approximately fifteen
years at the time of his testimony, and held the position of Senior
Vice President of Corporate Plans and Development.
In addition, he was
Chairman of CDC's Operations Committee and a member of the Board of
Directors of CDC's Commercial Credit Corporation subsidiary.
(Tr.
6552-53.)
Gordon Brown, at the time of his testimony, was Senior Vice President of Marketing and Planning for CDC's Peripheral Products Company.
(Tr. 50977-78.)
H. W. Forrest testified by deposition.
(OX 13526.) Forrest
worked in the Univac Division of Sperry Rand under Norris and moved
with Norris to CDC.
(Id., OPe 42-44.)
At the time he was deposed,
Forrest was Senior vice-Pre;ident, Government Relations, for CDC.
( Id., p. 4.)
-671-

1

testified that CDC was "betting the future of the company" on it.

2

!

l

!: considerable

(Norris, Tr .. 5616.)

But, as did IBM with System/360, CDC re'ceived

returns on its "bet".

Despite early problems with the

4--\ 6600, CDC ultimately was· succye.ssful with it and with the other 6000
I

I Series
I
5:;

!

i

computers.

(See Norris, Tr.

5849-·51.)

On December 15,1964, some eight months after IBM's System/

7'\1360 announcement, CDC formally announced the "6000 Series", then conII

S

! sisting

of the compatible 6400, 6600 and 6800 computers. * (OX 319-.)

In

I

i

~1

the announcement press release, Norris described the 6000 Series as

La ! "the industry's most extensive product line of super-scale compuI
u I ters
· provid(ing] business, industry, science and government users

I

12 the most comprehensive range of software and system compatibility ever
I

1.3

I announced

in the computer industry."

(DX 319, p. 1.)

Purchase prices

I
I

14-1 for typical 6000 Series systems were announced as ranging "from less
I

i

15 1 than $1 million to several million" with rental prices from $25,000 to
l6

II

it $150 ,000

or more per month. **

(DX 319, p. 3.)

!j

17

if

By the end of 1964, CDC had received "possibly five or six" .

18 lrorders for the 6600 (Norris, Tr. 5624), although top officials at IBM
iI

Jhad believed as early as the Fall of 1963 that as many as 10 accounts
19 1
.
20 ~!were then planning to order CDC 66005. (JX 10, 11 9.) Deliveries of

:,
21 !It~e 6600 were delayed, however, due to unanticipated technological

;i
22 ::--------------------~_ ~ * The 6800, however, was never delivered.
~ :1'1 34.)

(Norris, Tr. 5967; JX 10,

Z4 '!
** CDC later announced t'NO more models of the 6000 Series, the 6500,
25 :f announced in March 1967, and the 6700, announced in May 1969. (PX 355,
'lpp. 36-37; see Norris, Tr. 5626.)
Norris described the 6500 as "actu., ally two 6400' s connected together" and the 6700 as rt somewhat more
powerful", being "basically two 6600s."
(Tr. 5626.)

il
:1

a
:1
"

-672-

!

I

J
I

z:
3.:

problems in 19'64·, 1965 and 1966.
54.)

i

(See JX 10,

~

34; Norris, Tr. 5853-

By 1966 CDC had solved its technological problems and reported to

its stockholders on 'the problems. which had occurred in its development

i

4--;

of large systems:

I

". • .' The development and manufacture of very large
computers are extremely difficult, and severe technical problems
are inherent in the process. In a past stockholder report,
it was emphasized that estimating completion dates of very
large compu·ter developments is becoming increasingly difficult.
Last year at this time we believed we had found solutions to
the major technical problems in connection with the 6600.
Experience since then has proven that, while this was generally
true, the estimate was in error on the time and effort required
to make the necessary changes in the equipment and programs.
The process took longer than anticipated; as a result,. we
incurred increased penalties for late delivery and retrof'it
costs." (OX 13839, p. 2.)

: :1

Til

a[
9-;

i
I

m;

i

llt
i

CDC also found it difficult to establish a price for the

I

!.2. ),

6600.

__ l

~1

i

660~

proposals to the Bettis Atomic

Power Laboratory (BAPL) and the Knolls Atomic Power Laboratory (KAPL),

L4- :

in competition with IBM, Burroughs, Philco and Sperry Rand proposals.*

~=!
......

15

In April 1964, CDC submitted

~ (JX 10, , 12; Norris, Tr. 5620; DX 4960, p. 5.>

The bidding process

!I

1.7 :1 was highly competitive.
Burroughs respectively.

:r

rs
::1
-

il their selections to

19 J

IBM.

Initially, BAPL and KAPL selected CDC and
Later, however, both BAPL and KAPL changed
( JX 1 0,

Six months later,

t

za .:

CDC

~f

12.)

was told by the Government that it was

interested in reopening the BAPL and KAPL negotiations if CDC was

:l

Z!.:I

.

prepared "to sharpen [its] pencils".

.J!

(Norris, Tr. 5620.)

According to

22\

•
:t CDC Chairman Norris, BAPL and KAPL then misled
CDC "in a deliberate

1St
! manner" as to the terms of the I3M offering, telling CDC "that IBM had

Z~ 'I
2S

----*--I-B-M--p-r-o-p-o--s-e-d--3-6-0/90 r S, with the interim installation of Model 70s
.( until the 90s were ready for delivery.
(JX 10, ~f 12.)

:1

:1

:!
I

-673-

L

offered a computer at four times the power of the 6600 at a lower

Z

price", as well as misrepresenting the date at which IBM could deliver

3' its equipment.

(Norris-, Tr. 5970-73; PX 367, p. 5.) CDC made an

4-

"unsolicited proposal" , to BAPL and KAPL in late February 1965 "at a

:-

pric-e subs.tantially lowe·r- than that previously proposed by CDC and

6

substantially lower than the price proposed by IBM."*

7

OX 324.)

8

ing the 6600 within some period of time . . . with the computer that

~

would be much more powerful than the 6600,

•

(JX 10, 1f 12;

CDC "proposed a combination deal which would involve replac-

the 6800, and at the

10 : time the 6800 was delivered, that we [CDC] would take back in trade
11

! the

6600."

(Norris, Tr. 5621.) **.

I

lZ!

CDC, "unfortunately" according to Norris, ultimately won the

\,

13 ;1 BAPL and KAPL contracts.

~I

(Tr. 5963, 5976; JX 10, II 12.J

Moreover, it

was unable to meet the delivery dates and, as a result, was required to

i
I

15!----------16 ~
* CDC had e~lier reduced the

price on the 6660 because of "substanprices o~ component parts ,~transistors, diodes,
17! etc.~ whl.ch . · • occurred J.n [1963 and 1964]. (OX 13838, p. 4;
:/ Schml.dt, Tr. 27416.J
;,'j'

tial

red~ctions i~

18 Ii
** One other aspect of CDC's pricing policies is worthy of note. Botlh
19 ~tNorris and Lacey testified that, as a general rule, CDC set the prices
20
21

22
23

24
25

il for its computer systems five to ten percent below IBM f S prices.
;1 (Norris, Tr. 5653; Lacey, Tr. 6567-70.)
According to Lacey, this was
~I U[b]ecause our [CDC's] experience tells us that if we on a grand aver:1 age basis go significantly higher than that, that our opportunity for
:i busines s rapidly diminishes". (Tr. 6573.) CDC cons iders the "pr ices I
~Of all manufacturers but principally th: prices of,IBM and, second~rilYt
it of other manufacturers".
(Lacey, Tr. 6~69.) NorrJ.s and Lacey adm~t- I
It ted,
however, that it is extremely difficult to compare accurately the!
'iperformance of the system of one manufacturer as against that of another
:1 manufacturer.
(Norris, Tr. 6038-40; Lacey, Tr. 6800-01.) Norris
,
;1 testified that computer companies compete on the basis of a variety of
;! factors other than price i reliability is a factor, for example.
I
:1 (Norris, Tr. 6040-41.)
!

I

~I
:!
:1
./
il

l\:1

:!

I
-674-

II

I

I

I

r

I-

f

t

1

pay substantial penalties which further reduced its effective price.

z:

The final se,ttl6l"men-t was "substantially disadvantageous to Control

3-

Data".

""-

adveJ:sel,y af'fe-cted, CDC.

(Norris, Tr. 5976-78.)

For a time, difficulties with the 6600

According to, Norris:

"We were lq:s-.in,q mQ'ney as a company in 1966/1967 primarily
because of' problems: with the 6600 computer. Frankly, there
was a great deal of conflict in top management in 1966 over
whether we should press forward or retrench--closing down
data cen·ters was high on the list' of retrenchment pos.sibilities. The decision was made to press on, however
there were some deserters in top management as a result-they were afraid that the s'hip was sinking.
(OX 284-, p. 6;
see ~lso Norris, Tr. 5678-79.)
It

Mr. Norris also testified that CDC "had to rush into the

lO

II i 6600 II, because it had been "1i terally
!

~ lobbered

by IBM competi tion" to

CDC's earlier 1604 computer system, and that with the 6600, CDC again

~~

r

!.3 i faced the "enormous impact of competition from IBM".
I

(Tr. 5625.)*

Ultimately, however, the 6600--and the 6000 Series in general--proved

14. ;

to be "particularly" successful for CDC.
(See Norris, Tr. 5849-51.)**
1:;
! In 1969, for example, CDC successfully bid for an Air Force procurement
\

15 it
17 II to replace Univac· and IBM equipment with 12 or 13 6000 Series machines,.

ls'I------

* Such militant language by persons speaking for firms in a competitive environment is not uncommon. For example, CDC's chief development
engineer for the 6000 Series, Vice President Seymour Cray, at CDC's
20 :, June 1963 corporate planning meeting, urged that CDC announce the 6600
and a successor in order to "slug" IBM because, in his opinion, IBM had
Zl :1 "made a mistake by putting all (its] eggs in an integrated circui t
~ basket".
(DX 13526, Forrest, pp. 748-750.)

:i

19

:1
:1

1

Z2. '\

\ ** CDC received more than $286 million tin revenue and more than $185
23 \ million in gross profits from the 6600 computer systems during the
-I period 1964-1972.
C~C's gross profits on the 6600 exceeded its gross
Z~ '\profit objective which was set to yield a reasonable rate of return on
I investment and a reasonable net profit at the bottom line.
(OX 1185,
"pp. 3-5.) 1;ie are aware that OX 1185 is an offer of proof and not
- '\ evidence i however, we rely on this offer of proof because it is
:1 consistent with the other evidence about the success of the 6600
:1 systems and the growth of CDC.

,r::

"

-I

.I

'i

'i
-I

:i

:1
,I

"

-675-

L;

including several 6600s.

The contract was for systems "to handle the

i

2.; entire inventory scheduling acquisition of spare parts for the Air

I;
4-

Force Logistics Committee" and its aggregate value to CDC was approxi-

i mately

$ 40 million.

(Schmidt, Tr. 27469-76.)

CDC finally manufactured 94 6-600/6700* computers ,(as compared
to some 17 360/90s ma'nufactured by IBM, including four for use w,ithin
IBM) and a total of 215 CDC' 60'00 Series computers.

(JX 10, "

35, 36.)

In the late 19605, as a successor to the 6600 and a replace-

9!
.0

ment for the never-delivered 68,00, CDC developed the 7600 computer,

~

which it officially announced in December 1968 and first delivered the

J.t

following month--more than 21 months after the first committed delivery

~~ date for a 6800 and seven months later than the delivery date called
:,
~ ~J for in the first contract using the machine designation "7600".
,

I

(Norris, Tr. 5628; JX 10, , 34; PX 355, p. 39.)

I

l4- :

Norris characterized

I

~

the 7600 as "several times more powerful than the 6600 and it addresses

I

=; ;

- II

L6

the same market".

:l

(Tr. 5628.)

CDC installed its first two 7600 compu-

;1' ter systems
during 1969 (OX 13843, p. 4) and in that same year, CDC
17 ;
:. Vice President J. W. Lacey, speaking to a CDC graduate orientation
15 il:1
:\ class, described CDC's success as follows:
19 :~
U[W]e have a world-wide leading position in large computers
I
today.
That position is widely recognized. Since 1964, with
20 ,I:
the
delivery
of the first 6600 Computer, followed recently by
_
'I
the
7600
Computer,
Control Data 'has dominated this market.
"
:1
!
Second,
there
is
a
rapidly increasing trend towards very
:j
Z2. ;;
large computers used in data processing networks in which
many users share the enormous power of machines like the
;t
6600, and away from medium sized and small sized stand23·
alone computers. . . .
(DX 438, p. 7.)
,j

,

",4

~..

If

,I)

25'

* The 6700, announced in May 1969, was "basically
I
! (PX 355, p. 37; Norris, Tr. 5626.)
'[
.1
'!
I

i
ti
.,I
'!
!

-676-

tTNO

6600' S".

l:

Looking to the future of the. company, Lacey said "[w] e believe that

I

!

2.!

our position today and the direction we are giving our business puts us

,

~ \

in an outstanding pos·ture to share in the explosive future growth of

I

4.\:' our industry~.. . (.!!!.:.., p .. 13; s·ee also Lacey, Tr. 6676-77.)
I

:-1I·

(ii)

e!

'r'he- 30·00 Series ...

The 600'0 Series was not the only

I

product line developed by CDC in the 196·0s.

7' if expanded its 30'00 Series.

a.

:1 computer; in' Ja·nuary 1964,

1:

Norris, Tr. 5627.)

CDC also significantly

In September 1963, CDC announced its 3200

it announced the 3400.

(PX 355, p. 34;

Norris testified that the 3200 competed with "IBM,

Univac, Burroughs,. NCR to an extent, and possibly 50S".

(Tr. 5627.)

1965 saw the continued expansion of CDC's 3000 Series.

II

The 3300 was announced in November 1965 and delivered in that same
!Z.:
\
'. month.
(PX 355, p. 35.)
Norris described the 3300 as CDC's "entry
13. I
i

And, again, I think it had some added features for

into timesharing.

"."
I

1." :

...:- ,

business data processing •

I

And it was a considerably lower-priced

L6 :\ machine than, say, the 6600.

11

il size computer."

It was what you term then a medium-

·(Tr. 5627-28.)

According to Norris, it competed with .

'[ "IBM, Univac, Burroughs, 50S and NCR . . "
(~)
18 '
•
!i
The 3500 was announced in November 1965, although it was not
19 ;~
:! delivered until 1969. (PX 355, pp. 35-36.> Norris testified that it

za

"

,I

;1

was "essentially the same computer" as the 3300 except for the use of

~I ~n
.' t egra t e dc'~rcu~. t s

Zl

~J

22

~'

an d " somewh a t 1 arger

I!le n 0

;on s!' .
ry 0"'. t ..

(Tr. 5628.)

In 1967, CDC announced its 3150 computer, the smallest of the
23 :\
'\ 3000 Series, stating that it "provides a complete business and scienti,I
2A :i:1 ~.
~~c information handling capability with a minL~um of hardware and
,..- !
a;1
I
:!
I
-677'j
'I

:i

software.

The. 3150 provides 'maximum throughput at low initial cost to

the user and the capability for him to expand upward as his information
handling needs grow •."

(·DX

13·840, p. 8· •. )

.

The. 30;00. Se:ries. wa:s a substantial suc'cess for CDC,. wit.hout,

in larqe part, the sta·rt-up problems that beset the 6000 Series'.

It Indeed, as· early as 1966,
\J

CDC

was able to describe its 3200--which was

introduced· little more than two years earlier--·as "highly successful" ..

:1

1

(DX 13839,

p~

5.)

And in 1968 CDC reported to its stockholders that

"orders for our 3000 product line continue to increase-both in the numb
of systems ordered and in average dollar value."

(DX 13842, p. 2.)

1

The 3000 Series was successfully marketed for applications in manufac-

\

turing, general. business data processing, education, medicine, data
services and the brokerage business.

!,;I

(DX 13843, p. 4.)

Moreover, it

gave CDC a lower-priced alte·rnative to the expensive 6000 Series
~ \

computers.

r. :

CDC's Expansion into Commercial Data Processing.

b.

I

i ;~

':1 decade began,
~J

computers.

As the

CDC perceived itself as offering large, "scientific"

very quickly, however, CDC learned that the distinction

:I

:\ between scientific and commercial data processing--if indeed there ever
:I was on--had blurred almost to the vanishing point, and by the end of

1 .i

•

.. '!
oJ .1

'l the 1960s, CDC estimated that fully 40 percent of its business came

~

:!~ from '·pure business data processing".

2. '!
t

i

3
;!

::

I'

(Schmidt, Tr. 27476-78.)

CDC's Chairman Norris described CDC in the early and mid1960s as Ita supplier of large-scale digital computers to scientific and

i

I

engineering applications".

(Tr. 5624.)

I.

-i

I

'!

:\
I

r

.,r
·.\1

"

-678-

Norris also testified that, at

I

11
the time of its announcement in 1962, CDC thought that the 6600 "would

Li
i

2

be unique to a great extent • • • it being so much more powerful and

i

,
I

so well-suited to scientific work, it would just be outstanding in the

1;
i

4--!;

eyes of those 1abQratories that have these very large scientific pro-

t

: !':

bl ems II •

(Tr • 5"617-18 ._ ).

I

i
't

-;,
,-.

-

CDC Vice President, Gordon Brown, described the entire 6000

I

7 :1
a~ :t
9-:
i

10 \
!

U:

ttl
i

I

13:

Series as announced as
"very definitely a scientific line of computers, and therefore, the analyses that we did showed that the strength of
the 6000 product line prevailed • • • over IBM and Univac in
most typical environments; and, on the other hand, proved to
be deficient when it was employed in an environment requiring
a lot of input/output of data, or commercial type requiremen~
[because] the architecture of the 6000 series was designed
with the scientific' user in mind. It had a large, fast,
central processor' with a number of auxiliary processors to
handle the input/output functions. And it had a large, very
fast disk storage capability associated with it." (Tr. 50996.)

i

By October 1965, however, the CDC Executive Council* had

l~!

I

-:
~=

recognized that there were no longer separate markets for scientific

.

and business data processing.
6081-82.)

(OX 276; see Norris, Tr. 6002-06; Tr.

Thus, 'between 1964 and 1968, according to Brown, "gradually·

additional capabilities were added to the 6000 computer system, and
these included COBOL compilers of sort and merge packages and the
ability to handle permanent files as opposed to using the input/output
devices as auxiliary storage or temporary storage of data files.'"

(T.r.

53064-65. )

Similarly, CDC Vice President Schmidt testified that although

* Lacey described the CDC Executive Council as "responsible for
advising our Chief Executive Officer concerning major business questions". (Tr. 6556.)
-6i9-

I

I

"[i1n the early stages of the 6000 marketing effort, we aimed at primar1
i1y the scien·tific applications . . . that has changed."

The change

"started with the coding of a COBOL compiler for the 6000 Series and
I

• i"

the 6600 specifica·lly."

(Tr. 27457.)

CDC described the introduction

,I

of a COBOL compiier for its 600-0 Series in 1967 as "an important

I

I

~

, i,

achievement, for we are now able to provide our customers with the full

.:, power of our super computers to handle the broad scope of their data
11
1

(DX 13841, p. 4.)

Then came the development of

application programs for the 6000 Series in COBOL and the sale of "some

~i

t

processing problems."

I

~

limited number of [business] applications, usually in conjunction with
primary scientific applications."

r~

.'

By 1968, <;:DC had sold 6000 Series

systems in Mexico "which were devoted primarily to business data pro-

.' cessing, using that COBOL compiler and the COBOL application programs."
~

!

i

~:And
!

:

in other situations, customers with business applications as well

as scientific applications ordered a 6600 system to do both.

(Schmidt,

'

\
i

Tr. 27457-58.)
The primary impetus for the broadened use of the 6000 Series.
came from customers who wished to have a single machine capable of
performing both commercial and scientific applications--one of the
primary reasons that led IBM to develop with System/360 the capability
to do both applications equally well.
pp. 27-29; see pp. 290-96 above.)

(Norris, Tr. 5618; see JX 38,.

As Norris testified:

"~ie found that there were large companies who, while
the majority of the work that they wished to do was of an
engineering and scientific nature, still they had a certain
amount of business data processing and that they preferred
to have only one computer as opposed to having two computers,
one for scientific and the other for business.

-680-

If So,
we s·et about to broaden out the so ftware which was
available with the 6600 so that we could meet the requirements
of those. customers where the bulk of the work was still scientific but still the 6600 would do the business data processing
well enough so that the customer only had to have the one
computer.
(Tr. 5618.)'

I.. :
!
2.

I

1

It

,

While· CDC also introduced the 3000 initially as "basically

:iI

scientific"-, it realized from the outset that the 3000 Series "had a

ail

little bit more .versatility as a business data processing machine than

I

7\1

the 6600".

a
~

(Norris, Tr. 5627.)

Over time, CDC added hardware features

and software packages to enhance the 3000 Series desirability for
business applications.

I

!el !

I

(Brown, Tr. 50990-91.)

Among the uses of the 3200 during the first years of that

llt! system's life were:

medical research and training and use in "flight-

I

tZ.iIt testing ground stations" (DX 13838, p. 7); and use in combination with

!I

,.

:t

a 3600 Bto integrate the computing and business data processing" for

~!I' t.he

57 associate companies of Phillips, the Dutch manufacturer.

(~,

\' p. 9.)
T'" ;(

.c '

In 1965,

CDC

announced the 3300 which, according to Norris,

\t

t7 ;t "had some added features for business data processing."
•
if
~S ;i.

19'

za

~I

:i

PX 355, p. 35.)

In its 1967 Annual Report,

CDC

(Tr. 5627;

stated that "the

variety of applications being handled by the 3300 include production

1

scheduling t labor analysis t data commUnication t inventory control t

\

.1

Zl :! e.ngineering computations, and general business data processing."
~l

12.:! (DX 13840, p. 8.)

And by 1966, according. to Brown, "the 3000 product

Z3 ,I line

• was evolving to a . . • better balanced product line between
,I
Z~ :\ both the scientific and the commercial users. The initial base of
i
1: ! customers had largely been scientific users, and many of them were
.,

i
,I
,I

:1
I

.1

I

.1

:!

-681-

1 starting to expand their applications for commercial usage."

Z

50~'97

,: s'ee Tr.•.

c.
~CDC

4-

(Tr.

50~90.)

CDC's Expanding Peripheral Business.

In its early years,

did not manu·f·acture its .own peripheral equipment.

: 15609; see PX 60'66, p .. 1.)

In the 1963-1969 period,

(Norris, Tr.

ho~vever,

CDC began

I

6. i to· manufacture periphe'ral equipment not only for attachment to its own

7llprocessors but also as an OEM supplier for other EDP companies.

In

I

i

s;addition, CDC laid the foundation for its later very successful entry

9 !into the IBM plug compatible peripherals business.
i

10

I
I

By the early 19605, CDC had recognized that the sale of

11 !peripheral equipment was potentially a highly profitable opportunity

tZl,and therefore began to expand its peripheral offerings.

U lin
l~\

;
15 i
II

16

;1

1711

For example,

1964, in its news release announcing the 6000 Series, Norris stated:

n[N]umerous peripheral devices • . . are under development
and will be announced over the next two years to complete
the implementation of products required for total management information systems. These peripheral devices include:
"Disk files--not only low-cost units but very sophisticated,
high capacity, low access time, extremely high transfer rate,
mass memories.

18

11

•

Ii

"Mass core memory_

:1

"Remote terminals and processors for on-line man/machine
interaction.

;1
:1

"Optical

!t
19 ;.

20

21 ~l

"Line of visual displays.

i

"Line printers, card punches and

,I

24. '\
:1

2S

recognition readers.

:j

22 !;

23

~haracter

(OX 319, p.

readers~"

3.)

In 1965, CDC acquired Data Display, Inc., a manufacturer of

:1" electronic

display peripheral equipment".

(PX 355,

p. 5; OX 296.)

In

i
I

I

I

i;,l
t:

,
I

".1
:i
:!

:1
'1

;j

-682-

I
I

I

I

f
1 1965, CDC announced its 852 disk drive which was "in many ways like the:

Z IBM 1311".

It was marketed "in a very modest way" on an OEM basis to

I

3 ; GE and Honeywell in Europe (Brown, Tr. 51015-17) because "there was
!
~_I

very I i t.tle marke·t demand for this· type of product at the time, and CDC

I
t:'

;oJ.

s:

iwas just begin'ning to build and s·taf·f an effective market and service·
,I
;organization." (Brown, Tr. 51015-51017.)
I

7

In 1966, CDC announced its 9433/34 disk drive--an IBM 23·11-

i'

1l type device, although it was not media compatible with the 2311 drive--

al

g.!on an OEM basis, with first shipments occurring in 1967.
10;

I

p'

CDC's princi-

al OEM customers for the 9433/34 were Honeywell, GE and RCA, as well

I

las ICL in Great Britain and Siemens in Germany.*

11 i

Isome

lZ~

i

CDC eventually sold

16,000 9433/34 drives in the late 1960s on an OEM basis, at prices

13 1ess than one-half that of the IBM 2311.

(Brown, Tr. 51056-58.) The

I

tdevelopment and marketing of such IBM-type devices, of course, fore-

14-- I
IS 1 shadowed CDC's later decision to produce IBM plug-compatible periI

16

17
IS

I
1pherals.

(See Brown, Tr. 51063-67.)

J

In the 1966-67 time frame CDC also began to market periphera+
11
11

1(origina11 Y designed for its 6000 Series on an OEM basis, such as the
~.

Il

:t6638 disk file, which was sold to Honeywell, ICL and GE as the 9490.

20
19

**

11

1 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

~I
* CDC stated its view of the computer market in its 1965 annual
Zl l!report as follows:
ii

22.

f'l

23

!I

24

:1
:1

"We view the computer market as a world market, and plan our
organization and operations to maximize our abilities to best
satisfy our customers in that market."
(DX 14214, p. 5; emphasis
in original.)

**

Less than 40 9490 disk files were shipped, however, according to

Z5 ilBrown, because there was not a large market at that time for that type
:of fixed non-removable storage disk device and because not many OEM
I\customers had channels that could take the high data rate of the 9490.
:1 (Tr. 51033 - 3 4 . )
:1

~I

II
II;1

-683-

(Brown, Tr. 51032-34.)

In 1967, CDC introduced a new line printer, new

tape transports, a card read-punch, a magnetic drum storage unit and

:.1 several new versions of e-lectronic display terminals.

(DX 13840, p.

r

~ 1- 8.)
I-

During 1968, CDC added to its- peripherals product line "a 5

F !I
I

r:1

billion bit disk file, a 1200 line per minute printer I and a new gene-

r:J ration of tape transports".

(OX 13841, p. 8.)

At the same time, it

il
! ; informed its stockholders that " [i]ndependent suppliers and the inhouse developments of major computer manufacturers do and can be

f-\

i expected to continue to intensify competition."

l ;
I

(&,

p. 8.)

f

And in 1969, CDC introduced six more new peripheral products:

L~
t II a disk storage unit, two printers, a card reader, a display terminal,

3:1'I and a drum device.
J type device in 1969
It. :1

~ll

(DX 13843, p. 6.)

for use with CDC's 3000 Series, 6000 Series and

CYBER 70 product lines.

., ;1

Also, CDC announced an IBM 2314-

(Brown, Tr. 51068-69.)

By the end of the 1960s, CDC "had made major investments in

5 :1
7 t technology in most of the principal peripheral areas.

i

with the development of subsystems for use in [CDC' s.]

"I

This started
o~..m

computers and

S ..
carried through most of the Sixties • . • into the development of a

Q ]
..

I

il

fairly large base of O~~ business."

,0:

d.

·1
~ 'T

:I

'.,

.!

-!

Data Centers.

(Brown, Tr. 51212; DX 438, p. 12.)

CDC also greatly expanded the data center

(service bureau) portion of its business in the 1963-1969 period.

j

: ,t 1964, for example, CDC had six data centers.
~I

(DX 13838, p. 8.)

11969, it had more than 40 "throughout the \>lor1c".
I

.-'A '\I

-

!

.,

,
.j
t
I

;j

;\
I

13 g 43, ? .

By
6.)

The six data centers operated by CDC as of 1964 used CDC 3600

~=

.\

(DX

In

-684-

i
I

I

I
I

i

II
1 I and 1604-A computer systems, forming a network--Iater known as
Ir

21 CYBERNET--"tied

together by Bell System Data-?hones" and c'providing

I
I

3 complete data processing services to commercial and government users

4-\

a contract basis."

(OX 284, p. 4; OX l3a38, p. 8.)

01

Typical of the

j

5

I·many

applications processed at the centers were nOperations Research

6./ applications", "traffic
I
7 II processing" and "school

surveying and planning", "Hospi tal data
scheduling and grade reporting".

(OX

13838, p.

1

8

I 8.)
I

I

~I

By 1965, CDC had seven data centers and had begun its "net-

10 I work development".

(OX 284, p. 4.)

However," [el xcept for brief

I

11 periods in the mid-60's, data centers in the aggregate operated at a
j

12..iloss until 1972 because [CDC] kept pouring money into expansion".
~

I

i (Id.)*

Norris, in a draft of a speech in 1973, cited this as an

I

l~

I example of CDC' s "willingness to take risks".

15

I

(Id. )

In the fiscal year ending June 30, 1968, CDC acquired C-E-I-E

I

16 aa company which offered computer programming and other professional
I"

17 jdata processing services, and Pacific Technical Analysts, Inc., claimee
I
I

18 Ito be "the largest and most capable programming and service center
I

191tcompany serving the Western Pacific area".

~a !Iend
~

(OX 13841, p. 2.)

By the

of fiscal 1968, CDC was operating over 30 data centers worldwide

iJ

21 lla~d offering "an extensive inventory" of application programs.

(OX

I,

It
22 13 841, p. 7.)

il

~~

!

~ll

.
In 1969, COC offered the following description of its

\CYBERNET network of data centers:
24-i
!

25,

i
* Accounting losses which result from expenditures made for the pur!pose of achieving later returns, are, of course, not truly economic
llosses but rather investments.

II
:!

-685-

"

I

I

"Through the highly advanced CYBERNET service, customers
have convenient access to the cost/performance advantages
offered by both the CDC 3300 and 6600 computers without having
to make large capital outlays .. " (DX 13843, p. 6.)

1;

i

Zl
I

i

I

3 1 With more than 13,000 miles of communications lines by the end of
I

.

4-!

fiscal 1969, CDC was offering its data services at more than 40 data

51"i centers

-throughout the world, a more than 550 percent increase over its

6- j 1964 holdings.
(Id. )
7 il
e. CDC's· Acquisitions (1963-19.69).

II

S!l

. .~n
expans~on

!

the l 90
6 s cannot be f ul 1 y understoo d

9-iICDC'S acquisitions during that period.
La

I acquired

The story of CDC's
.
w~thout

.~
.
cons~~er~ng

Between 1963 and 1969, CDC

some 43 companies, at a total cost of over $897, 000,000.

t1 i

: (Norris, Tr. 5788-89; PX 355, pp. 3...,9; ox 296~)
,
All of those companies--with the exception of Cedar Engineering,
,
13;
I Kerotest and Commercial Credit Corporation (which is discussed in some
.~

LZi
i

!.4-1 detail below) --were· supplying an EDP product or service at the time of
I

15 : acquisition.

16

~l

17

ilcDC

(Norris, Tr. 5794-95.)

CDC's numerous acquisitions, most of which were paid for by

stock (Norris, Tr. 5789), enabled it to broaden its product and

18 11 service offerings quite rapidly without the substantial development
.9 it

l!time that internal expansion would have required.*

l

As Norris stated in

20 ~Ia draft of a 1973 speech:
'I

""'T ;i
~ •. !

:1-----------

* That is not to say that CDC did not expand internally as well,
particularly through increased vertical integration. For example, CDC
ZS !Idecided in 1966 to. have its research division manufacture integrated
jcircuits for use in the prototype of the 3500 computer rather than buy
24 ;!circuits from Texas Instruments.
(DX 432.) Also in 1966, CDC reduced
ijCosts by bringing the manufacture of card module asse~lies, memory
15 il cores, memory planes, memory stack assemblies and logic chassis assem'I blies in-house. (OX 13839 I p. 9.)
22

;1'

_

1

:\

:1
il

;\
:1
:1

Ii
:1

-686-

I
I

I

I
II

"Our high PIE ratio stock, or Chinese money, as
we often termed it, was used to acquire· companies with
complementary technology, products, services and markets.
In oth.er wo.rds, we were· not trying to broaden our base
as in a conqlomerate, but rather to buy new computer
products- and services and ma·rkets to spread development
costs· ana gain econom:ies of scal.e as rapidly as possible."

t
%

3'
4.

(DX 28:4, ~ ... 7 .. )

-I:,
Norris agreed that this was "an alternative to investing money in
i

I

a ;1

research and development" and was "very successful for Control Data for

7 \1

that purpose".

8

1

Speaking about the acquisitions in general, Norris testified:

~.

"[W1e wanted to have our own peripheral equipment
to put on our computer systems so that we would have full
control over the cost and quality. We wanted to broaden
out our product line both with respect to hardware as
well as software.

10

-,..,
11

I

;

"In some· instances we bought data services businesses,
which gave us additional revenue and profit. And we were
able to take those services in turn and have them sold by
(Tr. 6092-93.)
a larger marketing organization."

..... a

.-

(Tr. 5804-07.)

if

I

.

~:

i

r.t. i'

....

Thus, in the fiscal year ending June 30, 1964, "Control Data
made significant additions to its technical capabilities and product
lines, and broadened its market areas" by way of a number of acquisi- .
tions.

It acquired companies with capabilities in the areas of:

I
I

digital computers for use in power, chemical, petroleum and oil industries; card punch and reader systems and other peripheral devices;

I
I
I

optical character recognition equipment; data collection systems;

da~a

processing services; printers; and analog to digital conversion equipmente

I•

I
I
I

I

i

!I

(DX 13838, p. 5.)

In the fiscal year ended June 30, 1965, CDC acquired
companies with capabilities in electronic display devices and programming consulting services, as well as a business data processing
-687-

I

I

I
I

center and two companies whose products, involving radar, for example,
Z

incorporated the use of digital computers.

I

.1\

I

(PX 355, pp. 5-6.)

In the year ended June 30, 1966, CDC acquired the commercial

.

4-- \- computer -opera.tion o-f General Precision Inc.' s Librascope Group •

•

I

"Included in the- purchase we-re General Precision's conunercial compute-r

:-!'

.

I-

I

rental and service contracts, and inventory of commercial computers" as-

'

: it

well .as its "highly experienced commercial computer sales and service

7

:1

organization."

8;

.

Other acquisitions were of an electronic systems

engineering company, a Hong Kong firm doing assembly of elec"tronic

9

components, part,icularly ferrite cores, and an Italian firm operating

la.

i

ll~

data centers in Italy.

(OX

13839, p. 3.)

In 1967, CDC acqui~ed, among others, C-E-I-R,
!2.:
D ~ because, as Norris testified:
I

\

(OX 296-, p. 2),

"[C-E-I-R] had the American Research Bureau, which

was using a computer in surveying the listener response
15;
i

l6 a

in the television and radio industries; there was Automation
Institute--these are schools to teach computer -programming
and computer operation; there was a data services business
• • • • And it was primarily those three areas that were
particularly· interesting to Control Data."
(Tr. 5796-97.)

17 :1

, J CDC Vice President Lacey testified that the acquisition of C-E-I-R "was

.5 :\
'\ an additional entry for Control Data into the data services and consult19

:i

:{ ing services business, beginning steps of our broadening of our business
10

1

·!line".

Zl!
... . ,

(Tr. 6632-33.)
CDC's single most important acquisition--Commercial Credit--

.1

~.!

... _

-1

~

'\

occurred in 1968.

(PX 355, p. 8.)

In August 1968 CDC acquired

,Commercial
,
Z4.1

Credit, Ita diversified financial institution . • .

~

and insuring" . (DX 13842, p. 16) for 4,825,720 shares of CDC

.

... _ lwith nationwide and Canadian operations in financing, lending, leasing,

I factoring,
'I

'1

I

.\

I
-I

;1

,t

-688-

L

stock, with a total market value of $745,573,740 (PX 355, p. 8)--by far

Z

the most expensive acquisition made in the 1960s by Control Data.

(f£.:., pp.

3;

3-9.)

The- principal reason CDC acquired Conunercial Credit

I
I

4--1- was to gain a financial services subsidiary in order to enable CDC
~

_ be-tter "to finance- computer lea-sing."

e:
7

(Norris, Tr. 5643; see Lacey,

Tr. 6586-88.)

\1

Initially, CDC marketed its computer systems on a purchase-

S \1

only basis. However, by 1961 or 1962, CDC had realized that many EDP

9-

customers demanded leases and, accordingly, it began to offer its

I

system for lease as well as purchase.

10

(Norris, Tr. 5641-42.)

Hence,

_ CDC over time has offered one-year, three-year ,- five-year and longer

11

!.2.!

leases-.

!,

(Norris, Tr. 5644.)

CDC first offered three-year leases in

!3 ~f 1966 and non-cancellable five-year leases in 1967, both at a discoun-t

~t from its short term lease price.

(DX 295.)

~il CDC nraiseC::~:t::::e::::c:: ~:a::::t:: ~e~l.a:i~:r:::::

1S J

hat
::q::::c:

the leases [because] when you lease a computer you get paid on a
17
:I
•
~ S .r monthly basis, but you have to incur the total cost of the computer at
','I'

·

:1 the time it is delivered."

~Q

:t

(Norris, Tr. 5642-43.)

Thus,. in 1966, CDC

.. :1 entered into an arrangement with Leasco whereby Leasco would purchase

2O!

,1

CDC systems and then lease them to customers on a long-term basis.

:1
i

- - 't

.

" 13 8 3 9, p. 2.)

Zl 'i

(OX

However, CDC cancelled that agreement the following year

-I .. in

light of current and prospective financing plans of the Company".

f (DX

13840, p. 12.)

23 -,

"' ... It

According to Norris, it was not until CDC acquired

.- I

:! Commercial Credit Corporation in 1968 that CDC ultimately "solved the
2.51
(Tr. 5643-44.)
,I problem of financing leases".
I,
,i
-,
~i

,!
I

:\

!

:1
d

-689-

Conclusion.

f.

When the 1960s be.gan, CDC was a virtual new

entrant in the· EDP industry, having been incorporated only three years
Q~arlier..

(DX 271,. p'. 7.)

not solely I
,.

5624-.) B'Y

i

a~

It. perceived. itse·lf as' being' principally, if

.

supplier of large sc.ientific computers.

tne end- of' the 19'605, CDC was

firm~y

(Norris, Tr •

established as a major,

i'

diversified compe.titor in the EDP marketplace.

It had achieved great·

liJi

succes's with its 60-00 Series computers.

11

the business' data processing capabilities· of its computer offerings, to

I

rt

had added considerably to

the point that by 1969 approximately 40 percent of its bus·iness came
from "pux'e business data processing"'.

1

(Schmidt, Tr", 27477-78.)

It

\ had greatly expanded its peripheral equipment offerings and begun a

,

,

,
i

successful business as an OEM supplier of peripherals.

· i

·

• it
~I

increased the number of its Data Centers from six to 40.

!s;

OX 13843, p. 6 e.)

And it had
(DX 13838, p.

The 1960s were indisputably a period of great

success for Control Data Corporation.

··, .,
'

!

t :1
I

.I

· :1
:t

t ,!

I

:1

t

:l

!~

I

;1

'f

I
!

I J
:1

r

.1

:1

i

· J

i

, ;t
-

:t

:.•

:1

I

!

!

I

.t

.. ,I

-I

I

-~

iI

I
·1

I

:1

,,I

:1
i
'I
I

!

-690-

I
l\

47.

z:

~

Scientific Data Systems ("SOS") was formed in

1961 with an initial capitaliz:ation of approximately $1 million,

I.

3.:

raised· from a San Francisco ve·nture capital company and the firm's

4- ,i' original fo·unders·.

(Palevsky, Tr. 3128·, 3193.)

'*

SOS was the idea 0·£

I

! !- Max Palevsky who- furnished approximately $-60,000 to $8:0,000· of its

a!1

initial capitalization:

7;f

a note."

a i'tl
9:

"I put up half the money in cash and half as

(Pale.vsky, T"r. 3127, 3193.)

For his investment, Palevs-ky

received "s·omething in excess of 15%11 of 50S's equity.

(Pale·vs:ky,

Tr • 3193 - 94 • )

I

10 :

P.alevsky had begun his business career as a research analyst

I for the Bendix Corporation in
T'1;
......
;

1952, in "the di vis ion

0

f Bendix that

!.2tl

was starting to explore computers".

13

"[p1rimarily logic design, computer design . . . . It was a time when

"

if

1~:1

everybody did everything".

His responsibility was

Upon leaving Bendix in 1956, Palevsky

I

t:

I

~

organized the Packard Bell Computer Corporation, a subsidiary of

I

16 :, Packard Bell, which "buil[t] specialized digital computers, special
.- [t purpose digital computers, and eventually a small general purpose
;./ :1

13 :f!I

.:1

* The witnesses testifying about SDS/XDS (SDS was called XDS--

~9:} Xerox Data Systems--when it became a division of Xerox) were Max

"0 'r Palevsky (described above), Harvey Cohen and F. R. Currie. Only
'f Palevsky was with SDS in the early years.
Cohen arrived about 1964
and held a number of positions, including in 1967-68 the Director
i
of Marketing Operations.
(Cohen, Tr. 14427-28.) Currie also came
~ in 1964 and held various marketing positions, becoming Vice-President
22..\·f of Sales in 1968-69.
(Currie, Tr. 14909-.13.) At Xerox Data Systems,
..,~ '! Cohen became Vice President of Advanced Systems, Business Development
~.! Group (Cohen, Tr. 14427-28, 14521) and Currie became Vice President
. of the Data Processing Division reporting to Cohen.
(Currie, Tr.
2£ -i 14917, 14922-23.) Currie later moved to the Corporate Marketing
staff.
(Currie, Tr. 14923-24.)

..
_'

__
I

I.

-691-

computer and digital systems".*

(Pa1evsky, Tr. 3121.)

In 1961,

Pa-1evs-ky left Packard Bell because

I

4;
.!

5-

1\

Ii
ii

If

6 ;!
!I

7 :!

"that company had cQme o-n- hard times. The ideas I had about how
to proceed -in the computer indu:stry required much stronge-r
backinq' from- the- parent compa-ny which they could not provide,_
• • • I also felt that the computer industry is a very unique
kind of industry, and it was'very difficult working under a
management that- rea-lly knew nothing about the industry itself, 5'-0
, tha·t it made S-QI1-Sf!, to _be inde·pendent, and, of course, the're WQ,X:6opportunities to make a great deal of money".
(Palevsky, Tr.
3127-28.)

:j

:1

8 :'
9
10

i:il

initially conducted all its activities in a 5,000

square foot facility w·i th approximately 17 people of whom 12 were

!I professionals.

(P aJ.ev sky , Tr. 3196, 3198; OX 45, p. 4.)

Its first

product was the 5DS 910 computer system, delivered in mid-l962, less

11
12

5DS

I!jl than a year after its organization.

(PX

5774, p. 13.)

That first

"

13

14

il

11

-:!
:1

15

16
17 :!

18

product was designed to take advantage of an opportunity perceived by

21
22 ;.

,

I
I

50S for high performance hardware offered with little support to

sophisticated 'customers for use in real time applications.

The

market opportunity in fact existed and the 910 and subsequent
products were very successful.
initial specialization.

50S built on the success of its

Throughout the 1960s, it successfully

19 ,; expanded its product line both by offering its computers to a wider

20

I

set of customers for a wider range of applications and by producing
more and more of its own peripherals and software-, which

i~

had

previously acquired from other vendors.

23
* Palevsky defined a general purpose digital computer as "an
electronic device with a stored program, which may be changed, and
, depending upon the program, can operate a large variety of tasks".
25
(Tr. 3132-33.)
24

-692-

I

I

I
I

II
I

L

SDS grew at an extraordinary rate while also achieving

2!

i

substantial

i

1

p-~o~itability--in

fa.ct, SOS "produced continually increas-

i.

ingp'rofits virtually from

I

4- j.

ince~ption".

(PX 5774, p.. 6.)

annual cO'mpow!d growth rate from 19:62 to 1968 was 115%.

~I'
I

Its avera'g-e
Even after

:;J.

i

the first two years, it continued to grow at a rate of

I

a;

50%

7;1

per year..

45.)

(DX

46, summarizing data contained in OX

approximate·~y

44

and OX

Its revenues, which by 1964 had reached $20.5 million, rose to

$100.7 million by 1968, the last full year before it merged with

91~
10

Xerox.

I

SDS was merged with Xerox in 1969, in exchange for Xerox

I

stock valued at approximately $980 million.

II

Of this amount, Palevsky

received approximately $100 million worth of stock.

He had also

12.!

: received several million dollars from previous sales of SOS stock.

13'

-.

(Palevsky, Tr. 3195-96.)

t J;. :

a.

,

!
I

15

The SDS Entry Strategy.

5DS implemented a consciously

determined strategy to capitalize on what it saw as a market oppor-

1
I

.... 'f

::::t:~rk::::v::Ym:::t~::e:t:hpa:o::c::: ~:~::::e:nb~:::/W::: :ad

:; it

18 .fii would characterize as the real time computer market, and the other,
.j

the small to medium scientific computer market". (Palevsky Tr.

'I

19 :1

I

20.l 3133.)*

:,

21

:1

J

SDS began to market computers of high performance hardware

offered for real time applications to customers that did not need a

Z2. :;
... _

'1

* Palevsky described "scientific data processing" as processing
., where "a relatively small amount of data is entered into a computer,
Z4! a large n~~er of arithmetic operations are performed on data and a
.! relatively small amount of data is produced in some printed form".
ZS "Business data processing", he said, "has the opposite meaning" .
. (Palevsky, Tr. 3136.)

~

'i

:.11

'I

I

:j

I

!

J;\
:!

-693-

lot of software and support services from the manufacturer.*

--l

,.' ;

(Palevsky, Tr ..

:

..
~

I.

As~

,

3~37;

PX2.103 (Tr. 23290).)

P·a;levsky tastified:

"I:to was-pa-rt of. th .. ·maJ;ke·t that es·sentially no: one
At thalt time: the other companies we·re
really co·ncentratinq primari~y on compute·rs as devices
into which o,ne fed documents. that contained data, cards,
tapes·, etc., and- out of which one got printed answers.

1--1I

had . attende'd to.

t

;-1I
I

"Our computers were. intended for a market which fed
real ·time data, that is, data that came from centers in a
steam g:.enerating plant or a missile launching site or some
astronomical ins·trument and produced signals that, say,
worked the valves, on a steam. generating plant o.r indicated
to other pieces of equipment within the launch site the
status of' various functions within a space vehicle so that
it didn.' t work as a compu.ter works in an air-condit:Loned
computing center, but rather as part of the whole complex
of operational equipment".
(Tr. 3135.)**
This strategy was highly successful.

Palevsky testified

that 50S, "at the beginning", was able to sell its products with "a

.+:

very large gross profit":

.5;

"We were able to do that at the beginning because we provided
hardware, that range of hardware and other services that was

I

.5

11

;1----

a7 :,

.)

.S
~9

*

J data

5DS did not initially attempt to market its product to "business
processing customers" because 50S "didn't have the kind of

:i people who understood the business market and the need of the
:\ business market and we had not developed the software, the appli\ cations engineering, the general support that the customer needed".
., (Palevsky, Tr. 3137.)

,Q:1

i
'1!

-!
.,i

Z2. :;
·t
,~

-

.,~

.1
Z4 I

!

25:
'j

i
I

'i

~!I

** In its 1966 Annual Report,

50S described its formation as follows:

"In 1961, when 50S was founded, highly experienced technical
personnel skilled in the design, production and marketing of
small scientific and systems computers were uniquely available
in southern California. During that same period, the scientific
and engineering segment of the computer market required small,
real-time computers which could monitor and control experiments
or testing programs and rapidly process the results. Recognizing the requirements of this market, the initial objectives
of SDS management were to attract competent technical personnel
and effectively apply their exp~rience to meet this demand."
(OX 982, p. 4.)

I

·1

I
i

:\
!

-694-

relatively unique a.nd consequently the customer was willing to
pay a relatively large sum for it." (Palevsky, Tr. 3155.)
DEC

\

I'·

l i.

was the only- o-ther firm Palevsky remembered producing products

similar to

those~
~h.e-

early SDS

of

SDS· in the

early 19605..

(Palevsky, Tr.- 3136.)

racognition by users of the potential benefits of the

products~-obvious

from· 50S's growing revenues--was expre-ssed

by NASA's Ames Research Center, which described its procurement of an

SDS· 920· computer system in 19·63 as follows:
liThe integration of. digital. computers into physical systems

d.edi.ca:t-ed to specifie-areas-of research has only recently become

economical a·nd· feasible through- the reduction of equipment costs
and component size.
One of the first such systems in use at
Ame-s was installed in 1963. This computer (SOS-920) was purchased by the Guidance and Control Systems Branch and applied to
research on on-boa'rd computer and display requirements for
spacecraft and aircraft." (OX 5316, p. 9.)

10
II

t2!

Subsequently, and rapidly, 50S expanded its product lin.e and
l~\. 1

15

il

l-

II

its marketing approach.

profitability" to its ability to meet the needs of its users:

"Becaus'e of the rapid growth of the computer industry, the
age of a company has not been a principal factor in its professional or financial maturity. Far more critical in a company's
potential is its ability to understand and act upon the changing
requfireme~ts(oDXf t h e mark et)Place. It is to this posture that SDS
4 4 , p. 5 .
con orms.

c .~

17 if;1
-

SDS attributed its "early and sustained

II

18 't
it

,t
19 :i

b.

,I

"',.,. 'I
~ ,~

The SDS 910.

5DS's first computer was the SDS 910,

which Palevsky described at trial as a "special purpose general

.1

2.!.!

purpose computer"--by which he meant Ita computer that had all the

·1

Z2 ~i characteristics of what was generally known as a general purpose
'r

Z3 i\ computer, with the added capability of operating
I

2~ 'J

. within a

systems environment, that is, it was a computer tha t ~vas easy to

:!
25 'I integrate with diverse types of special purpose equipment".
!,,;
'I

.:.i
:\

I
:1,I

;\
'I

I

-695-

(Palevsky,

1L i Tr. 3132, 3134.)

The "-main frame" sold for $80,000 to $90,000;

i
It

(t] hen, depending on the peripherals, it got more expensive"-.

Palevsky descr-ibed the peripherals as being, "at the beginning,
rather Q'rimitive equipment".:and card equipme-nt.

paper tape pu.",ches, paper tape r-eaders

Also, at the beginning, the SOS 910 w-as marketed

wi th "'very primitive soft-ware, really just an operating system".
(Palevsky, Tr. 3134
c.

The Expansion of the 50S 900 Series.

In 1963, 50S had.

expanded its line by announcing the SDS 920, 930 and 9300.

9-

10
11

or )

p. 7.,)

Those systems were compatible with the 910 and were designed

with a "building, block

i

(DX 44-,

l

•

design philosophy.

(Id.)

The 92 and 925 were

I

12.!

introduced in 1964.*

13

told its stockholders that with the introduction of the "small, high-

(!£.:., p. 3.)

In its 1964 Annual Report, 50S

speed SOS 92 and the medium scale 50S 925, the company now offers a
family of six compatible, general purpose computers--the SOS 92, 910,
920, 925, 930 and 9300--providing the flexibility required for both
industrial and scientific systems".

(Id., p. 7.)

SDS did not actually "manufacture" its 900 series com-

puters; rather it assembled them.

That is, SOS purchased the various

parts (they were "readily available to anyone who wished to purchase
them") and put those parts together in a system of its design at its
facility (Pa1evsky, Tr. 3198-204), a practice SOS pursued for several
years.

50S

purchased~

* "The 925 was a modification of the 930 to . . . prov~ce a faster
lower-priced machine. It was software compatible, and was really
just a modification of another product."
(Palevsky, Tr. 3214.)
:1

:\

~I
'I

;\

-696-

L

-- Ce-rtain ba·sic components· for its central processing

2.

uni ts and. memory (i. e .
I

trans istors, res istors and capacitors')

I.

from the "[s]tandard avenues of" supply--[f]rom the manufacturers

li
!

4.\'
:1

of those' componen·ts".

_i

(Palevsky, Tr. 3198-2.00.)

-- Core memories "'at the beginning from Fabri-Tek"', which

I

a II
7 ~l
i(

8:

was

"one o·f a. number of companies that supplied core memories";

5DS

ac.quired the memories in the form of core stack's, then

assembled them in

boxes~

(Palevsky r Tr

e'

SDS subs.equently

3199'.)

acquired co·re mem.ories· from Ampex, Magnetic tJlemories "and
probably one or two others"; when "we got to a certain size we
generally had three sources of supply so that we were always
assured that one of them would be there".

tZ

\J

13

;t

(Palevsky, Tr. 3200-

01. )

I

-- Tape drives and tape control units from Ampex, Computer

I

TJ.. !'

....

i

Products, and Potter Instruments; eventually, SDS made its own

I

l6

11

J

-- Prin'ters and a

it

"small companies"; at the time of its acquisition by Xerox in

:l

1969, SDS was buying printer mechanisms from NCR.

.~

i

2l

:1

22.:\

~- '\
-\

,.4_-

25

(Palevsky,

Tr. 3202; see Plaintiff's Admissions, Set I, 9

'!~

191.0-.2.)

(and "perhaps some of them from California Computer Products") .

I

J

(Palevsky, Tr. 3203.)

I
.1
:1
I

.\

iI
'I
I

'\

:1

,

I

!

I

-I

!

I
i

,

-- Disk drives and disk drive controllers from Control Data

'.J

...

printer control units from NCR and

;l

20

/

fe~Y

(Palevsky, Tr. 3201-02.)

Data Products and, in the case of "some specialized ones", from

15 Ii:f
19

tape drives and controllers.

-697-

i

il

;\
I

-- Card punches from Univac; card readers were initially
acquired from a third party, but SDS subsequently built them
itself'.

(Palevsky, Tr. 3203.)

,

·1

A few

• I

however, SD;S' built most o'f these itself.

r !
t

~.

;

r

II

cathode ray tube terminals from Control Data;

--

ft

[Slt'andard '[Teletype-]., keyboard devices from Western

Electric".

~t .
! :

(Palevsky, Tr. 3203.)

(Pa,levsky, Tr .. 320'4.)

SDS bo,th wrote software for its' computer systems and used
outside software services.

Software services were provided by

Programmatics and another firm, and "a number of smaller firms for

J

very specialized things".

1

SDS also had "a number of users groups and

a number of our users' programs became standard programs that were
then widely distributed" by SDS.
,
I

~~

.

Additional software was obtained

from a European company (a predecessor of CII), which was licensed by
SDS "to build our computers in France".
SDS itself furnished maintenance service.

(Palevsky, Tr. 3205-06.)
(Palevsky, Tr. 3134-35.)

The SDS 920 had certain instructions that were not included .
in the earlier 910 and "a slightly more sophisticated input-output
system".
910.

It was marketed to essentially the same customers as the

(Palevsky, Tr. 3162.)
The SDS 930 was "larger and faster and, again, somewhat

more complex structurally".

It was partially marketed to the same

group of customers as the 910 and

t..~e

920, but was also marketed "to

a greater extent to the general scientific community".
Tr. 3162.)

(Palevsky,

For example, an SDS 930 was used for data =eduction and
-698-

analysis at the Mississippi Test operations center associated w·ith
the NASA Slidell Computer Complex (DX 5836, Reeves, pp. 55-56) and,
at the Kennedy Space Center, an 80S 930 performed off-line simu·latio,n
of launch vehicle eve.nts for training, supplied input data to Mission
Control in Houston and handled a "fuel loading" system.
pp. 116, 123, 164.}.

(OX 5652,

Pa1evsky testified that when it was first

introduced, the 5DS 930 competed with the IBM 1620 "(a]nd then when
the 360 was introduced,. the 360/305, 40s and 44s".
3185.)

g.;

10 i

(Palevsky, Tr.

Other competitors with the 930 were Computer Control Company

(later bought by Honeywell) and DEC.

(Palevsky, Tr. 3165.)

i
I

Palevsky described the 50S 9300 as "conceived much more as

11 :

tti a data processing system, as a computer that would sit in a central
1

computing facility and essentially provide printed answers, as
opposed to being interconnected on a real time basis with other
sources of data".

It was marketed "to the scientific community", but

performed a still broader mix of applications.

One customer was

DuPont, which had' previously integrated SOS computers "into systems
for controlling chemical processes".

It acquired this new computer

not only for a "specific process they wanted to control but rather
for a general computing purpose, so that the customer may have been
the same, but the part of the company would be different".
.!

Z2. .;
t
23~

I

.f

2~ i
I

25

;

Tr. 3163.)

(Pa1evsky,

Similarly, Digicon, Inc., used a 9300 to process seismic

data collected from oil fields and also t~ process its accounting
records.

(OX 4085, Poe, pp. 18-19, 21.)
Palevsky testified that with the 9300, SDS "had now entered

-699-

the more tradi tional and mo·re hi.ghly developed market for computers
~;

and no longer had the edq.e of the innovations" it had made in ttreal

r

time computers." on· w.hiczh to re·ly •. *
difficuJ.ties that go with.
marketing situatio·n· lf •

ah.iqh~y

This engendered

If

[a] 11 the

competitive sales situation--

(Pale-vs;ky, Tr •. 3164.)

Palevsky testified that

SDS's "main competitors-" in marketing the 9300 were IBM and Control
Data (and later, Digital Equipment).

(Palevsky, Tr. 3165.)

5DS' had supported. a "'growing program of research and
deve~opmen:t"

9

planning" •

a

-'?;

and committed "substantial capital to advanced product
One

of the results was its announcement in 1964 of what.

it claimed was ttthe firs.t computer to use monolithic integrated

1

i

circuits, the 5DS 92".

-1':

As a result of the use of integrated circuits,

50S's manufacturing costs were "decreased while the reliability of

3~

,-

~4-

, SDS computers is improved at least three times over present models".

;!

~;

(OX 44, p. 5.)

Withington, writing in 1964, concluded that:

i

I

._ 'I
~a

~I

L7

'I

~S
'9

~

:1

:1

11

.~

:1

"0
- J.,
/

I

.,1 :1
22:~ puter

"The most significant development in components has been the
approximately 50% reduction in the manufacturing cost of hiqhspeed circuits 'over the past three years. This quite rapid
development has enabled new small companies (e.g., Scientific
Data Systems, Digital Equipment Corporation) to enter the computer market with low-priced computers of high performance • • . •
This reduction in manufacturing cost has been at least partly
responsible for the recent price reductions on older computers
and the lower prices of new ones. The user has benefited, and
the market has been enhanced."
(PX 4829, p. 3l.)

~I

~

--

.~

By the end of 1964, SOS told its stockholders that its comsystems were "presently being used by industrial, scientific and

:\

1----------24. .\
* liAs the technology
~f

I

in the computer industry evolved, there were
Ino longer those pockets, there were no longer those market areas that
Z.5 jhad relatively little competition."
(Palevsky, Tr. 3155-56.)
iI
"

-700-

:i
i

,j

;1

1..:

government organizations in many diverse applications ranging from

2, :
il

....

!

space exploration to construction, medical research to food processing" .

~:

(DX 44, p. 3.)

The number of 50S employees had increased from

438 in 1963 to 1,357 at the end of 1964.

!

also a year of expansion abroad.

(Id. )

The year 1964 was

According to 5DS's Annual Report for

a, that year, "[f]rom nuclear experimentation in Geneva to automotive

7!1
8

J

manufacturing in Tokyo, SDS computer systems are finding an accelerating and receptive market throughout the world. . . . In the first
significant year of SDS activity abroad, computers were ordered or

~:
I

I

10,

installed in more than 15 countries."

(~,

p. 17.)

i

II ;
t~:

-- i'

Expansion, plus SOS's program of research and development,
required capital.

Requirements for capital also increased because,

\

!.3' : according to Palevsky, SOS was leasing more of the 9300s than it had
i

prior computers.

15;

(Palevsky, Tr. 3164.)

In 1964, "due to [its] rapid

growth", SDS made its first public offering of common stock, offering
382,375 shares and raising almost $5,000,000.

(DX 44, pp. 3, '21.)

50S engaged in a continued pursuit of growth and
through continued product improvements.

expan~ion

In 5DS's 1965 Annual Report,

following the announcement of IBM's System/360, 50S stated:
"The character of the computer market changed substantially
last year as the result of advances in both the understanding of
the technology and in the manner in which computers should be
employed. . . .
[T]hese changes point to the increasing use of
total management information systems for business, scientific,
aerospace and industrial control ap91ications.
"As is always the case in the computer field, the new
market demands increased performance economically, in terms
of more computations per dollar, and an expanded array of
supporting services such as programming, field services and
training."
(DX 981, p. 4.)
-701-

- I

I
I

Ii
I

!
I

In 1965, SDS brought out the 940, designed for simultaneous
access by multiple users at remote locations.

SDS took the 930,

1 \ increased its memory capacity, and integrated rapid access data
I

I

~i' storage units arid communications equipment.

A 930 system costing

i.

!"!

$250,000 was thereby transformed into a 940 system costing $1 million.

I
I

a:1

(DX 981, p. 3; DX 982, p. 12.)

7:1

computer".

SDS called the 940 a "timesharing

It was used, among others, by several cormnercial time-

S:t sharing service bureaus (DX 45, p. 7) as well as by a data center
established by SDS itself to sell time to remote users in the Los

g;
i

La:
11

Angeles area.

I
~

(DX 983, p. 3.)

Similarly, White, Weld & Co. used its

940 to implement a financial information system that permitted its

~ij

individual subscribers to request portfolio information on a variety

13:!

of companies.

(DX 982, p. 12.)

I

By the time of the introduction of the 940, SDS had announced

l+~
!

i

l,.::!
I

the development of its own magnetic tape units and rapid access disk

16 ;1 files as well as a line of digital logic modules.

(DX 981, p. 3.)

Also, in mid-l965, SDS "announced a new business programming-

• _ :J
.1 ;j

'8 J package for all its computers to supplement the extensive library of
..

:i

i9 ;t programs presently available to scientific users".
·

The package, known

:l

as MANAGE, was "expressly designed to facilitate corporate decision

:1

making by management personnel outside of the data processing depart-

~

ment".

20:
-,

Zl,l:1

Z2 ;i

(DX 981, p. 4.)

Similarly, SDS adopted some of the marketing

practices of o~~ers in the industry.

_ ,1

~i

In 1965-66, it offered the

I

I Federal government a 14% discount towards equipment purchase "[ f] or
2.1 .\

25

! qualified

Government schools and training institutions when primary

,1
I

i

:\
'I
'j

i
I

I

:\:i
:\
'I

-702-

I'
L

application of the data processing system is for educational and

2

training purposes".

l

the provision of

It

(DX 47, p. 16.)

It also offered the government

programming aids, including programs ( ,] routines,

4- . ·sub-routines, translation compilers and related items wi thout extra
I

=\. charge".
5

I

!i

(~i p. 3.)

By 1966 SDS was marketing its computers on a

variety of lease terms as well as selling them.

7 ;1

(Palevsky, Tr. 3207.,

SDS continued to grow dramatically during 1965.

It doubled

a :1

its number of installations in one year.

9

the fourth quarter of 1965 was greater than any previous quarter in .

lO : the company's history.

New business received during

To finance this continued expansion, 5DS sold

I

II 147,500 shares of $100 par cumulative preferred stock to a group of
!

I.2. i insurance companies, raising $4,750,000 in the second quarter of 1965.
!

13

i And

in February 1966, it sold $10 million in convertible subordinated

i

l~l

debentures to a group of institutional investors.
d.

IS:!

The Sigma Series.

(DX 981, p. 3.)

By 1965 SDS had begun the develop-

.~

;.Iment of its Sigma series of computers--its third-generation line.

17

it

JoQ '

In

i{fact, in that year (following IBM's announcement of System/360), the

:f Sigma family "occupied the attention of virtually every department in

~S i

-

19

:i

'lthe company".

(OX 981, p. 9.)

It was announced in 1966, with the

.i

:\first of the series, the Sigma 7, announced in March of that year and
ZO :1

Zl

:Ithe second, the Sigma 2, in August.

.

~I

The remainder of the family was

Jannounced starting in 1967. (Palevsky, Tr. 3226.) By 1971, the Sigma
Z2. :!
familv included the 2, 3, 5, 6, 7, 8 and 9.
(PX 5774, p. 13; OX
Z3 .t
...
'\13400, p. 22; OX 13401, p. 19.)

According to SDS, the Sigma family

Z~ I

"'c:;
4-

Idelivered "moze computations per dollar than any other commercially
I

,!

I
I

'f

::'i
.,
I

I

.1
:1'I

.!

-703-

,
\

i

I

:1

l; available machine".

SOS touted its versatility:

"The impact of

I

2 !; Sigma, however, lies in its broad application for business, industry
1 : and science as well as its ability to perform an almost unlimited
~! number'of different applications at virtually the same time."

(DX 981,

i

51

p. 6.)*'

,I
I

The Sigma Series was a response to the IBM 360 line.

6- :

A

7 :1 Sigma 7 press release, dated March 15, 1966, stated that Sigma "repre;1

a.

11

sents the first family of computers with an entirely new design since

9 !.the IBM 360 announcement" and that "Sigma 7 features a total capability

La!
II

for both business and scientific data processing".

(OX 52, p. 1.)

I1 sos attempted to set its prices 10 to 15 percent lower than IBM's
!

prices on the products that IBM had announced two years earlier.
12 1,
13 Ii (Palevsky, Tr. 3150.) ** An effort was mad'e to price each of the
I

l~j~ separate boxes at prices below IBM's, but a comparison could not be
15

II

made on the basis of the performance of the systems as a whole because

if

l6 a "then you get into the problem of what is a typical set of operations

~7

ii

• :!'I

18

and it becomes very complex to do".

(Palevsky, Tr. 3269-71.) Appar-

ently, SDS felt that a dollar price advantage was necessary to over-

II

:\ come the obvious customer acceptance of System/360.
19 :j
20 ~! Tr. 3149-50, 3176, 3270-72.)

(See Palevsky,

:,
.1

21

~

;1

j

--~----------------

* For example, SOS contended that a Sigma "can simultaneously run
ZZ :1 an inventory control program together with a real-time process control
ZS ;1 application. At the same time, 200 users at remote consoles through.1 out the country could be time sharing the central processortt.
(OX 981,
'tp·6.)
24 :1

** Currie testified that "generally" although "not always", 5DS
tried to have somewhat lower prices than IBM for equivalent perform1 ance on the order of 10 to 15%, and tried to have "an advantage over a
:/ company like Univac".
(Tr. 15175-76.)

25.1
:1

:1
'i,
I

-704-

Pale~sky

l.

Z
l

testified that the Sigma computers compared to the

9300 "were more complex structurally.
I

~

They were much faster, and some

of the computers in that line were compatible so that we had on a very

I

~I

small scale something like the 360, that is, we had a number of

5"

computers of various sizes" that were program compatible."

i"

(Palevsky,

i

I

a;1 Tr.

3165-66.)

As with the 360, 50S "designed standard interface

jl

7;' units".

It also "developed special programs which simplify the

s:if

design, engineering, and final assembly of various building blocks

9":

or components into total systems."

(OX 982, p. 12.)

,

For the Sigma series, 50S acquired Potter tapes, Control

1Q \

ll'
12

II
I

14- '

Data disk drives, NCR printers, Teletype console typewriters and
Uptime card equipment.

(Currie, Tr. 15507.)

However, because periph-

eral equipment was viewed as a "critical element" in third-generation
computer systems, 50S had sharply increased its planning for internal

r

I

development and production of peripherals.

In 1966, SDS began deliver-I

ing its own magnetic tape units and had completed development of Rapid

I

Access Data files, which it called "two important peripheral products -

I

for data storage that were completely designed and produced by the

I

I

company" .

These products were expected "to enhance the capabilities

of SDS computer systems".

(OX 982, p. 10.)

50S stated its reasons

for undertaking peripheral equipment development programs internally

.

rather than acquiring independent manufacturers or continuing to
purchase from suppliers as follows:
"First, SDS can realize a significant improvement in profit
margins on equipment which the company produces internally.

-705-

i

I
I

i

I

i!
;

"Second, pe·ripherals designed to complement the capabilities
of Sigma computers provide an additional competitive advantage
for 50S· systems.
"Third, high re~iability must be designed into the equipment
co·ntrol assured during production, thus minimizing
the cost for servicing :Saulty peripherals.

and
I
• !

I

I.

,
I

•

~

;,

qua~ity

"Fourth, and most important, the technology is advancing too
rapidly to permit 50S. to rely primarily on suppliers. The new
series of Rapid Access Data files is an example. Developed with
a considerable investment, SDS RADs are among the most advanced
secondary storage devices in the industry. The availability of
the various RAD models provides 50S with a significant.advantage
in marketing Sigma computer systems." (OX 982, p. 10; see also
Palevsky, Tr. 3277-78.)
SDS provided "advanced software, including operating systems
for real time, batch, and time-sharing operations, FORTRAN IV and

l;

COBOL compilers, assemblers" and various applications software,
,

i

-~

including a

)- it.~I programs

If

~brary

with "(mlore than 1000 utility and mathematical

for the Sigma family.

(DX 49, pp. 2, 8.)

5DS

obtained

~ ;t
_
i\ between 20% and 50% of this aoftware--specifically assembly languages,

: il

compilers, a Data Management System package, a linear programming

6 :! package and a communications package--from software houses such as
Digitek, Programmatics, Bonner & Moore, Informatics, Computer Usage

j :1
:t

S J Corporation, Computer Sciences Corporation, Dataware, C!I, and
:1

(Currie, Tr. 15388-89.)
9 j Scientific Resources.
:I
.0 :
At first, according to Pa1evsky, the Sigma series was
·1
:j

:1 :! o.ffered "to essentially the same market as before".

Gradually SDS

j

:2 :! "started to market it for applications that were mixed scientific and

,

general data processing

~I

l1

(Palevsky, Tr. 3166), and began to expand

t

,~

•

I

'; into applications for general business and industry, including rnarket.i
I

~:

i

I

ing to business data processing customers.

I

i

I

.~

i

:\
!

i

'.,\

-706-

(Cohen, Tr. 14684-86.)

By

L

this time, "changes in the technology" had begun to "blur" the dis-

2.,

tinctions between business and scientific data processing.

3"

Tr. 3137.)

~

More and more customers started using a single computer

for both types of computation rt"; if one were to ask "say in

,

(Palevsky,

r

65 how

: \- many installations used a single computer for both purposes and say by
I

I
,.'

'68 how had that grown . • • I would guess that that had grown ten-

ai
I

7 \1 fold

tI •

(Palevsky, Tr. 3254-55.)

Both because of that change and a

11
So perception that the area SOS was focusing on was becoming too confin-

90

ing, 50S was "forced" to enter the "market" for business data processing customers.

lO":
I

i

Tr. 3137.)

At the time of the Sigma 7 announcement, 50S issued a press

.-- ,

11

(Palevs~y,

I

:

release stating:

ttl
I

13 \1

l4-1

15\
le- 11

17

il

"'Until now, explained SOS president Max Palevsky, computers
were generally built either for business data processing or for
solving problems of a scientific nature or for real time control
systems.
'But because of its advanced internal architecture,'
Mr. Palevsky stated, 'Sigma 7 is the only medium priced computer
that can deliver outstanding performance in any of these applications. I "
(OX 53, p. 1.)

Similarly, the Sigma 5 was "designed for operating real-time programs

lS :1 simultaneously with general purpose scientific and business problems".
:1

19

J

(OX 982, p. 8.)

*

:r
SOS was advertising its Sigma 7 computer system as "unfair
20 :!
"
. Sigma 7 does everything a 360/50 does. At a fraction of
'} to IBM
Z!. '\
j the cost. Sigma 7 is a little cheaper than the 360/50 and a good deal
22. ~!
1

Z3

;1
,I

-----------------------

* In its 1966 and 1967 1o.nnual Reports, 50S stated that although its
Sigma series would perform business data processing applications, that
! did not mean that it was abandoning the customers on whom it had
2S '\ heretofore built its business.
(DX 982, p. 4; DX 983, p. 4.)

,I
Z~ 'I

r

,I
ij
1

I

.1
:1
"

j

-707-

~

1

faste·r.
;:

The combination gives Sigma a 25 to 65 percent edge in

cost/performance."

(OX 54.)

Cohen testified' that the Sigma 7 "did

i

ri

indeed" perform business data processing applications.

I

~I, 14631 •. )
I·

f!

I

(Cohen, Tr ..

For example,. the H'arrison Radiator Division of General Me·tors

used Sigma equipment for its da·ta processing requireme·nts, which were·

I

::

"principallyn inventory control, which, according to Cohen, would be a

r \1

business data processing application.

~:

testified that, looking only at the CPU, input/output proce·ssors and

~:

main memory, the Sigma 7 could in fact do everything that the IBM

;,

I

J \ 360/50 could do.

(Tr. 14610-11.)

Cohen also

(Cohen, Tr .. 14622-24.) *

According to an xes sales guide (DX 50, p. 102/001-29), a

1

2.

report based upon what was happening in the field, the 360/50, 360/40,

3.; 44, 65 and the 1800 were "competitors" of the Sigma 5 as late as 1972.

...
.f

-

;

(Palevsky, Tr. 3232-33; see also Tr. 3185, 3228-29.)

According to

;

I

i

=~

Cohen, IBM's 360/44, 50, 65, 67 and 75, as well as the 1130 and 1800,

'

were the IBM systems 50S "most commonly competed with".

(Cohen, Tr.

14555-56; PX 433.)**

* However, when the array of peripherals and software available on
the IBM 360/50 was taken into account, Cohen was of the opinion that
the Sigma 7 could not do all of what the 360/50 could.
(Cohen, Tr.
14624.) Palevsky testified that the Sigma 7 was comparable to the
360/50 in terms of the hardware capability, but not in terms of the
total system.
(Tr. 3243-45.)
** In the early 1970s, the "prime competition" for the Sigma 5 was
the IBM 370 Models 135, 145 and 155; the OECsystem 10; the SEL (Systems
Engineering Laboratories) 86/88 and the Univac 418-I1I.
(Palevsky,
Tr. 3231-32; OX SO, p. 102/001-29.) For the Sigma 6 and 9, the "prime
competitors" were the IBM 370 Models 135, 145, 155; the DECsystem 10
and the PDP 10, Models 1040, 1050, 1055 (dual processor) ~ and the
Univac 1106.
(Palevsky, Tr. 3247~ DX 51, p. 103/001-13.) For the
-708-

L

Competition for the Sigma series included products from many

Z suppliers in addition to IBM.
l

Cohen listed 21 companies (plus leasing

companies) as competitors to SDS/XDS .. in the computer systems market·"
during the period 19·66· to 1972:

4-

IBM, Honeywell, Univac, GE,. CDC,

I

:: i· Burroughs, OE·C, SEL, Modular Computer Corporation, Fischer & Porter,
I

a·; varian, Hewlett-Packard, Data General, Radiation, Inc., Harris,
11

7 H Collins, Comten·, Interdata, Electronic Associates ("on occasion") ,

ail EMR,

RCA ("occasionally") and said there were "very likely" others.

I

i!,

(Cohen, Tr. 14600-09.)

I

Pa~evsky

I

lQ 1

I
II !

mentioned as competitors to SDS:

IBM, CDC, DEC,

ccc (Compu·ter Control, later acquired by Honeywell), Univac ("occa-

!.Z I, sionally"), Burroughs ("rarely"·) and Honeywell (rarely, until the
.,

13

latter's acquisition of CCC), and General Electric ("in certain

1

,
l~!

applications").

(Palevsky, Tr. 3166.)

I

15;i NCR, IeL, EMR and COM were also

Engineering Associates, CCI,
.

compet~tors.

(Palevsky, Tr. 3233; OX

16 1, 50, p. 102/001-30.)

Cohen listed the "effective competitors" (he defined these

17 :1
18

as companies which won 20% to 25% of the competitions in which they

:.1
:1

:t were enqaged)

19 ,i
... :f areas:
~O

(Cohen, Tr. 14723-24) of SDS in specific application

.!

.\

·1

Zl!i
:i
22. 't

In time sharing, he listed IBM, Honeywell (after the acquisition of General Electric's computer business), Univac, GE and

. . _ ;1-_______
,1~

•

-

lSigma 8, the "prime competition" was the IBM 370 Models 145 and 1SS,

.,=

16400.

24 'ithe SEL 86/88, DECsystem 10, the Univac 1106/1108, and the CDC 6200/
(Palevsky, Tr. 3238; OX 50, p. 102/001-30.)

--I

!

I

.,:1
!

!

-709-

1I
!

i

DEC.
In real time, he listed IBM, Honeywell, Univac, CDC,
,!

DEC, SEL;

:

~\

In seismic~ IBM an~ Univac;

i

: II

In scientific batch, IBM,. Univac, GE and later Honeywell

~lt

(after its acquisition of GE's computer business), CDC and DEC;

it

~ \f

In, .communications, GE, Univac, IBM and Comten; and
In multi-use/multimode, IBM, Honeywell (after the GE acquisition), Univac, CDC and DEC.

(Cohen, Tr. 14729-30.)

IBM' competed with SDS as an "effective competitor" in every

J

application area, and the systems which competed with those of SOS

1.

spanned the IBM product line:

~!

the 1130, 1620, 1800, 360/44, 360/50,

I

! ~1360/65
~
, 360/67, 370/145, 370/155 and 370/158.
i

;PX

"-;

..."'t

.7

433 .. )

j
t

Indeed, Wright--IBM Director of Time-Sharing Marketing in

:.

'

:

the period from 1964 to 1965 and Director of Marketing for Government,

it

=-

(Cohen, Tr •. 14555-60;

if

il Education

and Medical Region from 1965 to 1969--testified that SDS

;rwas among IBM's "principal competitors".
(Tr. 12993.) IBM was well
,3 '.
;,aware of SOS during the mid- and late-1960s. On December 22, 1964,

.s ;,
~

Learson reported to T. J. Watson, Jr., about the serious competition

;1

.!

:\ SDS posed to IBM's 360/40 and 360/50.

.

~:I

,., :jintensified
:\

=~

Model 44,

:1

(PX

over the next several years.
pp. 412-13.)

1288, p. 2.)

That concern·

(See the discussion of the

SDS also appeared as one of the nine "major

.'

Z4. .1 computer manufac"turers" reported on in internal IBM reports on the
:!financia1 results of certain of its competitors.
25

i

:\3451. )
:i

'\

'\
I
!
'I
·i!
·1

I

-710-

(Se~,

e.g., PX

e.

The Merger.

The Sigma family brought still more growth

Z

for SOs.

1

transitional year", SDS offered two issues of convertible subordinated

During 1966, which was described by 50S as "a crucial

debentures totaling $22,.500,000 and reti.red short-term bank loans.

4.
I

\.

!'!

(OX 982, p. 3.)

From. the fourth quarter of 1966 to the fourth qua'rter

I

: \ of 1967, . the year whi.ch SOS saw as a "critical" period "'during which

711

the character of • • • future expansion" was "largely determined", SDS

a;

doubled its production of

9--

"successfully completed its first product line transition, began a

EDP

equipment.

It stated that in 1967, it

1Q

major facilitie·s expansion,. and initiated new product development and

II

cost control programs to sustain orderly growth".

ttl

(DX 983, p. 3.)

By 1969, SOS had achieved that orderly growth and had reached

\

!3; what would be, for 50S as an independent entity, the pinnacle of its

l+. i success. It told its stockholders that its international sales in
15; 1968 had increased by more than threefold over 1967 and that n[t]he
l
.. ~ :1 sale
of SDS ~roducts outside the United States is expected to continue
JoQ .,
1

.7
..

;!

to increase significantly through the company's increasing involvement -

!l

'.

(OX 45, p. 12.) SDS stated
·1 in the various international markets".
18 :1
19 it that it "ranks among the world's ten largest computer manufacturers"
I.

zo J with
·f

Zl :\

~d

assets of $113 million and more than 4,000 employees (id., p. 4),

described itself as "one of the world's largest suppliers of

.\ commercial time-sharing systems".

22. 'i

(Id.,
--

p.

-

6.)

1
In 1969, SDS was acquired by the Xerox Corporation, a
Z3 i.;i
.lcornpany that had achieved Ita position of eminence as a worldwide
Z.! I

:!enterprise" through the remarkable acceptance of the xerographic

2: .,

l

I

':1\
"

:\,
I

I

;1

;1

I

.!

-711-

.
~-

copier •

:

(PX 5774, p. 6.)

Xerox's revenues for the year 1968 (exclud-

I

i

ing Rank Xerox, Ltd., its British affiliate that marketed its products

:.;

abroad) were $896 million and its net income was $116 million (includ-

I

!

i

,

~(

.

ing the income from Rank Xerox).

(DX 13857, p. 3.)

5DS was acquired

for approximately $98'0. million worth of Xerox stock.*

(Palevsky,

Tr. 3195.)

..'1

;

;

5.
I

i

_It

Q

,I

7

J'\

S :f:1

'I

9 .,i
.,I

:0 .,.:
.j

:l .!

::a "~I
~-:

~

·t

ii
'I

I

...

.-

.!

'i
I

!

* The Xerox acquisition of SDS and the subsequent
- .\ XDS are discussed below.
(See pp. 1125-44.)
!

~=

'j

'!

i,
I

·1

;\

-712-

activi~ies

of

l.

48.

Z

Digital Eauipment Corporation.

Digital Equipment

Corporation ("DEC") was found-ed in 1957 by KEanneth Olsen and
Harlan Anderson (Hindle"

Tr .. 7318.), * bo,th having previously been

associated with M.,I .. T.' s Lincoln Labs where t...'1ey worked on

!' i' Whirlwind and SAGE.

(OX ~3833, p.

I

5 .. )

DEC set up production

on one floor of a converted woolen mill in Maynard,
with three employees.

(OX 13858,p. 1.)

r~assachusetts,

Its initial capitalization

was $70, 000, all of which was- invested by the American

9:

Research and Development Corporation--a Boston-based venture

LO ~ capital firm.

(Hindl.e, Tr. 7476.)

Its first products were

i
I

111 laboratory logic modules--"printed circuit boards containing
t

!

!21,. components whic.h are used to do logical functions in an
!.:!; electronic sense:

add, etc." --that were then used to test

and build other manufacturers' comput'ers.
DX 13858, p.

(Hindle, Tr. 7318-19;

1.)

The story of DEC is one of extraordinary growth
and enormous succ'ess in the computer business.

From its

beginning and throughout the 1960s, DEC achieved extremely

* Winston R. Hindle, Jr. was the only witness from DEC.
Mr. Hindle joined DEC in 1962. From 1967 through
his testimony in 1975, Hr. Hindle was Vice President and
Group Manager of the company with responsibility for numerous
products within the DEC product line.
His responsibility
encompassed the development, marketing, ~ales support,
planning and financial areas. Mr. Hindle had served on
the executive committee of DEC, as well as the Finance and
Administration and Marketing Committees.
(Hindle, Tr.
7313-18, 7337.)
As of 1979, Mr. Hindle was Vice President,
Corporate Operations.
(OX 12323, p. 47.)
-713-

1

rapid growth by t'aking advantage of new technology and its

21

own research and development to manufacture an ever-expanding

i

I

3. :

product line.

4-1i

m.i.d-l'964 to S1l4: •. 8 million' in. mid-1970.*

51

ox 13845., p. 10.) DEC's profits after taxes went from $889,000

6.1

in 1964 to $14.4 million in 1970 (OX 511, p. 1; OX 13845, p. 10.)

i'
I

DEC's total assets grew from $5.7 million in
(DX 511, p. 14;

I

i

7

il

Its worldwide EOP revenue grew from $4.3 million in 1961 to

I

I

8j

$12 .. 6 trillion in 1964, to $14,2.6 million in 1970, rising at

I

g.i

I

10 !I

an annual compound growth rate of 44% per year.

(OX 526.)

By virtue of the $70,000 investment in 1957, American Research

ulI

and Development h'ad acquired 78% of DEC's common stock.

141

(OX

I

131

1383~,pp.

5-6, 21.)

In 1968, it sold 215,000 shares of

DEC stock for a gain of more than $26 million (OX 13834,p. 9),

t

~i
\

and in 1972, it distributed the remainder of its DEC stock,

1.51

valued at $382 million, to its shareholders.

16 ;~

OX 13 83?, p. 4.)

i

(OX 514, p. 5;

;

DEC acquired more and more' space in its woolen
mill, and its original t.."'1ree employees were joined by many
others.

It began expanding overseas in 1964.

It formed

its first sales subsidiaries in the United Kingdom and
Australia in that year.
Germany were added.

In 1965, of£ices in Canada and

(OX 13845, p. 3; OX 13846, p. 3.)

Sales

* Financial information for DEC first became publicly
available in 1964.
-714-

i
1

t

offices in France, Japan and Sweden followed in 1966.

(DX 13847,

t

Zl

p. 19.)*

Ii
!

location in Maynard, Mas .sachusetts and employed 1100 people (DX 138·47 ,

1

By 1966, DEC occupied 338,000 square feet in its original

4aFi

p. 3), had 24 sales offices in six countries, and had about 800

s: /.

computer installations.

0:

plants in England, Puerto Rico and Canada, as well as several in

(DX 517, p. 1.)

By 1970 it had manufacturing

I

I

f

7

jl

Massachusetts, employed 5,800 people (DX 511, p. 3.), and had

I
I

a!

computer installations in eleven countries.

~!
10

(OX 517, p. 2.>.

The financing of this expansion required capital.

!

1963, $300,000 was borrowed from American Research and Development

I
11 ! Corp.
I

However, by the end of its 1964 fiscal year, DEC had accumu-

i

l2.! lated OVer $3 million in retained. earnings.

oj
1i

In

(OX 13845, pp. 10-11.>

Retained earnings rose to $4.3 million in 1965, $15 million in

14-1 1968, $24

mill~on

in 1969 and $38.8 million in 1970.

(OX 511, p. 15;

i

LSi
151!

OX 13846, p. 12; OX 13979, p. 7.)

OEC made its first public stock

offering in August 1966, raising $4,800,000.

(PX 5026, p. 15;**

f

17 l OX 13847, p. 3.)

From 1968 to 1970 it had three additional public

!

!

offerings, raising a total of $63.5 million.

511, p. 17; OX 512, p. 11; OX 13979, p. 8.)

(PX 4562, p. 17; OX
A review of DEC's Annual

* In 1961, all revenue was domestic. In 1964, 91% of revenues
were generated domestically. By 1970, the domestic percentage had
dropped to 72%.
(OX 526.)
** A more legible copy of PX 5026 has been marked as OX 13848.

-715-

I

i

II Reports reveals that this outstanding record enabled DEC to meet
!
ZlI its financing needs w-ith no reliance an long-'term bank loans. As

:11

Hindle testified, "Diqi.tal' s expansion has net ever been limited by

•
~ . the ability to raise capital.'"
i

~ \.

(Tr. 74'76.)

I't is· interesting to note in this connection that DEC

I

&;
I
7 II

generally chose not to tie up its capital in financing leases for
its customers, feeling that it had "better ways to invest" its

&1 money.

When its customers wanted to lease, DEC would put the

J

9-\ customer in touch with leasing agents who would "use their capital
1O! and not Digital's capital".

ll!

These "leasing agents" were organizations

"willing to finance a customer's computer over a period of time".

i

12.!I

When DEC did offer leases directly to its customers, it generally

i

13

i

sold them to financial institutions immediately thereafter.

14.! (Hindle, Tr. 7369-70.)

I

DEC's success was due in part to its commitment to product

15 I

I

1611

development.

Hindle testified that "Digital has through the years

I'

171 spent between 8 and 11 percent of revenues annually on research and
I
I

;

18

1
I

product development. .

19

l' was

20

\1
!I

21

il

a vital part of our success.

a~vances and incorporate them and understand them in our product
as

rap~. d1

ld"
y as we cou.

(.
84)
H~n dl e, Tr. 73 83 .

Th at

II connnitment paid off and, as Withington testified, DEC "always

2~;lmaintained
25

The rapid advances of technology

in the computer field have meant that we must keep abreast of these

Zl~1U I'~ne5

23

We have felt that product development

a position of technological leadership or at least

currency with any significant competitor and always provided an
-716-

adequate breadth of product line, maintenance and support".

1

2

(Withington, Tr.

I

56016~)

I

3: !.

DEC's computer systems began with small, high performance

~

4.\

hardware offered with relatively little· support to sophisticated

i

~ I··' customers capable of providing themselves the software and services
I

6. \. for the application of those products to their needs.

Palevsky of

I

7

5DS described the early DEC comp~ters as being similar to the small

II
I

8

iI

and medium-scale 900 series computers marketed by 5DS principally

!

9-[ for real-time and scientific applications, also in the early 1960s.

10!
11

(Palevsky, Tr. 3133-36.)

Over time, DEC's products grew in capacity

Ii and capability and DEC expanded its customer support, its marketing

lZl

and its software and service offerings.

That process has continued

I

IS

I

i

and DEC now offers one of the broadest product lines in the industry

I
I

and markets it to the whole spectrum of EDP customers.

l~l

(See below,

I
I

15: pp. 717-31, 989-92.)

I

16 a

DEC' s first computer, the PDP 1, was delivered in 1960,

17

:1

and it was followed by the PDP 4 and 5 in 1962 and 1963, respectively"

18

(!

From 1964 through 1970, DEC also introduced the PDP 6 (1964), PDP 7

19

il

(1964), PDP 8 (1964), PDP 8S (1966), LINC 8 (1966), PDP 9 (1966),

20 :\ PDP 10 (1967), PDP 8I (1968), PDP 8L (1968), PDP 12 (1969), PDP 14
21 i'II (.1969), PDP 15 (1969) and PDP 11 (1970).

All of these DEC computers

2Z !\were classified by Hindle as "general p,":rpose computers", except

.,~

:1 the PDP 14. *

(Hindle, Tr. 7321-24, 7327, 7388; PX 377-A.)

As we

-- !,\

24

:1 ____________________

* The PDP 14 was not a general purpose computer "because it has
a program which is preset prior to its delivery, and then it only
. operates on that same program r.vhen used by the customer".
(Hindle,
11 Tr.
7327.)

25 :\
:1

i

:1

;,
11

-717-

shall see, each of DEC's successive product announcements expanded.
the breadth and capabilities of its product line, contributing to
DEC t s

succes.s.

phenomena~

a.

'PDP 1, 4, 5 and 7.

1, delivered in
73l8-19~

7321;

1~60

DX

DEC's first compu.ter was the PDP

(and withdrawn in 1963 or 1964).

507, p. 10.)

(Hindle, Tr.

The PDP 1 was "an outgrowth of the

technology that ·was incorporated into the line of logic

modu~es,

although there. was a completely separate design from the logic
modules in our product line prior to that".

(Hindle, Tr. 7319.)

The original purchase price of a PDP 1 was in the neighborhood of $125,000 to $243, 000.
Set II,

'f~

240.2, 371.3 (d) .)

(OX 13858, p. 2; Plaintiff's Admissions,'
It was designated "PDP" (Programmed

Data Processor), a nomenclature that DEC used throughout the 1960s
for its products, because "EDP people could not believe that in
1960 computers that could do the job could be built for less than
$1 mi 11 ion It •

(OX 13 858, p. 2.)

At Stanford University, Professor John McCarthy used a
PDP 1 to conduct some of the earliest research on time-sharing in
the early 1969s.
3.) *

(Feigenbaum, Tr. 29531-32, 29535-36; DX 13858, p.

A PDP 1 was also us.ed, in conjunction with an IBM AN/FSQ-32

* The PDP 1 "operated primarily independently", but was "link[ed]
through a disk" to an IBM 7090.
[O]ccasionally there would be a
lash-up which would exercise LISP on the 7090, which is a system
developed . • . [at Stanford] that would communicate through the
disk to the PDP-I."
(Feigenbaum, Tr. 29532-33.)
II

-718-

11

I

,I
:,:1
1 d computer, as "the major input/output vehicle for the various remote

:,

Z :1 devices" in a "general-purpose time-sharing system" at the System
I

3. i Development Corporation (SDC) in June 1963 •. *

(DX 7622,

p. 3.)

I

I

4

I1; That time-sharing systerJ

5

1\

was

produced "under the. sponsorship. of

AlU'A[**] and.. • • utilized ideas developed at both Massachusetts

6 ~.,I Institute of Technology and Bolt, Beranek, and Newman, as well as
:'

tIl
,I

some original techniques".

The various remote devices used as part

'I

a ; of
,I

this system included "Teletypes • • . and other computers" that

i

could be run "from within

10

!i

well as the CDC 160A and the IBM 1410, were also expected to be used

11

11

at remote stations as part of this system.

9

SDC,

and from the outside".

(~)

PDP

lis, as

In 1962, the

~t

12
13

i! Atomic Energy commission's Lawrence Livermore Laboratory selected a
i:
!I

PDP lover a 1401 proposed by IBM to perform what it described as

1i

14 :, "scientific and engineeringll applications.

..r -

~

16

(DX 2992, pp. 18,

iI

:! 1113.)
:1
~

!

,f

:j

DEC introduced the PDP 4 computer system in 1962, and the

17 :! PDP 5 in 1963.

(Hindle, Tr. 7321.)

The PDP 5 was offered with

IS .! keyboard-printer, paper tape reader and punch and a software package
'I
,I

!

19:~ --------------------20
* "Time-sharing, in this case, means the simultaneous access to
./ a computer by a large number of independent (and/or related) users
21 ; and programs." (DX 7622, p. 3, emphasis in original.)
,

. ** ARPA is the government's Advanced Research Projects Agency,
Z2 :i which was established in 1958 and whose. "primary mission . • • is
~~ ; to support research and development of advanced projects which have
~ I potential value to the Department of D~fense".
(Plaintiff's
24 ~ Admi s s ions, Set I, ~I '1 1 . 0, 2. 0 • )
25

-719-

.; including FORTRAN.

(DX

139-28 .)

"Although the term 'minicomputer'

~: wasn f t uS.ed during the time of the PDP-S," DEC would have considered

t

the PDP 5 a "mini.c.omputar"..

(Hindle, Tr. 7325.)

'*

According to the

1

~

I 196.4 DEC Annual. Repa·rt, the, POP 5 was used in "numerous applications

rl"

i"

i

I

11

in. physics",. biomedicine, indus-trial process control, and systems

applications".

(DX

1.3845"

p. 8.)

;t

r ~l

In the early sixties, DEC's re.search and development

a: [.il effort produced the "flip chip" modules
i

(DX

13845, p. 3) which,

like IBM's SLT', combined printed cixcui ts wi th discrete components

~

a~

(id., p. 2) and which made possible the introduction in 1964 of the

i

-.

, ; smaller, faster and cheaper PDP 7 and 8 to replace the PDP 4 and
!.

Z is. '**

3.:1
,4-

j!

An IBM Win and Loss Report for August 1964 reported competition

between the DEC PDP 4 and the IBM 1401 and between the PDP 7 and
the 360/30.

(PX

3630, p. 6.)

The Atomic Energy Commission selected

5:t a PDP 7, installed in January 1967, over a 360/30, as well as systems

.5

!

i!

bid by CDC,

5DS ,

Univac and Honeywell .

(DX

2992, p. 49.)

.7 ;[;,

* Hindle testified that the term "minicomputer" (which "[p]eople
in the industry started to use . . . in the middle 1960's") "is not
'9 ;J a precise term", but rather has "a broad range of definition(s]" as
. j used in the industry.
Hindle's "own view" of a minicomputer is a
system "priced at less than $50,000".
(Tr. 7325.) By this he
-~ ] meant that "the smallest available configuration
'.U .,
could be con(Tr. 7453.)
.\ figured for less than SSO, 000".
.S

.

:1

:1

I

all

** Withington commented in 1964 that the rapid reduction in
manufacturing costs of high-speed circuits enabled DEC, among
i others, "to enter the computer market with low-priced computers
_'I
~I of high performance".
(PX 4829, p. 31.)
~
~;;

-720.,,
1

./

I

:,.,

b.

L:I

PDP 6.

The PDP 6 was first delivered by DEC in 1964.

2'

(Hindle, Tr. 7321.)*

3:!

PDP 6 as "an expandable system which can start as a very basic

I

DEC's Annual Report for 1964 described the

I

I

4-\', conf iguration and

grow through the addition of processor, me'mory

i·

5'

I:

to the largest commercial systems currently offered".

a1I
7

and input-output options into a major computation facility equivalent

i

II p.

a!

(OX

13845,

6.) At the time, the PDP 6 was the largest of DEC' s computer

I

systems, ranging in price from $350,000 to $750,000.

DEC described

'II

g.,( it as "equivalent to the very large computers used by scientific

lQ!

laboratories".

11

ments·, including Brookhaven National Laboratory, the Rutgers

I

The PDP 6 was used in "large data processing assign-

I

University Physics Department, the Universities of Aachen and Bonn,

i

lZ!

13. !I Germany, the University of Western Australia, Lawrence Radiation
i
l~!

Laboratory, United Aircraft Corporation, Applied Logic Corporation,

15 \ Yale, MIT's Laboratory for Nuclear Science, the University of

16

!!

Rochester, Stanford University and the University of California at

17l Berkeley.
tt
i

8; OX 13847, p. 7.)

Also, the PDP'6 was "designed for time-shared use" and

18 !I
19

(DX 13845, p. 3; OX 13846, p.

DEC bid a multiprocessor version of it to MIT's Project MAC, one of

:1 the earliest and most important experiments in the use of time
20 :',t
\' sharing. DEC was "in among the finishers" for this award, who

... i!j
~j

;

Z2. ;'
:I:

.

included:

CDC, bidding a 6600; IBM, bidding a 360/50; GE, the

23\\------

* The PDP 6 was withdrawn in 1967, when it was succeeded by the
PDP 10 which "incorporates all the features of the earlier machine".
2S ; ( Hind 1 e, Tr . 7 3 21; P X 5 0 26 ( DX 13 8 48, p. 3) . )

24

~l
i

-721-

1

winner of the contract with a modified 635; and RCA, with a 3301.

2..

A

$'1 million

PDP

6 was cho·s.en by Project MAC as a peripheral processor

I

3';i for the time-sharinq system.
I
~i
I

(PX

296.1, pp. 1, 3;

DX

13845, p. 3.)

AnIBM'Win and Loss Report for August 1964 reported. additional

i

5· \-- c:ompeti tion be·tween the. PDP' 6' and the IBM 360/50.

(p·X 36-30, p- •. 6. ) 'II:

I

6;I

At the Lawrence Berkeley Laboratory of the Atomic Enerqy

..'
7 iIlcomnussl.on,
a PDP 6 was bid against an IBM 360/70 and a CDC 6600,

II

8

! among

9-1

others.

A CDC 6600 was inStalled in January 1966.

(OX 2992,

p. 11.)

i

10 ,
At Lawrence Livermore Laboratory, two PDP 6's were acquired
I
11 ! in 1965~66 and used as control computers in the OCTOPUS network.
1

Because Lawrence Livermore required a faster memory than DEC could

if

supply, it solicited bids for add-on memory, receiving bids from

12. :f
~

l+lt~ive companies in addition to DEC, and awarding contracts to Lockheed
i

15 I and Ampex.

,

.

(OX 4572.)

l6 ;\ thl.ngs to come:

That acquisition was an indication of

there was later, primarily in the 1970s, substantial

I-

17 ! development of DEC plug-compatible equipment, in part reflecting
I

: the great popular"ity of DEC computer systems.
(See, e.g., Hindle,
18 ;j
;1 Tr. 7422-23, 7444-45.)
19 1t
c. PDP 8. The PDP 6 procurements were prestigious, but
20 ;,:1
:1 DEC IS financial growth was more affected by the PDP 8 series of
21 :!
\1

Zl

~

23

:;--------------------~

Ii

* The United Aircraft Research Laboratories offered computation

I! services with equipment consisting of an IBM 360/50 system, a

Univac 1108 system and a "DEC PDP-6 Time-sharing system" including
24 1\ "a paper tape reader, and both drum and magnetic tape auxiliary
;\ storage" and accessible "through most standard terminal units".
25 .1 (OX 7506, p. 44.)
;1

i

!I

:1

:\'J
;/
:1

it
,i

:1

!i

-722-

.I
I

Ii
II
!
I
I

1

I
I
I

I

I
i

I
I

I
I
I

l; computer systems--one of DEC' s· most successful.

The PDP 8 was

t

2';·
first introduced in 1964 as a replacement for the PDP 5.
. !

Due to

l!

the use of integrated circuits, the PDP 8 was four time.s faster

4..1"

than the PDP, 5 at two-thirds· the price.

!t

(Hind~e,

Tr. 7321;

OX

j

!

I 13-845,

p. 3;' OX 13~46, p. 3;.·)

Using the price/performance LTtlprove-

•

6

I

1

men·ts made possible by the "FLIP-CHIP circuit modules and automated

I

7" production techniques", the PDP 8 opened new market opportunities

~

i

8 j for DEC (such a·s typesetting) and expanded its base of scientific!

9-

l
i

1O.!

oriented users.

(OX

13846, p. 3;

OX

13847

I

p. 8.)

The PDP 8 was

offered with "disk storage units, terminals, tape units, line

!

11! printers, cathode-ray tube display units".
,

Perlis testified that the PDP 8 "generalized very nicely

lZ!i

13

(Hindle, Tr. 7334.)

i to othe·r

machi~es

and it itself gave birth to a whole line of

I

l4-: offspring" (Perlis, Tr. 1877); the "parent" itself "received a
I

15

i remarkably inunediate acceptance".

16

irt of the greater than expected demand, DEC expanded its manufacturing

1

(OX

13847, p. 8.)

As a result

;-

17

~

facilities in 1965.

18 ;,
19 [1
.\

20

:f
~I
~I

21 !t

(OX

13846, p. 3;

OX

By mid-l966, over 400 PDP 8's had been
1384 7, p.

8.)

The various other members of the PDP 8 family in existence
at the time of Hindle's testimony in November 1975 were introduced
from 1966 (the PDP 8S) through 1974 or 1975 (the PDP 8A) with the

~i later members of the family still in delivery.

22

\1

Z3 :1
24

'I
:1

25

the PDP 8 family was introduced at a lower price because of "changes
in manufacturing technology, semiconductor prices, and peripheral
-723-

;j
:/
:1
:1

(Hindle, Tr. 7322.)

After the original introduction of the PDP 8, each new member of

;1
:1

i;,l

installed~

L

2.

prices as purchased from our vendors".

(Hindle, Tr. 7347-48.)*

The systems of the' POP 8 family were software-compatible (Hindle,

i

3!

Tr. 7421) with DEC providing three "general purpose operating

i

4\
sl

systems" for them.

(Hindle < Tr. 73-46-47.)

It was "generally

i

true", although "not . • '. one hUndred percent true", that the same

I
i

S; peripherals could be used on all systems in the family.

(Hindle,

;1

7 II Tr. 7421-22.)

II

81

!

9!

First deliveri.es of the PDP 8 went to such organizations
as Stanford Research Institute, Harvard Medical School, Massachusetts

i

10! Institute of Technology and the University of Wisconsin.

The PDP 8

I

I

11! was also offered to the newspaper and book publishing fields for
automatic typesetting (OX 13846, p. 6)

12

and educational users.

and to laboratory, industrial

(Hindle, Tr. 7331.)

In addition, approximately 30 to 50% of the PDP 8 family

15

was sold OEM, ** some as processors alone, some as processors plus
I

16 i! memory, and some as total systems.

17!

(Hindle,

~r.

7330.)

When sold

OEM as a processor only, the purchaser would acquire "from another
manufacturer the appropriate devices necessary to perform input or
output functions", with either the customer or DEC providing "inter-

* Hindle testified that in pricing its products, DEC takes
several factors into account:
(i) the computer systems DEC believes
will be competitive with the one being priced, (ii) conditions in
the segments of the market into which the product is expected to be
sold, (iii) manufacturing and support costs, (iv) expected profit.
(Tr. 7337-38.)
** OEMs are systems vendors or manufacturers which incorporated
the PDP 8 processors into their systems or products.
(Hindle, Tr.
7330-31.) DEC generally charged OEM buyers and end-user buyers the
same prices.
(Hindle, Tr. 7348.)
-724-

1 I facing services" for the input and output devices.
i

2

Since 1964, these OEM purchasers have marketed PDP 8

7330-31.)

f

i

1: systems for busin'ess data processing.
I

4-\;'

(Hindle, Tr.

(Hindle, Tr. 7332.)

Bus'iness da:ta p.roces,sing applications that are pe·rformed

! 1'· on PDP 8 computer systems~ include .. invoicing, accounts payable,
I

I

6. t. inventory control, order processing" and others.

(Hindle,. Tr.

I

71f 7389.)

In addition, PDP 8' s have been used for "real time data

I

i

&!. collection from instruments", "to assist in the teaching process",
l

~! in "industrial co,ntrol applications", including "the automation of
I

1O!I

industrial process controls, the collection, analysis and reporting

I

II! of quality control data, test data, material handling data", in
i

I2.!I
o

"commercial typesetting applications" such as "copy editing, in

•

I
•

hyphenization and justification" and "setting classified advertise-

I

14-: ments", in "data communications applications" such as "message

I

15 \ switching, data multiplexing, data concentration" or "front end

I

16 :I processing".

Different users use the POP 8 to perform different

.

~

17; applications and 'in some cases the same user might use the same PDP
I

18 :
19

l'

20 11;,
i/

2l !I

8 computer system to do, for example, both business data processing
and industrial control applications.

(Hindle, Tr. 7389-91.)

DEC itself, prior to 1972, had largely been "unsuccessful"
in marketing the POP 8 directly for business data processing applica-

;i tions because it had not worked "on the packaging to make the

.

22,11

\1

23 "a
24

25

product suitable and attractive to the business data processing

':1. customers".

(Hindle, Tr. 7489-90.)

Then, in 1972, DEC introduced

the Datasystem 300, an adaptation of the PDP 8 specifically designed
-725-

1 i for busines's data processing.

The "primary difference" between the

!

Z iI PDP
,

3;

S'

and the DEC Datasystem 300 was that the latter was packa.ged

in a different type of console- and used a business-o·riented language

t

4-\

called DIBOL.

The Da..tp.system 300 was offered with the same peripheral

: I·i

as. the. PDP 8.-

(Hindle, Tr. 7333-34.)

I

6\

During the period prior to 1975, the PDP 8 competed with

i

7 il IBM I s 360 and 370 computer systems when used as part of larger DEC
~I

I

8-1 computer systems like the PDP 10 and singly against the IBM System/3,
I

~I

System/32 and 1130.

(Hindle, Tr. 7341, 7442; PX 377-A.)*

IBM's

i
10. ; John Akers recalled losing to a PDP in 1966, when he bid a 360/20
I

II ! for a typesetting application at Worcester Telegram.

96713.)

(Akers, Tr.

The PDP 8 also had the ability to perform terminal or

input/output applications as part of a computer system with an IBM
~Pu

or some other manufacturer's

cpu.

(Hindle, Tr. 7394.)

DEC

considered the products of IBM when setting the price for the
Datasystem 300.

(Hindle, Tr. 7338-39, see Tr. 7341.)

By any .standards , the PDP 8 was a successful and significant
product.

At the time of Hindle's testimony in late 1975, betw$en

30,000 and 40,000 PDP 8's had been sold (Hindle, Tr. 7329), and the

* Hindle testified that in drawing up PX 377-A (which was offered
in evidence "for an illustrative purpose" and "to assist Mr. Hindle
in testifying about each of the products listed thereon" (Tr. 732021}) and in testifying to competition generally, he meant "one for
one competition", i.e., a situation in which both DEC and DEC's
competitor will bid for a product with the same price and the s~~e
performance to do the same job or wbt:re DEC "would bid two or three
of our products to compete with one of the products from the other
company" .
(Tr. 7414-17.)
-726-

I
I

1
T
_ :'

PDP 8 was being marke·ted "to a wider variety of customers", including

\
I

2:

"communications customers" and

1

(Hincil.e, Tr. 7'3'31-32'.)
d.

I~business

data processing customers".,

In 19'67, DEC introduced the PDP 10. *

DP 1,0 ~

PDP 10 was the first of a.
as the "DEC System 10".

fami~y

The

of computer systems later marketed

(Rinelle, Tr. 7324,.)

Hindle tes,tified that

the PDP 10 could do "all of the different kinds of applications
that. are performed by the PDP 8" as well as additional applications'
9'

characterized by DEC as "non-business computation applications",

t

10! such a·s the manipulation and analysis of "scientific, engineering,
or numerical data"., (Tr .. 7391-92.)

11

The PDP 10 was "introduced to

~t
I

serve . . . . laboratory users, industrial users, education users, a

13

class of users we call the data service industry. • • •

tr~
...r

i.1

This is a

class of computer users who purchase--or lease or rent--computer

["'1:1

.-

equipment and then offer various kinds of services to clients."

l5;t (Hindle, Tr. 7359.)

When intrOduced, it could have been purchased

IIfor prices in the vicinity of $450,000, all the way up to configura- -

;1'

17 \

18:1 tions which would be
:, 7359.)

19 :t

a million and a half dollars".·

It was not actively marketed on an OEM basis, but generally

:1 was sold directly to end users.

za::1

(Hindle, Tr.

(Hindle, Tr. 7358.)

i

Zl:f .
j
* Using his definition of "minicomputer" (a computer system in
Z2. '\ ~.,hich "the smallest available configuration could be configured for
:lles5 than $50 ,000" (Tr. 7453», Hindle classified all DEC computer
Z3 I systems introduced during the '1960s as "minicornputprs" except for
,i the PDP 10, ~.,hich was too large and too expensive to meet that
Z.! 'I definition.
(Tr. 7325-27, 7358-59.)
.,~

I

'j

, - :1

I
-727-

I

1

I

1

II

In 1969,. DEC described the PDP 10 as follows:

!I

21
I

3'.

!~.

~1

J

i

! \.
•

i

o (,
7 IiIt

"serving business, industry, and science in a multitude of
installations throughout the world. They keep track of bubble
chamber events in' physics laboratories, analyze blood chromQsomes·.,
work in banks, teach in high schools and universities, and perf'orm a. myriad ofothex: tasks. New applications are cons;tantly
ap.pearing and current applications steadily grow. Customers find.
new approaches, add new equipment, develop more software •
Systems de-s;igried solely fo.r real-time tasks oft'en expand to
inc'lude program development or business data proces·sing. The
applications described here demonstrate the POP-IO's inherent
flexibility.f'
(OX 519--B,. p. 7.)

II

il

81

The PDP 10 competed on a "one for one basis" with the IBM

I

~

1

j-

360 r 370 and System/3 computer systems.

(Hindle, Tr. 7442; PX 377-

10·: A.)· In establishing the price of the PDP 10, DEC looked at the IBM
i
ll! 360 series, specifica~ly the Models 30, 40 and 50, as well as systems
,I

IZI

offered oy Honeywell, General Electric and Scientific Data Systems ..

~ ~

(Hindle, Tr. 7361-62.)

I

15!

The DECsystem 10 was announced in 19i1 as a family of
systems "spanning virtually the entire large-scale range" and was

II

l6 a based upon the POP 10 processors."'*

17:1

(OX 512, p. 1; OX 522, p. 3.)

(The DECsystem 10 is discussed in the section of this narrative deal-'

18;1-----,.
19 ~I

• This competition is demonstrated by the procurements of government agencies. For example, at the Atomic Energy Commission, a PDP 10
20 ;, was proposed in competition with an IBM 360/44 and a SEL 810A. The
~ SEL 810A was selected and installed in December 1968.
Earlier that
21 11 year, the Commission selected a Sigma 7 bid against an IBM 360/50 and
. " a PDP 10. On another occasion, a PDP 10 was successfully bid against
22 11 a 360/50 at the Commission and installed in late 1969.
The Oepartment of,Health, Education and Welfare chose a POP 10 over a proposed
23 :J 360/40 ~n 1969.
(OX 2992, pp. 73, 86, 118, 858.)

'I

\1

:1

.", The OECsystem 10 peripherals embodied some improvements compared
to the peripherals offered with the PDP 10. In particular, there
2S ; was a better quality printer and a disk drive with a removable disk
'I pack. (Hindle, Tr. 7362-63.)
Z~

il
:1\

;l

:1
:\.1

"i
'I

-728-

i
I

I

;1

i1

'I

:i.!

II

_.

Ling with the 1970s.)

Z

highly succes·sful.
(Hind~e"

1

Both the PDP 10 and the DECsystem 10 were
1974, over 400 such systems had been installed.

By

Tr.. 73'80; OX 525, p.. 10 .. )

e..

The PDP 15-,. introduced in 19'69'

PDP 15..

Or-ind~e,

Tr.

=

7323)

a

users, education users·

7

language ("'MUMPS") --a "business-oriented lanquage"--it was also

a

marketed for bus·iiless data processing applications starting in the

I

was origina-lly

early sev.enties.

'~marketed
t

i

to labaratory users, industrial

but with the addition of another' programming

(Hindle, Tr. 7377.)

"Representative applications"

lO

performed by the PDP 15 were "nonbusiness computation applications,

~

business data processing applications, real time data collection and

.12.

instructional computing applications as well as industrial control

~.

applications".

T~r
.. !
,

the PDP 15 competed "on a one for one basis" with the IBM 1130, 1800,

(Hindle, Tr. 7441; PX 377-A.)

Hindle testified that

15 i System/7, 360 and 370 computer systems. (Tr. 7441; PX 377~A.) By
i
(Hindle,
16 ; late 1975, between 800 and 1,200 PDP l5s had been installed.
Tr. 7380.)

17

:1

18
•

J:j

19

1!

20

J·1 Tr.

f.

PDP 11.

As with the PDP 8, the PDP 11, introduced in

1970, was the designation for a family of computer systems.

·1

7323.)

(Hindle,

At the time of introduction DEC expected to market it "to

I the entire group of users • • • described for the PDP 8, which would
Z!. :\
J include laboratory users, education users, industrial users, engineer-

Z2

i.1

~

·1

ing users, [and] communications users".

As with the PDP 8, between 30

!

24·

i and SO percent of the PDP lls were sold to OEM purchasers who wrote

I

25 ., applications programs and offered the PDP 11 for business data process-

II

:I
I

.j

:

-729-

ing applications. * .

~:

,.;;
t:

(Hind~e,

Tr. 734·9-51.)

But, DEC preferred to

market the 'PDP 11 as.a system rather than just the processor.

i

Tr. 734,9.)

(Hindle,

In 19:72., the DE.C Datasystem 5·00. se-rie-s was introduced for

i

'-" i'

marketinq to business data processing customers.

DEC took the- PDP' 11,

I

f i.- added software capabil.i ties, including BASIC, and put it in a "sepa-

rate type o,f package" tha-t looked different to the user.

i

than that, there- were no significant differences."

"But other

(Hindle, Tr. 73'51-

52, 7355-57.)
Rinelle testified that the PDP 11/15 and 11/20, smalier

~i

ai

members of the PDP 11 family r competed on a one-far-one basis with the

l:1

IBM 1130, System 3 and System 7 computers, and also with the 360 and

., II

370 in configurations which included the PDP 10.

-i
I

3;

A.)

Larger members of the PDP

l~

(Tr. 74411' PX 377-

family, like the 11/45 and 11/70,

:

,

.

~:I

.: il

competed on a one-for-one basis with IBM 360 and 370, as well as
System 3, System 7 and 1130.**

(Tr. 7414-15; PX 377-A.) Like the PDP 8

.5

it the smaller PDP 11 computer systems might "be used to perform terminal

.7

il

.S :t;1
r~ ~,
~

.,

~~
:l
~:
-,

Z!

:\
!,:1

~

.... :1
~I
~

'i

'I

2S;,

or input/output applications" as part of computer systems whose main

* Hindle described the OEM marketing as follows:
"An OEM customer of ours • . • would then hire and train
and use programmers, who would write applications programs for
the PDP 11 system for that particular problem application that
he had identified as a marketing segment, and then would
proceed to sell the combined PDP 11 system with the application
programs that he had designed to the end user." (Tr. 7351.)

** The PDP 11/45 and PDP 11/70 were announced in 1971 and 1975,

respectively. DEC does not consider the PDP 11/70 to be a "mini(Hindle, Tr. 7323, 7325-27.) Even some PDP ll/45s have
! been configured into systems with prices as high as $250,000.
25 I (Hindle, Tr. 7456.)
Z~

t

'I computer".

!I
'I

:1

'I

:\
~I

-730-

CPU was manufactured by IBM or by manufacturers other than IBM or

1.
~!I '

DEC.

(Hindle, Tr. 7394.)

I

l.lI

In. pricing the products in the DEC DataSystem 500 series,

II

4-·1 DEC loo·ked

at the prices of the IBM System 3, System 7, System 32, 360

i

!" . and 370 systems'..

(Hindle, Tr. 7354.)

I

I

The PDP 11 family has been a highly successful and signifi-

6. ;
I

Ii
8. I
7

I

cant product l.ine, but its story, like that of the DECsystem 10,
unfolds in the 1970s.

!

g.

j

9-1

Peripherals and Software.

The rapid proliferation of

lO! DEC's product line during the 1960s extended to peripheral and soft-

II

! ware· offerings

as

we~~.

Although as late as 1969 Memorex was market-

i

tt!r ing disk file products to DEC on an OEM basis (Spitters, Tr. 42067-68)
I

1.3 i with 1969 s'ales of approximately $5, 000,000 (Spitters, Tr. 42072), by

_.'

I

1A

t

1970 DEC had "introduced many new peripherals including those of our

i
IS ! own internal design and manufacture, such as disks, paper tape,
i DECtape, display systems, and real time interface equipment". (DX
16 a
517, p. 2.) DEC"s 1970 Annual Report proclaimed that "[i]n order to
17 :1
expand the capabilities of its computers, DEC provides a wide range of
18 ;,~I
peripheral equipment", including large magnetic tape systems, storage

19

:1

't

20 '!

'f

:;

21 il.!

drums, teletypes, high speed paper tape readers, card readers and
punches, line printers, incremental plotters, digital-to-analog
converters and various controllers.

(DX 511, p. 10.)

DEC had also worked on software, introducing new software
features "(w]ith each mainframe that is a new version of a previous
machine".

(DX 517, p. 2.)

It had provided "DIBOL", a "business

-731-

l!

oriented language" for the PDP 8, and added COBOL to the PDP 10.

(DX

•

51 7, pp. 3, 5 •. )

2!

3

t

i

In 196-7 it develo-ped. application packages called "Comput-er-

4-- i packs" w·hich from: 19:67 to 1-9'69 were marketed together- with the DEC
j

!

II

hardware at no separate charge.

(Hindle, Tr. 74.26.)

The "Computer-

,-

I

6

l

pack" was actually a complete turnkey system for users desiring

I

7 [I systems tha-t required a minimum of proq.ramminq and compute'%!' ecpariance
t
i

DEC merely added an application package to a PDP 8 and marketed

the result as a "-Computerpack".

For example, the "Quickpoint-S" was

offered for nwne-rical control tape preparation; the "Communic-8 ft was
offered for data communication applications; the "Time-Shared-8

ft

was

offered for general purpose time-sharing applications; and the "LAB-S

II

was offered for nuclear m-agnetic resonance spectroscopy applications.
(OX 6868, pp. 7-10; DX 10776, pp. 8-13.)
h.

Competition.

DEC's approach to the market was different

DEC in the 19605 offered fast, inexpensive hardware

than that of IBM.

with less versatile and generalized software and service than that
offered by IBM.

As shown in PX 377-A, DEC marketed most of its

machines announced in the 1960s to "experienced" and "moderately
experienced

ll

users.

Perlis described the PDP systems as they were

perceived in the university environment:

"[I]t was generally felt

that • . • PDP systems . • • for delivering the same a..-nount of work,
were cheaper than the IBM systems."

He estLmated that the PDP 10 was

about 20% cheaper than a 360/50 because of the

It

attendant staff of

operators, people to handle the variety of software that is used .
-732-

3

and so fo-rth" associated witr.. the IBM 360 Model 50 while PDP 10' s were

L
2;

operated "without any staff whatsoever in attendance on the machine

I

i:

l: during its

per~od

I.'

I'

4--1:

a week n. * - (Tr..

of operation, which runs 24 hours a day, seven days·

~9··76--77.) -

In thi.s respect, the bundle of services

i

:1!
6

I

associate-ci with the IBM

36~

line. provided an opportunity for DEC to

obtain a price advantag.e with users who did not want or need those

I

7

il

services.

Thus, as is illu-strated by the discussion below, DEC

8 ,I offered hardware and so ftwa-re- more tailored than the generalized
ii

9-!, System/360 to ena.ble use-rs to perform one or a few applications in a
I decentralized way rather than on a central IBM computer.
l~ \_
I
Compe-ti tion from DEC was felt wi thin IBM in the 1960 s .
11
I
i

!

12

I
I

1.3

Wright, who was a Director of Marketing in IBM's Data Processing

I

I
I

I

iI

1.4- i

Oivision in the 1960s, included DEC on his list of "principal competitors" during the 1964 to 1969 time period.

(Wright, Tr. 12993.)

!
lS i Similarly, when Rooney was employed by IBM in the mid-1960s as a

I

16 n Branch Manager in New York, DEC was competing in the "marketplace" for

1711
18

if

the "manufacture·and marketing of systems for commercial or scientific
usage" .

(Rooney, Tr. 11733.)

Akers recalled meeting DEC in three

Ii

!t different situations in which he was personally involved in the 1960s

19 :i
20

it with 360 equipment competing with computer systems from DEC.
,I

:i

21 '\
22
23

Z4

(Akers,

:1

Tr. 96713-14.)

He studied DEC both as a salesman in Vermont and a .

li
I'

* Of course, with IBM "the user receives an enormous amount of
II-, service, an enormous amount of sof~ware, very good maintenance and for I

:1

;1

i

many users that is well worth the 20 per cent difference".
Tr. 1978.)

:1

25 a
:1

!!
.I

I'
;,

11

-733-

(Perlis,

I

II

marketing manager in Boston (Tr. 96679) and, when in the New York

2.:

Media branch office, found that IBM had "a good deal of compeotition

1

3

from the Digita~ Equipment Corporation".

j

i

4.j

The- competiOtion be·tween DEC and IBM was not only on a "on.e-

i

5 Ito for-one" basis.
6

(Tr. 96·680.)

As Hindle explained, "[iJ t wouJ.d be possible that in
°

1a given computer application a customer could choose one powerful

7 !f machine to do the job or could choose several less powerful machines
S

and decentralize the jOob.

9

machine competing with several machines from a different manufacturer."

In that type of situation we would have one

10

Such competition would arise,

II

total system cost of both software and hardware, a distributed network

12

of smaller computers can often be a cost-effective alternative to the

13

single, centralized computer".

for~~

example,

because~

11

[c] onsidering ~ the

Alternatively, as Hindle said, It(i]t

I
14."1 is possible to have several smaller computer systems which are not
i

I

IS
16

1

I
:1

11

il

l8

il

interconnected electronically" competing with a single larger computer
system.

(Tr. 7415-17.)

Similarly, the IBM Commercial Analysis Department described
this competition in the Quarterly Product Line Assessment for the

il

19 it first quarter of 1970:

"Mini-computers affect IBM's business poten-

ZO :1 tial by implementing one application out of several possible applica-I

:1

21 :! tions in a prospect's business."

And, according to the report, the

22 1! application selected for the minicomputer was frequently the applicaZ3 i\ tion having the greatest economic justification.

The off-loading of

Z~ 'I that application could eliminate the opportunity for IBM to supply the

:\

2S . customer with a "larger and more comprehensive computer installation".
-7340'

:j
.1
:1

"°1
:1°1

(PX 2567, p. 186·.)

The report also. commented on the success of

minicomputers:
"M,in·i-comput&x:s have estab~ished a substantial base and
continu.e to \'iiq;an their base each year. Digi tal Equipment
~

-

=I:·
I

CorpG)J:ation is now· ranked-.3 in total CPU' s repre·s-enting
about· 5,600-. units (8%)· ou.t o~f the 70, 000 total. domes·tic
CPU's re·ported for year· end 19-69- by Diebold." (!!L.)

-'

I
a!

Other companies also met_ DEC as competition in the

7 \1 1960s. PalevS"ky test.j.fied that DEC competed \o[ith SDS' s Sigma

a II

Series. (Tr. 3228-29.)

9-

systems competed with sys·tems from DEC a·s well as those from General

to

Honeywell management believed tha.t Honeywell

Electric and Hewlett-Packard. *'

(Binger, Tr. 4593-94.)

DEC entered the seventies a large and profitable company
t2

13

with a successful and popular product line.
I

Its 1970 fisc-al year

revenues were $135.4 mi.llion with income before taxes of $25.5
million.

(OX 511, p. 1.)

It had some 500 computers installed in

the Federal government, or almost 10% of the total number, making
it the third ranked supplier in terms of numbers of computers
(behind IBM and Univac).

(OX 924, p. 6.)

But, despite the

impressiveness of those indicators of success, they were but
small fractions of the DEC that was to emerge in the next decade.

* Spangle included ,DEC as well as Sperry Rand, NCR, Burroughs
and CDC in a list of Honeywell's competitors.
(Spangle, Tr.

4933-34.)
-735-

4·9..

AT·&·T.

Despite the continuing restrictions of its 1956

'-

Consent Decree, AT&T expanded its offerings of computer-related

i

produc'ts and se;rvices during the
revenue's,

Gl!S

1964-1~69

a resu.lt, grew from· $1.25. 6

period.

mil~ion

Its U.S.

BDP

in 1964 to $477.75

million by 19·69.-' (DX 8'224, p. 133.)
As,

it did in the 1950s, AT&T competed in the computer

indus-try in at le'as:t two ways. during the 1960s.

The first involved

a:

Western Electric I s manuf'acture and marketing to the Bell System

9

operating companies of stored program controlled electronic switchinq

1

systems and automatic intercept systems..

Because of the Bell System's

enormous size and the fact that the Bell operating companies are free·
to and do in fact buy

EDP

products and services from non-Bell

affiliated companies,· this is a very important source of bus'ines's to
i

.4--

computer vendors who vie with Western Electric for the business of

~

the Be·ll System.

,_ 1

(See DX 5945, Dunnaville, pp. 6-8 and discussion

"::i

! below.) During the 1960s equipment developed and manufactured. by
l6 ;1
AT&T competed for· the business of the Bell System with the equipment

l7!1

't of other EDP vendors, including IBM.

is .,

•

~i

13 :t
11

,t"'r :!

(~)

*

The second form of competition is AT&T's offering of EDP
products and services to non-Bell customers.

~

,I

,1

:i;1 - - - - - - - - - -

While this business

"

* Despite their corporate relationships, the various subsidiaries
of AT&T--including Western Electric Company and the Bell Telephone
-:} operating companies--deal with each other "on an arms' length basis".
Z3 :~ Each company is structured as a separate corporate entity", and is
! "regulated closely and carefully" by the various regulatory agencies
1~! (both state and federal) which administer the telephone system.
(DX 5945, Dunnaville, pp. 4-5.)

- J

,? ;

It

I

I

ZS

,I!I
I
"
i

!

:i
!
I

I

Ij

.1

-736-

!I

I
1
2

is also a large one, AT&T is restricted in the extent to which it can

II

compete. in this area by the 19S6 Consent Decree.

(See United States

l : v. Western Electric Co.• ,.. [1956] Trade Reg. Rep. (CCH) 11 68,246 (D.N.J.
4.

I 19,56.).) wI

s· r
5
7

I

Competiti.on.

fOl:

ae~l Sys.tem

EDP'

BUsiness.

By mid--196'3

:1

at least--while System/360 was in the plaJU?ing stages--IBM execu.tives .

i!

unde·rs-tood th·at rBM; was facing direct and substantial competition

il

a t·

fro.m AT&T and that its; new computer systems would ·more and more be

g.!i

competing w.ith AT&T's.

I

As IBM Senior Vice President T. V·. Learson·

10 , wrote to IBM Chairman. T .. J. Watson, Jr. and President A. L. Williams
II

I

!I

"1.

12 II

Ii

13 !t

14

it
:1

15

in August 1963,. less. than a year before the announcement of System/360 :

IBM, as well as most of our well-known competitors,

are competing directly with AT&T in both the terminal [**1 and
the message switching equipmen.t area today.

"2. The next generation of machines will handle indistinguishably data and voice.

II
'I - - - - - - - - - - - - - - - - - - - - - -

16 :i:1

* The 19 5 6 Consent Decree d oes not, however,

1 ~m~t
. . AT&T l.n
. any way

in its sale of EDP products and services to the United States Governmente Thus, in the SAFEGUARD anti-missile program, the Army chose
18 .!AT&T-developed hardware and software rather than commercially avai1ab1
:, computers and software. (OX 5057, pp. 3-7; see also OX 5061.)
17

!!

;1

19 :1

For the period 1964-1969, AT&T's revenues from the sale of EOP

20 :!products and services to the United States Government were as follows:

Zl :!
22

,il:

'~

'i
Z3 :1:,
1

1964--$37,856,000
1965--$40,216,000
1966--$51,737 ,000
1967--$50,964,000
1968--$51,949,000
1969--$65,746,000.

(OX 5945, Dunnavi11e, pp. 12-13.)

;1

** Of course, in 1963, as in the rest of the 1960s and the 1970s,
25 :]AT&T's terminal business was not limited to the Bell operating
;1 companies.
(See discussion below.)

24:i

-737-

4
I
II'

"3. The product serving the market area above will
also include our new processors [System/360].
j

1t

"'4,.
The present central plant of AT&T will be replaced
by this same· equipment.

I

..
I

Li
I

"5. . We p·lan to e~and o'ur sales effort into the plants
of the indep'endent telephone companies, both here and abroad •.

-I'

~I

I

I

:;
i

7

~f
fl

a.

;1

g

11
!

~O' ~

i
~l :,
,

r-., 1
-i'
I
•• i

".t

"6.. 5i'nee the equipment we will supply to our customers
will be ide-ntical to what AT&T will require for their plant,
they may well represent a possible new market." (DX 12408.)

Mr. Learson's observations were borne out in 1965, when
AT&T's first electronic switching system, developed by Bell Labs and
manufactured by Western Electric, went into service.

(DX

~42l0,

p. 7.)

Western Electric has described that system--the No. 1 ESS--as follows:
"The No. lESS is an automatic common-control type
switching system directed by a stored program. • . . System
intelligence, control, and actions are determined by a program
stored in a semipermanent memory and the temporary memory.
Variations and changes are accomplished primarily by changing
the stored program rather than by changing apparatus and wired
logic •

"
"Central Control is capable of performing, one at a time,
many types of logic on instructions from Program Store. Each
instruction is a binary word . . . . " (DX 6880, pp. 1-2.)
Similarly, AT&T in 1964 described the No. lESS in the
following terms:
"The central processor controls the operation of the
No. 1 electronic switching system by executing sequences of
program instructions . . • . "
11

[A stored program system, as used in ESS,] consists of
memories for storing both instructions and data, and a logic
unit which monitors and controls peripheral equipment by performing a set of operations dictated by a sequence of program
instructions . . . .
II

-738-

l.

Z.

ft·

I.
I

l·
4-

Therefore the central control can be described as an
input-o:u·tput proce·ssor superimposed on a general-purpose·
data proc-es:sor .. If
( o.x
688·6 , .pp. 1, 3 . ) *
ft • • •

, Tha·t sounds like the descrip·tion of a computer and indeed it is. **

=:,.
I

;

a :1
7li
I
I

(OX 12419, pp. 6-7; see also OX 6883, p. 1i OX 10447, p. 4-5; OX 13832,

pp. 14-15.)
In the first part o.f the 1960s IBM was actively marketing

s! its computer systems for telephone applications, including switching.
~

Begin-ning in 1963, for example, S.outhwestern Be·ll and IBM began to

La
ll.

t2
!3

*" The No. 1 ESS consisted of even more than memories and logic,
of course. The Bell System· engaged in procurements for tape and disk
drives for the No. 1 ESS and was reported within IBM to have chosen
Ampex and BurJ::0ughs, respectively.
(OX 12412.)

** With the advent of stored program controlled electronic switching, it became clear that the technologies of electronic data processing and communications were beginning to converge. As AT&T stated in
its 1964 Annual Report:
"The pace of change in communications technology strongly
emphasizes the fallacy of trying to manage progress by walling it
in. Our field is communications and we mean to stick to that,
but to fragmentize the field artificially and set up arbitrary
fences would be harm£ul rather than helpful to the public interest •. Electronic switching, described in this report, is only one
of the big steps into a wide, wide future; there are many other
important developments as well.
"

"A point of special interest is the expanding role of
electronic data processing in research and development as well as
in operationS. Bell scientists and mathematicians have created
new computer languages, so that more problems can be solved and
answers obtaine~ in the most useful form. . . . And in the dayto-day conduct of our business, electronic data processing is now
employed in many, many ways."
(OX 13831, pp. 14, 16.)

-739-

study the de.s·ign of a computE?r-controlled automatic intercept system. '*
(OX 12411, p. 4.)

**

The computer system:, installed in 1965, contained

. two IBM 14.41' processors, faux IBM 1311 disk drives, a·n IBM 144.2 card. reader,. two IlB'M 7770- audio - response units" and an- IBM' 2.910 automa·tic
f

:1' intercep-t switch,," as well as some non.-standard hardware.
I

: if 7 .. )

Western Electric later developed and marketed such equipment

-\I itself~

(OX 68·81 .. )

Western's automatic intercept s·ystem had a co··nt-rol

if

r ] complex which it described as
~

(Id., pp. 5-

•

"'a

data processing system operating

: through the use. of' stored programs to process intercepte'd calls.

The

I

t :i co·ntrol comple:x monito'rs and directs the peripheral equipment."
6881, p'. 2.)
~
~

(OX

Further, other vendors, besides IBM and AT&T, off'ered

such systems as well.

In the late 1960s, for example, IBM and Honeywell

; competed for an intercept application at the

Ne~N

York Telephone Company.

;.: (OX 12422.)
II

::;

IBM similarly has bid its computer systems for other network

=!tSwitching applications.

In a 1964 memorandum, IBM Vice President J. C.

I

7 ilMCPherson brought·to the attention of IBM President A. L. Williams

S 'I the Bell System's impending switchover to electronic computers for its

1

I

S central office exchanges, describing the switchover as "an extraordinary

i

01

!

-I

,.:i

'*" An automatic intercept system provides assistance to telephone

~ .lcallers when they have dialed a number not presently in service such
jas a changed or disconnected number.
(See OX 6881, p. 1; DX 12411, p.
~., :'
~

,!

"

4.)

il

~'f
** We are aware that OX 12411 was not received in evidence, but we
,Ibelieve it is reliable and rely on it because it appears to be written
~~ lby an IBM employee with detailed knowledge of the IBM System installed
,I in St. Louis at Southwestern Bell.
ZSI

'j
i
i

'j

'\
I

I
-\
'f

:i
"

!

-740-

j

!

L.

opportunity for our company [IBM] to expand its business by a serious

Z

effort to parti.cipate in this vast electronic construction and proi

1·: granuainq e-ffort'·.

4--\ ,propos'e the

(OX 5612; s·ee also OX 12410.)

m'M did in fact

use of a Sys.tem/360 instead of No'. 1 ES'S to AT&T.

(That

I,

: (' eve'nt is'des,cribed in, the Department of Justice's First Statement of
I'

e:

Contentions

1\150.)*

a'n~ P'roof in United States v. AT&T,

OX 90l6A, pp •. 448-

As IBM Vice President John F. Akers testified, one of the

S \ "majo'r ways"IBM has competed with AT&·T
!

"is in the electronic switching systems that the American
Telephone & Telegraph Company employs to switch messages and to
switch lines and to do customer billing and accounting information.

i

La

u

1
;1

!.2. if
13 ;'I

"IBM over the years has competed with those systems. We
have bid System 360 products, we have bid Series 1 products, we
have bid System 1 products, ~nd perhaps others." (Tr •. 9103631 · ) **
'

i Moreover, in 1965 IBM engaged in contract nego.tiations with Canadian

1

~:iIBell

"for over ten 360 systems for use in network switching".

(DX

.... tl
_ :{ 12413, P . 13 • ) IBM's sales strategy, according to IBM employee,
la: :.
if G. w. Woerner, Jr .. , was "to convince the Bell System that the tele-

l7 :.

~f phone companies should solve their problems with general purpose
I
:t computers procured directly from IBM". (OX 12420.) f

·s
.l..

':j

19

iO

Aa
" il,- - - - -t
'

'I
* We are aware that OX 90l6A was not received in evidence but rely.
Zl :Ion the assertion of the Department of Justice because it is supported
:1by other independent evidence.
(See OX 5612; OX 12410; OX 12416;
Z2 ~1DX 12420; Akers, Tr. 91036-37.)

23

,4

,I

** Mr. Akers also identified AT&T as one of the companies with which
!IBM has "competed for business on a one-far-one basis'f since 1964.
:t (Tr · 96704 - 0 5 . )

,= 1
"

f Similarly, in 1966, IBM entered into negotiations with General
-- :ITelePhone & Electronics and Automatic Electric "on the feasibility of
;IIBM building the computer processor portion of a message switching
,!system".
(OX 12421, p. 2; see also OX 12418.)
:1

-741:1
:1
I

1.:

IBM also considered supplying parts for the ESS, by offering

2 : core memories to the Bell System to replace the ferrite sheet memories
l

produced by Western Electric (DX 12416, pp. 1-2), as well as offering·

I

~

. other "rBM standard products ': •

(Id., p. 3.)

In September 19-65, Geoffrey Gordon of IBM, a member" of the

!" !"
~

6

11

Special Systems and Equipment Department formed under IBM Vice President

7;t J. C. McPherson to market IBM equipment to the telephone companies

a! for communications applications (see ox 12418), wrote a memorandum
9

j

comparing the data processing capabilities of No. 1 ESS and System/360.

r1

! He concluded that
! ESSl instructions

t~

;

~

1

~a

--

n

(t]he two systems architectures are similar and most

have equivalents in System 360."

. emphas is in original.)

(DX 12414, p. 2;

Although No. 1 ESS had Ita few highly special-

-i

ized instructions and features ·

that make ESSl much more effi-

cient" in performing its "network scanning operation", n(o]utside
this area System 360 is judged to be as effective as ESSl although

15

its performance could be improved by adding some features . • . • " (Id.)
In August 1965, a task force was convened within IBM to
study IBM's policy with respect to communications.

15
19

zc
11

(OX 12419, p. A.)

In November 1965, that Task Force issued a report which concluded, in
part:
"Technologically there will be no distinction between an
electronic switching center and a computing center. Both will
be able to perform the same functions • . . •

"
Z~

-

~=

"Communications sho'uld be recognized as part of ant:" business
. . In our judgment by 1970 fifty per cent of our business
will involve communications-oriented products."
(DX 12415, pp.
1-2.)
-742-

•

I

The Communic'ations Task Force issued another report in March
1966 which sta·ted:
"The p'rofe.s.sional level of the [common]· carriers' research
and enqinee-ring is fully competitive with IBM's.

"

I.

~!

"Some believe that the business interests of IBM and AT&T
will inevi.tably ·lead to a' direct conflict. Others believe that
we' can ha.ve peaceful coexistence on business courses that never
converge. Yet there is no question that the resources and
entrenched communications position of AT&T make it potentially a
formidable competitor indeed.

•

a!1
1

II

Si

9- ; .
,~ • • • Although AT&T is a major customer for IBM data
processing sys.tems , i t s manufacturing subsidiary, Western Electric, has the ability to gear up to volume computer production."
(DX 12419, pp. 7-9, emphasis in original.) *

to
II

!Z

The Communications Policy Task Force's 1966 Report also

13 \ stated that:
I

1.4.1

"ESS is a form of computer, a stored program transistorized
digital system. . • .

!

I.5

i
I

I

II

l5 :1
"AT&T sees ESS as a means of providing its customers with a
number of new services (all of which have data processing characteristics). These include a 'memory service' that permits adding
a third party to a conversation, shortened dialing of frequently
called numbers, and automatic transfer of incoming calls to
another telephone. For its business customers, AT&T will use ESS
for services that have such data processing features as message
retrieval and automatic insertion of date, time, and message
number.

l7 \1
lS 'fit
19 'I

20 :i
'I
"

"'f!
......

.,.,

~

13

;

~J.t ______________________
.(

i

*

The Task Force further stated that, as of the date of its Report

(March 1966), "[aJll IBM products have the techn'ical characteristics
Z~ '!necessary for a communications system. System/360--in both its equiplment and 'programming support--is specifically designed with an advanced
I

ZS :1 capabili ty in data communications."
i

'I

.j
;1i
:1

:1

-743-

(Id., p. 2.)

:,.
I

L~

3 ;

~ • • • Should AT&T decide to offer a shared data processing
se-rvice-, it could be o·ffered as an adj unct to ESS, and take
advan~a:ge of that -broad-based structure.
AT&T is thus in a
P, 0, sition to shift to a more aggressive role wheneve-r it chooses.
(OX 12419, pp. 6-7.)

4.\

Indeed; by 1966-,- No •. 1 ESS, did provide an Automatic Mess,age Accounting"

;
%-:

fl'

.

1

~ !tapPlication inad,ditiOn to i.ts basic switching function.

~, ~f

(OX

6&-8,4.). *

Th,us, by 19,68, then AT&T" Chairman H. I. Romnes could state,

- i,

i ;1 as he did in a s-peech he gave to the Spring Joint Computer Conference

.

,

8 ; of the American Federa,tion of Information Processing Societies, that-:9:

I'" [O-lne' way and, another we have been involved with computers
a long time.. And the -thought I would like to convey is that we
think we have gained- an experience and an understanding that c-an
be very helpf~.
'

1

~o i
ii

~:

"I believe we understand the potentials of computers and the
importance of communications in achieving them. I likewise
believe we can contribute a great deal toward the realization of
great aims.

I

t2,.1

t3

II
1

:"4- :
:
!

:.5~

I

.tIt is sometimes said, as you know, that the nationwide dial
system is like a giant computer. Is this rnerely--or mainly--a
figure of speech?

.... 'I

"No,

~ 1 itil

"

laa
•

:a J
;\

'Q

~

not at all.

It is a fact. • • •

:1

"Today, as direct dialing has extended over the whole
nation, our data processing equipment has become much more

:1

:1-----------

:.~a .;

:,'

* In 1966, AT&T reported to its shareholders that

'1

:j

U 'l

~

,? ;:
-- .i

23j

Z4

"(i]n all sorts of ways we are using the new computer-communications technology to improve service and hold down costs.
Electronic switching systems (which are themselves computers of
a special kind) are a massive example of this effort but there
are many others as well."
(DX 13832 , pp. 14-15.)

'l

For example, AT&T used the same technology developed for its
lelectronic switching systems to provide a variety of other functions
2: lisUCh as automatic message accounting (DX 6884) and traffic service
;position aoplications.
(DX 6883.)
I
•

'-,I
'\

·i

~.,I
I

'\

d

-744-

L

complex. • • •

2

"Now, with the develo.pment of transistor technology, we
have started to use electronic processors to handle calls,
rather than those that employ electromagnetic relays and switches •.
These' p·rocEui-sors of o·ors, like yours, have a· vastly increased
memcry ca-pac'i ty and. ope-rat.e at electronic speed. • • • .

l
4-

,

!l

"'These new
Their executive
words, and· thus
general-purpose

I

i

--'if

at

7 :t

Mr •.

I

I

8

10

sy·stem·s of ours, I mi·ght add., are bie; and complex.
program·s range from 70,000 to 2.00,000 or more
are in the range of the large·st. time-sharing
computer' operations." (OX 10447, pp. 3-5.)*

Romnes and AT&T were not alone in perceiving the' con-

1

fluence of BDP and communications by the late 196·Os.**
* For example, in 1970, AT&T engineers described the·

i

In 1971, the
Store~

I Program Control No. lA processor--a follow-on to the No. 1 ESS

processor--as ria general purpose stored program electronic proce~sing
; sys tem". (DX 6883, p. 1.)
tZl
!I
Western Electric Company's revenues from the sale of its stored
1.:3 ~.program central data processors and related equipment and software
! (such as No. 1 ESS and AIS) to the Bell System operating companies
T£~
.... I for the years 1964-1969 were as follows:

11

!.5

1

!

1964
1965
1966·
1967'
1968

t

I

16

:l

11

~

"

1

:!

.5

Ii

za

·1

$20,41.9,000
$37,013,000
$62,458,000
,$61,789,000
$108,546,000

1969 -- $227 , 285 1000.

.
(DX 5945 I Dunnavl.lle I pp. 7-9.)

** Indeed, the Department of Justice itself commented in its 1968·

19 ~tSubmission to the FCC in Computer Inquiry I:

"Data processing and communications, which were formerly
quite separate, are becoming increasingly interdependent as a
result of the rapid growth of computer technology and efficiency.

·1

.\

211
'1

.,i

Z2. '\
2S '\
24 :t
I

r

25'

-I

,j

II
'j

:i,
I

I

:1

"
"Although the functions of remote access data processing and
of. message switching are quite distinct, each system employs the
same type computer facilities.
"Consequently, either system can readily be designed to
perform the function of the other and in fact many computer
systems are used to perform both functions."
(Plaintiff's
Admi s s ions, Set I I , l' 1r 312. 2, 312 . 13 - . 14 . )
-745-

It

Federal Communications Commission issued its final decision and order

;

~: in an inquiry it had initiated in 1966 into the regulatory .and
t

l policy

I

problems presented by the inte·rdepe-ndence of compute'rs and

~ i· commWlications. services

s: I FCC

and raoilities..

In that final decision, the'

I.

i

fo·und:

I

,.'
:
:

'''There is virtually unanimous agreement by all who have
comment.ed.in res:ponse. to our Inquiry, as well as by all those
who have contribu.ted to the rapidly expanding professional
literature in- the field, that the data processing industry has
become: a major force in the American economy • • • • There is
similar agreement that there is a close and intimate relationshi.p between data processing and communications services and
that this interdependence will continue to increase. • . • We
stated in our Notice of Inquiry, and no respondent has challenged
the finding, that connnon carriers 'as part of the natural evolution of the developing communications art' were rapidly
becoming equipped to enter into the data processing field, if
not by design, by' the fact that computers utilized for the
provision of- conventional communication services could be
progranuned additionally to perform data processing services."
(In the Matter of Regulatory and Policy Problems Presented by
the Interdependence of Computer and Communication Services and
Facilities, 28 F.e.C. 2d 268-69 (1971) ("Computer Inquiry I").)

9;

!.

.a;

i

i

~;

:2.\,
I

:.3. :
I

15 \ Other AT&T Competition
lS

In addition to competition with outside EDP vendors for

itl.

t7 ;lsales within the Bell System, AT&T also competed in the 1960s in
•TS :rijother areas.

For exampl
e, AT&T '
cont~nue d to

0f f
er'~ts

rno d ems f or

:1

19 Jsale generally.
t
.,,., 'I
~ ~202-B
... :1

(See DX 68901 DX 6893.)

AT&T offered its Data Set*

in 1963, stating that it " (t]ransmits and receives business

~lmachine

codes over regular telephone lines. • • •

Provides direct

~

22 :;two-wav conununications between many types of business machines . .
A_

J(and ]
. possible
...
makes
d~rect computer-to-computer

~i
.4

J

2- I

1----------I·

2:

I

* "Data Set" is the AT&T trade name for modems.

i
I

'1
.iI
i

-746-

.

"

operat~on.

(X

D

L

6893, p. 2.)

Z

AT&T's· 200, 300, 400 and 80.0 series modems ,as well as .the

3

AT&.T lOA Da-taLine Concentrator, have been manufactured and marketed

4.

for use as part of a communications processor.

!

As

a

and indeed--as AT&T's brochures put it--by "reduc[ing] the need for

7

se'parate data processing equipment at o·ther locations" (DX. 6893, p.

a

3) and "mak[ingl possible. centralized data processing operations"

~

(id.), provided. customers with an alternative to other forms of· data

such, they competed with IBM's modems marketed for the s·ame purpose

processing equipment.

1Q

(DX 2891, pp. 2-4.)

(See Knaplund, Tr. 90897-98.) *

Perhaps the most familiar example of AT&T's presence,
ll.
r-, however, is provided by its terminal products, most of which are

l

-il

1311manufactured
L~i

Corporation.

!

l5 it

itil

15 !f
•

As the parties stipulated in 1975:

"American Telephone and Telegraph Company manufactures and
markets in the United States electronic digital computer
terminals which perform input and output functions for electronic digital computers. Some or all of American Telephone and
Telegraph's electronic digital computer terminals
are used by end users as a part of 'general purpose electronic
digital computer systems'." (DX 4906, pp. 6-7; see also, OX
2 9 3 0, pp • 2 - 4 • )

15:

1-I

and s·old by Western Electric' s subsidiary, Teletype

:i

'l

19 :!That statement is every bit as true when applied to the 1960s.

~,-r

,_

:1.1

·t----------:1

. * AT&T's revenues from the sales of data sets for the period

Zl:1

~1964-l969 were as follows:

Z2 ;;

·t

.,_ :1
~

'j

j
Z~ I

·1

25 I
.j

I
.1

1964
1965
1966
1967
1968
1969
10. )

$5,893,000
$13,699,000
$21,470,000
$25,297,000
$37,791,000
$48,825,000

(DX 5945, Dunnaville, pp. 9-

'I
'I

;!
I
I

j
.j

,

,j

:1

-747-

IBM, for example, has long be.en aware that its terminal
i

products faced substantial co·mpetition from AT&T's terminal offer·-

~:

t-; ing.s.

As noted

earlier, Mr. Learson' s 19-63 memorandum to Messrs.

Watson and Williams highlighted the. fact that "IBM, as well as most

~!
I

.

t if of our well-known· competitors, are competing directly with AT&T in

i;1 both

the terminal and the- message switching equipment area today."

r;J (OX 124.0-8.)

~ Ii that

In 19·66,. IBM's- Communications Policy Task Fo,rce reported

"AT&T is a.lready on the market with some impress.ive terminal

~!Iproducts.

These include the high-speed Inktronic printer (200

J \ characters-per-second in the SlOO/month class)

..

~.

2.

i

.. • • • The Bell

~

System has a huge installed base in te,rminals • • • ."

11

pp. 5-6.)

:

l'

(OX 12419,

In October 1967, an IBM Quarterly Product Line Assessment

:3 \

prepared by the Commercial Analysis Department of IBM's Data Process-

.~i

!

ing Division identified Teletype Corporation's teletypewriters as

!

5;

.!I "[t]he major competition to our

2740 and 1050 terminals".

(PX 2125,

.0 .

In May 1968, another Quarterly Product Line Assessment
:1 p. 121.)
.7 :,
:Jconsidering an IBM product program "intended to bridge the existing
.S :,
~9 :t gap between IBM's low-speed (1050) and high-speed (2780) generalpurpose terminal capabilities", observed that .. [t] his terminal

.1
~O

::

'1market is presently held largely by paper tape transmission systems

•• I
~:

.

...,

1such as AT&T DataSpeed • • • terminals." (PX 2238, pp. 149-50.)

_

:1

report called AT&T's Teletype Corporation "IBM's Major [sic] competitor

~t

:in the terminal area".
;

z.~

That

"

' - .1

'\

i
!

-=;
~- ·t

(Id., p. 201.)

In June 1968 an IBM task force report on data communications

I

'f
.\

i
I

.\

I

,

·1

:~

!

-748-

L

concluded that "AT&T will increase offerings of competitive products,

Z.

e. g., terminals."

1·

Knaplund, under whose sup&rvision the report was prepar.ed, testified

40

tha.t that re'port' meant "that AT&T wa's then offering and would continue

(DX

9'083, l?

24-.)

IBM Vice President Paul W.

! il·to offe·r on. an inCreasing basis terminals, such as the teletype [sic]

a

i.terminals

in particular I modems . • • attachable to or incorporated

.
1 s, an d c·ommunJ.c·atJ.on
..
. .l.ncorporatJ.n.g
.
7 \1.
;i l.n those termJ.na
servJ.ces

a.l
9-

t er-

minals as well as a part of their tariffed offerings through the

i operating

companies·,· so that AT'&T at that time was offering terminals

10 !: as a product and was also offering through its operating companies
II

! terminals

in combination with modems and communications" I something

tz; which continued and

increased in later years in competition with IBM

!

1-

Jand with others.

~ ~t

(Knaplund, Tr. 90897-98.)*

1.4. :'
!
lSII
i

16 :t

l7

il

lS :f,I

19

1

za :!l----------------------

:\
* Teletype Corporation f s EDP revenues (rounded to the nearest
21,lthousand)
for the period 1964-1969 were as follows:
i
~i

Z2 :\
Z3

il
\

.1

ZJ. 'I

.j

.,=
....... !
i

1964
$61,422,000
1965
$83,554,000
1966
$87,188,000
1967
$67,290,000
1968
$76,101,000
1969
$110,722,000
(OX 5945, Dunnaville, as amended
by Letter, Dunnaville to Deutsch, February 27, 1975,
included as part of OX 5945.)
-749-

1

I

I
I

I
50.
(PCM-)

3.

The Emergence of IBM Plug-Compatible Manufacturer

Compe-ti tion.

I

I

As we have discussed previous'ly, "the introducti.on

of System 360., featw::ing compatibility across a complete line and con.-

~

stituting' a .major commitment: by the IBM' Corporation n, pres.ented IBM"'s
I

:t

!t

competitors with a business opportunity of "developing IBM compa.tible·

a :1
....
'
J it

equipment ,9- • *

a :1

of the same bene·fits accruing to IBM from the modularity and standard-

(PX

3908A., p. 5.)

By

marketing plug-compatible device·s

to end users of System/300, compa·titors of IBM could take advantage

~il

ized interface. fe·atures of Sy.stem/360 (Case, Tr. 73473-75), and espe-

i

cially from the' product line's compatibility. ** (PX 39·0.BA, p. Sr see a1 0

Cf;

1.1
* A plug-compatible peripheral is functionally equivalent to the
unit which it replaces and allows· the systems software and the CPU
hardware to operate in the same manner as if the systems manufacturer's unit were attached.
(Enfield, Tr. 20765, 21016; Gardner,
Tr. 36881-84; Andreini, Tr. 46973; G. Brown, Tr. 51017-18; Withington,
Tr. 58839.)

** It is important to bear in mind, however, that there were costs
imposed by this systems architecture, costs which were recognized by
the developers of the System/360.
(See, e.g., OX 1657.) A basic
concern was in fact the cost imposed by the modularity of the peripherals controllers, which prompted questioning of the decision to
I
package the I/O control electronics in a separate box. J. W. Haanstra, I
GPO President and Chairman of the SPREAD Committee, wrote the following I
on February 26, 1963, to C. J. Bashe, ~anager of GPO Technical Develop-l
ment:
l
I

"If we really examine the 1401, we find that one of the
big steps forward was the use of the main frame to accomplish
I/O control functions. I am seriously concerned about NPL
[System 360] if we do not have some outlook for this kind of
economy. I know all the esthetic beauty of clean interfaces
etc., yet true integration of I/O control function in the CPU
is a real cost saver and extremely important. Further, it is
crucial for machines toward the bottom of the line or else
they only become ir:ept imitators of the :arger machines."

-

(OX 1656.)

..
:;..:

-750:1

i

i

!

!I
i

I

I

l~

PX 2262.)

Because the same peripheral equipment could be used with

t

2.; anl' model of the S·ystem/360 family (Navas, Tr. 41394-95; H-ughes, Tr.
719-39-4()·), the· n1:Ul:lcer off models of a given type of peripheral device

could. be ntini.miz:ac!,: lr-f!:sultinq in

,

:.,

1-

~t

least three benefits· to IBM--an owed its "impetus for the conception and development of

20

II

the use of this contract to some considerable measure because of

I

I

21

I.

the presence of leasing companies in the marketplace".

22 /19802-05.>
23

Univac and CDC also felt similar leasing company

11---------------------------

24 II
25

(Tr.

!I
II

I

!
l

j

I

I

* Indeed, until January 25, 1966, the 1956 Consent Decree prohibited IBH:
"from entering into any lease with users of its EDP equipment fa
a period longer than one year, unless such lease was terminable
after one year by the lessee upon not more than three months'
notice to IBM. 11
(JX 4, ~[ 41.)
-809-

-810-

L

In March 1967, the Investment Tax Credit was reinstated,

Z

the "credit crunch" began to ease and leasing company acquisitions

1

picked up.

(P'.L., 90-26; P,X 3056, p.

3.)

The pace of leasing' company

4- " purchases co,ntinued to rise rapidly and in 1968 the heaviest

!

concentra~

(DX 9416A; * see PX 2414, p. 5.)

t.ion of 360 purchases occurred.

.. I' Leasing company stock prices also soared (see Bri10ff, Tr. 80725-26)

at,

7 If and many new firms e'ntered the business in 1967 and 1968.

lip·

a

5 1 PX 4499, P • 4.)

**

These were the "go-go years" C?f the stoc;k market ,(Briloff,

~;

I Tr.

ta

i

80696-706; see Welke, Tr. 17401-03; Buffett, Tr. 100360, 100358-63)

,.\ and "computer" was a magic word.

111

tZl!
~

(PX 4495,

A company could raise a million

dollars merely by having "Computer", "Software", or "Data Processing"

'I

';',:

13:

in its name.

(Welke, Tr. 17401-02; see Buffett, Tr. 100359-63.)

It

i

14j was "a time when it appeared that the financial community, those who
were supposedly sophisticated . . . had lost their reason".

I
.~ i

(Briloff,

~,

I

h Tr. 80705.)

16

It was Ita mania" where virtually all EDP companies could

il

<7!1-----.I.

lS
19

~t

* We realize that OX 94,16A is not in evidence. We use it because
~! we believe it to be reliable.
It was prepared, a's Mr. Akers testified,

:i simply by aggregating the revenues for 360 CPUs and memory taken from

IBM's accounting records and ledgers for those companies which were
identified by IBM, in the regular course of business, as leasing comZOfpanies.
(Akers, Tr. 97069-70.)
Mr. Akers further testified that he
'\ believed the exhibit to be reasonably accurate.
(Tr. 97070.)
:i

t

71 ;,

--:i . **

Some of the largest leasing companies started during this period.

Z2 '; Boothe Computer Leasing Co. wrote its first lease in November 1967.

:t

By the end of 1968 Boothe owned over S140 million of EDP equipment.
ZS ~I (See pp. 821-22 below.)
Itel wrote its ~ir~t 1~ase i~ March 1968 and
Iby the end of the year owned ~ver S100 m~ll~on ~n equ~pment.
(See
24.'! p. 824 below.) Other leasing companies purchased significant
I amounts of EOP equipment as well.
For example, Diebold purchased
ZS ,I S166 million from 1968 through 1969, and Leasco purchased over $200 mil-i
'Ilion between 1967 and 1969.
(Spain, Tr. 88749; DX 10208, p. 118.)
,
'I
:1
:1

'.

,I

-811-

t;

sell stock and convertible and subordinated debentures* (Welke, Tr.

I

Z

I

17403-04) and leasing companies were part of the mania.

1

They were

i

3.

~

4-

i which meant "there [was] a presumptive contagion •

glamour companies (Briloff, Tr. 807'20-28; Buffett, Tr. 100359-62), **
from one com-

I

pany in a particular industry to others."

:1ii'

(Bri1off, Tr. 80705.)

I

.. i
a:.
7

Leasing companies through a combination of depreciating

l

their equipment relatively slowly and taking other liberties with

\1

a:
i

their accounting (see pp. 803-04 above) were showing

L~pressive

book

j

profits.

!

I

relationship was noted by, among others, the Morgan Guaranty Trust Com-

i\

pany and Professor Bri1off.

9-;

(Spain, Tr. 88730-34; Davidson, Tr. 98763; JX 3, , 20.)

This

10 :

11 ~

(PX

2181A, p. Rli OX

22~3.)

Their stocks soared

soared and traded at astronomical price-to-earnings ratios.

I

I

(Briloff,

!2.l

tJ

13'

:t
~t

* Convertible debentures were, according to the Morgan Guaranty
Trust Company, used by almost all computer leasing companies for establishing net worth positions that would allow them to acquire five to
tan times as much computer equipment as was on their books in early
1967.
(PX 2lS1A, p. Rl.) They were attractive to speculators because
they were not subject to the 70% margin requirements imposed upon
stock until late 1967.
(See DX 14124.)
They were widely used by
leasing companies and through account~ng for them on a non-diluted
rather than diluted basis (not charging equity for some value of the
conversion option), they had the effect of inflating their profits.
The effect was not insubstantial. An internal IBM leasing company
report shows:

14- it

15

II

.,.
!I
!o.Q :.

11
it~I
J.
15 :J
•

ea

Ii

~,

:0- ,I
~

"A) MAI for the year ended 9-30-66 reported earnings per
share of $.62, which would have dropped to $.5S.

I

"

,'T

I
:1

,...,

.1

-.!
.j

"B) For the year ended 5-31-67, DPF&G would have dropped to
S1.17 from S1.35 per share.

'"'" .!

23 '1
. . :t
Z- I

"e) GC computer for the fiscal ~lear ended 12-31-66 would
have shown a decline of $.21 per share from $.85 to $.64."
(PX
3056, p. 13.)

I

'I ** Other glamour companies of the time included various EDP com2: ~lpanies including PCM's, conglomerates, franchisors and land fran'chisors.

'I

(Briloff, Tr. 80720-28; Buffett, Tr. 100359-62.)

:\
"

,,

'I

:\
i

-812-

1

80725-26; PX 4322, p. 9.)

Z well.*
1

Their revenues increased dramatically as

It was quite easy for leasing companies to raise capital

during that period

(J'X 3, 1l

21); indeed, they raised billions.

Leasing compani.es did not limit their capital raising efforts

-4-

:- I·

to the issuance- of sec.uri ties.

e:

of credit from banks as well.

7

of $51.5 million in 1967 (up from $5

They were able to secure sizable line·s

,i

if

For example, Leasco had a credit line
mil~ion

in 1966)

'(DX

10208, p.

281~

I

S j Greyhound Computer Corp. had a credit line of nearly $100 million in
1968 (OX 14076, p. 24); Randolph had a credit line of $81 million in

~

lO

."

1968.

i

!
~

14090, p.

4);

credit line in 1968.

.I... :

!I

Boothe Computer Corp. had a $93.5 million
(DX 14326, p. 5.)

Some leasing companies also used IBM as a major source of

I2. t,
13

(DX

i credit by paying for equipment purchased on IBM's installment payment

14-: plan.

In fact, they availed themselves of $313.5 million in insta11-

1

1.5: ment credit from IBM between 1968 and 1970 alone.
l5

!I report prepared by

(JX 3, 1f 2 5 • )

A

IBM employees on leasing companies stated that "in

!

a current prospectus, one company has indicated IBM installment credit -

i.I'

11 ;

:r as its primary debt source.
18 .
•

it

19

~t
'J

Others use it essentially in the same

manner but without formal announcement."

:1

(PX 2414, p. 20.)

During the course of the late 19605 IBM took a number of

Zo:

·1 steps to accommodate the demands of installment credit customers, .
Zl I '
~ including leasing companies.
(JX 3, ~I 28 (c) - (e) .)
The debt to equity
Z2. .\
•
,t1ratio of 5:1 which IBM then utilized as one of its installment credit
2:3.
I

~A
,..

I

\
1- - - - - - - - - - - - - - - - - - - - - - - - - - -

i.r
c;!
2- 'I

* See pp.

806-07 above .

·1

:\

:!

:!
:1

-813-

L; guidelines was believed by IBM credit officers to be liberal, indeed,.

z:

even more liberal than debt to equity ratios "commonly used" by lending

l!

institutions, and was meant to enable IBM to "[a]ccommodate leasing

i

compa·nies n

4;.. t·

(See JX 3·, 11. 28 (d)

•

i

OK 1552, pp. 5-6.)

And the guide·-

1

!

j: lines remained in use despite IBM's belief that "the value- of [leasi

ing1 companies' inventories was substantially overstated and their
creditworthiness· accordingly impaired".

(JX

3,

,r

28 (d) .)

The ease with which leasing companies were able to raise
capital can be seen in both the size and the pace of their equipment

9\
i purchases.
~a :

r1

Boothe, for instance, wrote its first lease in November,

\ 1967. Less than one year later when it stopped purchasing 360 equip!,
ment, it had an inventory of over $140 million.
(See pp. 821-22

r? !

-if
I

below.)

!

March 1968 and by the end of the year had leases on equipme-nt valued

L3i
f
-

4- :

r~

Itel showed similar growth.

Itel wrote its first lease in

\i at over $130 million of which it owned $104 million*.

:

- II Both
ts a

these companies moved from inception to being regarded within IBM

._ [I as among the ten largest in less than one year.

~I

'I

.. 8

~.

(ii)

~I

(See p. 824 below.)

The Emergence of New Challenges.

(PX 2414, p. 56.)
By 1969, however,

things began to change again for leasing companies.

The Investment

19 ~tTax Credit was withdrawn,** interest rates rose sharply, the stock
'0 '1
-

·f
:1 - - - - - - - - - - -

21

J

7?

.

* Other companies showed a similar ability to finance significant
(See p. 811 above.)

~lpurchases of EDP equipment.

-:i
Z3;! ** The Investment Tax Credit was unavailable for property acquired
I from April 19, 1969 (unless it had been contracted for prior to that

z!

l!date) (Tax Reform Act of 1969, P.L. 91-172, § 703(a» through
iAugust 15, 1971, except for property ordered and acquired after
2.5 !March 31,1971. (Revenue Act of 1971; P.L. 92-178, § 101.)

I

..
I

:,

1
;1
.1

I

-814-

l.; market fe!.l. and the financial press soured on the leasing companies.

Z-

l
i

Reqarded as· glamour companies just several months earlier (pp.

II

I!

above) leasing companies, as observed by Profe-ssor Briloff (OX 2263)

!

4..1• 1

a·nd the Morgan Guaranty Trust Company (PX 4371, p. 6), began to lose-

:1- their

glitter.·

I

I

Starting in 1969. and continuing through 1970, the economic

,-'
:;

7

I cond.itions

were such that, as a practical matter, capital was not

readily available.•

As noted in the 1969 Diebold Annual Report:

"Record high interest rates during 1969 together with the scarcity of

lO

i

credit brought the- computer leasing business in the

II

11

st~dstill."

~:I po~nt:

(OX 14190, p. 1.)

1 new leasing business. ••

14.. ;

to a virtual

Leasco's experience is also a case in

"[d]espite the company's strong record, Leasco stopped writing
That decision was predicated on one

!3~ j
i

u.s.

especially salient fact:

the continued high cost of money which woul.d

! erode future profit margins."

lS':

(OX 10208, p. 150, see also p. 143.)

it OPF&G also cut back its purchases due "principally to prevailing tight
16 :.
i.t,

11

money conditions" ..

f
I

General economic conditions were dismal, but they seemed

;t
13 J

19
A

,,0

(OX 10495, p. 5.)

:; especially so for leas.ing companies due to a changinq--much more
,i

:Iskeptical--perception of them on the part of the financial community.
.f

'fArticles began to appear in the financial press criticizing leasing.
Zl 'I
Jcompany accounting practices.
(See, e.g., PX 4371, pp. 4,7; OX 2263.)
22. :!
23jIn a December 2, 1968, Barron's article entitled "All a Fandangle",
z~ it
2!

i
-i

* Problems encountered by some leasing companies are treated more
fully in the discussion of the 19705. (See pp. 1030-35 below.)

:1

-815-

:1

;i
I

.,;1

.; Professor Abraham Briloff voiced his concern that leasing companies'
I

practices and procedures had "one primary objective--to create an air

~:

tl of excitement regarding performance, to give an unreal appearance of
i

,--j. accomplishments and to offer the pr·omise of even greater attainments

i

tomorrow" •

(DX 2263, p. 1 ~)

B·riloff severely criticized the leasing

companies' depreciation practices, their use of the "flow through"
method of allocating Investment Tax Credit, and their deferral of
costs beyond the initial lease term.

He called for a "halt to the

g.: game" becaus6-of-- the "bedazzlement and the -del-usiGn spreading to

a!

i

ensnare the multitudes".

i

~i

(Id., p. 10.)

The changing perception of the leasing companies was reflected

i

.~ ~

in the prices of leasing company stocks which declined "very markedly

-i'

and substantially".

3

I.

,

...•J;. !:

Their access to credit

A Morgan Guaranty Report of early 1969 states:

"Since THE WALL STP~ET JOU~~AL article on October 31, 1968, there
has been some hesitation on the part of major banks to add to
[computer leasing companies] existing lines of credit."
(PX
4371, p. 4.)

~;

I
!

...

~1

L1

II

~o

was also affected.

(Briloff, Tr. 81081-82)

'I

By 1970 the stock market had collapsed (Lee, Tr. 41732-33;

15 J see also OX 3021) and a recession was in full swing, compounding the
~

""0
~

~I

j fiscal problems peculiar to the leasing companies.

.,

:.t

Leasing companies were beginning to encounter other diffi-

.j

Zl ;!culties as well.
-,i

Z2. :! lease.

As initial leases expired, equipment carne off

Many leasing companies were for the first time faced with the

.}

Z3,task of remarketing their equipment.

!

"'A

:

..

·1
.:

",...

,.

I

,,: I

!

-816-

As we have indicated, this was

'I

II

:l

"

II,
,I
"

1 ;ja much more substantial undertaking than the initial placement of the
~

1

!j

2 :!equipment where by-and-1arge the leasing companies relied upon the

3 ilmanUfacturers to configure and sell the systems.
4-

il 53,.)

(Spain, Tr. 88752-

Hence, marketing staffs had to be enlarged.

The number of

Ii

5 flleasinq companies had als,o grown substantially', which intensified the

a

'

6 ~!competition for favorable prospects (Spain, Tr. 88754), a phenomenon
II

7 ;i also observed by the Morgan Guaranty Trust Company.

(PX

218lA, p.

R14;,

'I

8 ;\PX 3105, pp. 5-6.)

Leasing companies also began to experience comp.eti-

:1

9 ~Ition of a new sort--plug compatible manufacturers were now marketing
10

\1

their own peripheral products in competition with leasing company-own'ed

11

1\

peripherals •

12

i; 40120-21,

(Spain, Tr. 88754; OX 1494, as discussed Navas, Tr.

41265-66; see also OX 14327, p. 2.)

I

As a result of this

13 :;heightened competition and the changing demands of users and prospects,!
!:

14 ';features and peripheral products which were included in systems coming

i
II

15 ::off rent did not always match the demands of the new users to whom the
:1

16 ::leasing companies were marketing.

(See

ox

14211, p. 6.)

Perhaps most

17 ';important of all, by 1969 System/360 equipment was five years old and

18

19
20

:in the interim other manufacturers had introduced products with
improved price/performance and the announcement of a new line of IBM
equipment (System/370) was on the horizon.

(See, e.g., OX 14340, p.4;

OX 1448 5, P • 37.)

21
The result of all this was a decline in lease rates together

22
23
24

with an increase in marketing costs, all coinciding with the higher
;

:cost of money.

(Spain, Tr. 88754 i DX

14190,

tJ. l;

DX 14340, p.

6.)

i
I

I

I

-817-

~

I

,lAS
,I

1

one would expect, leasing: company acquisitions of IB.'I1 equipment in

'I

2 :11969 were s.ubstantially lower than in 1968, and. the decline of 360
3 :!purchase activity

4'!!
5

(iii)

liing
il

continue~

in 1970.

Oiver,sification.

(DX 9416A.)

By the end of the decade, many leas-

companies had diversified their operations.

They developed vari-

6 :loUS ma·rke.ting relationships with plug-compatible manufacturers, thereby
:!

7 \lbecoming "conduits for better price-performance EDP equipment produced
q

8 !!by a variety of EDP manufacturers".

(JX

3,

~I

,r

14.)

They "assembled

9 Jand upgraded their leased computer systems with EDP products that
10

:1

improv-e the price-performance characteristics of those systems".

11 ;; 3, 1f 14.)·

I

(JX

For example, MAr was marketing Memorex disk drives and

Ii

I

12 i!potter tape drives, and OPF&G was marketing Ampex tape drives.
13

:! (Spitters, Tr. 42067-68; PX 4834, p. 43; PX 4436, pp. 6, 9.)

I
Greyhound I

14:was marketing its GCC 3311 disk storage unit made to its specifications

I

15 ::by General Electric (OX 4756A, p. 39), -It and OPF, by the end of 1970,

I

'I
Ii

16 "was marketing IBM compatible tape drives under its own name.

(OX

I"

I

i

I

1710495, pp. 2 - 3 . )

1
t

!

18

The relationships were beneficial to both the leasing

19 'companies and the plug compatible manufacturers.

By integrating the

I

I

I

i
i

I

20 :lower cost plug compatible peripherals into systems they owned, the

21 -leasing companies were

ab~e

to increase the price/performance and,

22 ',hence, the competitiveness of their systems.
23 'companies substantially reduce (d]

In addi tion,

"( 1] easing

the financial resources required" by

* Greyhound later sued General Electric as a result of reliability
25 pro,
bI ems Greyhound's customers were experiencing with the General
Electric disk drives.
(see ox 14331, p". 41.)
-818-

!

~r

Lithe plug compatible manufacturers from whom they purchased (JX 3,
I

I

2 ; 15), by providing ready cash to the manufacturers (JX 3, 1t 16) and

l ! reducing the marketing- costs of those manufacturers.

As noted above',

1

4-! however',

the plug compatible manufacturers also competed with leas'ing

:'I"companies offering their lowe·r-priced peripheral products in competitiQn
I

a !IWith

the peripheral products in the leasing companies' inventories.

1 :1 (S ee p. 81 7 above.)
c.
Q

--

Some Individual Companies.

Leasing companies had many

ts~iiarities in many of the ways discussed above, but each company had
.

lO l its particular history and characteristics.

A few of the important

Ll )leasing companies of the 1960s will be discussed in more detail.
tt~

(i)

Gre~hound.

The Greyhound Corporation acquired the

13, :~oothe Leasing Corporation· as a subsidiary in 1962.

T~!!It

claimed to be the first third party computer lessor by virtue of a

~ i!lease
~_ ~l

(DX 14193, p. 5.)

written in 1961.

(DX 10347, p. 1.)

Its U.s. £OP revenues were

million in 1962, and had increased to $13.4 million by 1965.

(OX

J.Q .(

:~ 22 4 , p. 5 3 9 • )

1.7

:1

:J
In that year Greyhound changed the name of its subs idiary
15 .
•
:i
;ifrom "Boothe Leasing" to "Greyhound Leasing and Financial Corp."
19 :.
'i(ttGL&FC") (DX 14194, p. 7) and in the following year, Greyhound Com-

ZOI

'~uter Corporation ("Greyhound") was organized as a subsidiary of
Zl 'I
PL&FC and shares and convertible debentures were sold to the public.

Z2. ~!
't

-

....

"

~l

'!

Z~ '~as

* This is not to be confused with Boothe Computer Corporation which
formed by the same Mr. Boothe after leaving Greyhound in 1967.

II

25

I
i

'I

.,i
"

!I

:!

-819-

·I
I

Lj

(DX 14195, p. 9.)

2;

Greyhound reported that, by the end of 1966, it had an EDP

3'! portfolio at cost (not including accumulated depreciation) consisting

4-\' of $47.3. millio:n' of second <.1ene-ra.tion IEM equipment, $20.2 million of
i·

~!

IBM 360 equipment and $5.6- million of other equipment.*

(DX 14195,

I

5

p. 10.) It reported that its 36:0 portfolio increased to $75.6 million

:1

7 il by the end of 1967 (OX 14075, p. 24), $154.S million by the end of
:1

'1
8 )t 1965 (DX 14076, p. 24), and $lS-8.2 million at the end of 1969

9 1 (see DX 14341, p. 41.)

Greyhound "had completed by mid-year [of 1969]

'a I: most of its purchases of computer equipment".

• I

(DX 14341, p. 1S.)

During the'period 1965-69 Greyhound's EDP revenues also rose

rz;

steadily.

i

Its U.S. EDP revenues went from $13.4 million in 1965 to

$17.3 million in 1966 to $49.9 million in 1969.

~.;

(DX S224, p. 539.)

OJ

,

Not all of those revenues came simply from purchasing and

14. ;
-

i

leasing IBM equipment.

~

-= il also
.~ 11
~Q

:1

Like many other leasing companies, Greyhound

marketed equipment of peripheral manufacturers, and Greyhound

,_ :'!purchased and marketed the 3311 disk drive made for it by General
i..1

I

'I Electric.

(DX 4756A, p. 39; see

~lGreyhound

offered data services.

13 ;i

p. SlS above.)

In addition,

By 1967 it had begun to diversify

L9 ;1

.,,0 -,---------------------------,I

.. 'I

"* Greyhound was depreciating its second generation IBM equipment on
-!a· straight line basis over eight years or to 12/31/73, whichever was
:1 shorter.
It was depreciating its 360 equipment over ten years and the
22 ;!other computer equipment over 3 to S years.
(DX 14074, p. 21.)
t
:!
~

231

i

-,4

,\

"... I
-I
i

-820-

1

into computer service centers and project management, forming a "data

~

Z:

services division" to operate, service bureaus and provide consulting

3,

services to customers in computer planning, installation and operation.

4.

(DX

14075, p. 6.)

In 1969-, it offered time-sharing services

5'

through Greyhound Time-sharing Corporation, formed in September 1968.

a

(DX

14076, pp. 9-10.)
Compu t'er leasing, however, was Greyhound Computer I s major

7 II

a !11

ar~a

of operations in the 1960s.

It stated in 1967 that its leases

ranged in gene'ral from leases which are terminable on 30 days notice
to leases with initial terms of up to eight years. It reported that
10 i
!
II most of the early leases of the company, by dollar volume, were for
!
(DX 14195, p. 9.)
However, in
initial terms of one to three years.
i

I

12\

!S, 1968, Greyhound reported that in the previous year it had "modified
l

1+; our rate structure to encourage longer term leases.

The result:

i

._' 'Many leases written in the last half of 1967 encompassed terms of two
I~

.... i
16 ;1 to five years.'"
(ii)

l7 ,I
lS

j tion

i
~t

14075, p. 9.)

Boothe Computer Corporation.

("Boothe") was founded in 1967

(DX

Boothe Computer Corpora-

14188, p. 2) by two former

officers of Greyhound Computer Corporation.

19 :!

200

(DX

(DX

14195, p.

JBoothe wrote its first 360 lease in November of that year.

2.)

Approxi-

:1
"

jmately eight months later, internal IBM estimates ranked Boothe as the
Zl :!
jseventh largest computer leasing company in the United States.
(PX
""'.,

II

~!

•

"

:13082, p. 34.)

In the last two months of 1967 Boothe purchased nearly

I

f
I

I

23\$l2.8 million in EDP equipment.

(DX

Z~ I

Z:

14188, p.

2.)

Boothe was "the

!ing 1968 purchaser [of 360 equipment] with acquisitions amounting
I

,I

I

,!

'I
:!
:1

'f
"

::
'\

I
I

-821-

lea~,

i

\

I

I.~

to $131 million".

Z:
1':

that its "planned acquisition program" was virtually complete
14326, p.

4-! million.

2)

(PX 2414, p. 5.)

Boothe announced in October 1968

and by year end Boothe's

(DX 14-326·,. p. 2.)

EDP

(OX

portfolio exceeded $144

,

Boothe's 1968 acquisitions were f'inanced in part· through the
i

a) sale of common stock..

In May of 19'68, Boothe's initial public offer-

I

7il ing of 150,000 shares of common stock reached the market at $18 per

s:
~

share and closed near $50 by the end of the first day.

!

(See

OX

14101.)*

Boothe added to its already substantial 360 portfolio in

i

La; 1970 through the acquisition of the $50 million System/360 portfolio
I

;

Ll ; of GAC Computer Leasing Corporation in November 1970 on what it
12 II called "very favorable terms".

By so doing Boothe increased its

13 iI "ownership in the United States and Canada of IBM 360 equipment to

1.: $220 million".

(OX

14189, p. 5.1**

!
I

~

Boothe revenues increased nearly as dramatically as its

=; :
!

-

I

16

~lacquisitions.

From 1967 to 1969 Boothe's U.S.

l~

17 \1 $440 thousand to $ 44 million.

(OX

EDP

revenues went from

8224, p. 530.)

Boothe reported that it wrote leases of one to five years,f

.1

15 i!iI

J---------

1\

19

* Boothe had made a private offering of 1,150,000 shares of common

'!

za .1 stock at $12 per share in
.1
Zl:l .** In the 1960s, Boothe

.,.,

'istraight
line basis.
.;

~ :j
~ITr.

Z!
2:

(DX

November 1967.

f Boothe wrote a six year lease with the Southern Railway.
79039-40.)

t

,j
i

I

I,
I
t
I

:,:1
,!

14101.)

depreciated its 360 equipment on a ten-year
14340, p. 14.)

1

.f

(DX

-822-

(Jones,

I
I

r

I
t

L

generally providing "for early termination after 12 months upon pay--

Z

ment of a termination fee".

1;,-

(DX 14095, p. 13.)

Boothe opera-ted. abroad as well as in the- United States.

,

!t

I

4-

had subsidiaries in Canada, Switzerland, and the United Kingdom

1j'

5 : - with the Sw"isscompany c-ondu.cting business in both G'errnany and Italy.
I

I

e:

(OX 14326, p. 3·.}

II

7 :1

s

Boothe decided fairly early to use the cash flow generated

~

by its c.omputer leasing

9-i

EDP industry.

busi~ess

to invest in "other phases" of the

As it put it, it wanted to become "multicomputer-

,

LO! la teral" •

....

"

(OX 14340, p. 4.)

its Brokerage Division in 1968, "to engage in the purchase and sale of

,i
!

~l

computer systems and components from existing non-manufacturer users".

13 [I (DX 14326, p. 2.)

l~~lt
1: i
16 !I
l7
lS

To accomplish this end, it had formed

iI

"This was an obvious adjunct for a leasing company

engaged in the marketing and remarketing of computer systems to users.
In 1969 the company also formed Boothe Resources International which
·specializes in the computer services and software field".

:i

~IResources

Boothe

operated a computer resource center-in Los Angeles, "whose

:!purpose is to bring the full benefit of data processing to businesses,
,j

:1 industries, and municipalities" and serve as ".the showroom for the
.... t
:iperipheral equipment manufactured by Viatron Computer Systems Corpora-

f~

za

I

'f

ltion," for which Boothe Resources International was the dealer in the

Zlj
~western

Z2 -:

"i
""_ "t
~

Zo!.

\

United States.

(OX 14 ~4 0

I

pp. 6- ~. )

In 1969 Boothe formed yet another subsidiary to engage in

_\ the marketing of

EDP

equipment, Da taware Harketing, Inc., which

i
I.:

2S

"engaged in marketing peripheral equipment internationally, and in the

i

i

'I

.!:,
"

!

'I

,j
I

.1

-823-

:1

L; domestic brokerage of second-user computers and compu.ter equipment".
i

Z,i It began i.rrunediately to distribute the products of Courier Terminal
I

If Systems, Inc., Ita manufacturer of' CRT data entry and retrieval termir.

4--!

nals· and quality line printer sIt •

(!£.:.' p.. 7.)

B'oothe'-s involveme'nt in peripherals was not limited to
&l marketing the Courier terminals.

7

Through another subsidiary, the

Boothe Comp.u·ter Investment Corporation, Boothe "placed equity inve.st-

\1

a[1 mE;!nts

in companies manufacturing peripheral gear or engaged in com-

o

puter-related services.

~i

10

f

At year end, 1969, equity interest in 11 such

companies had been acquired.

t

It

(OX 14340, p. 7.)

One of those com-

I

II i panies was Courier Terminal Systems.*
,
I

(iii)

I2.i

13 ~Icomputer Corp.

Itel.

Itel was incorporated in December 1967, as 55I

It wrote its first computer lease in March 1968, and

r4;.·~l by the end of that year, had lease contracts covering computer equip-. l

ment at original cost of $130 million of which it owned approximately

~=!
.....

'

I

15 ;J$104 million.

(DX 2223, p. 3.)

Gary Friedman, who was Executive Vice

11 ;!president of the corporation in 19~8, testified that all of this
15 Jequipment was marketed by a sales force which went from perhaps one
:j

I person a t the beg inning of the year to somewhere

bet~"een

:! eigh tat the end of it.

An

19 :~

(Fr iedman', Tr. 50382.)

five and

IBM report on

ZO .l

'l1easing companies listed Ite1 (55I Computer) as having the ninth
Zl :\

J

Z2 ~!-----------------------:1

* In 1976 Boothe owned 99.4% of Courier's outstanding voting stock

Z3 \ (DX 14096, p. 6) and in 1978 Boothe sold Courier Terminals to the
;Internat~onal Telephone & Telegraph Corporation, for $50 million in
24 jcash and notes at a gain after taxes of nearly $20 million.
(DX 14071,

!p.

5.)

25 .j

r

I
.\

.i'1
i

-824-

5

L

largest IBM computer portfolio at the end of .its first full year of

Z, operation.

:

(PX 2414, p.

56~)

By the end of 1969, Itel owned approx-

;

3 : ima-tel.y $·195.5 million of computer equipment.

i.

LI
.

Its U.S. ED'P revenues rose sharply as well, going from $9.6

,
I

~

I: mil~ion

e

I

7

.

\

1970.

f

(OX 2226, p. 16.)

in 19'68· to· $'38... 7 million in 1969, and to $4;6.9 million in'
(OX 8224, p. 543.)

i

Itel offered leases Itnormally written for initial terms of

i

r.

a

24 to 60 months" to fill the "gap" between purchase and the short term

9--

lease o'ffered by IBM..

(Friedm-an, Tr. 50373; OX 2223, p. 16.)

It

~

lO ; "typically" either purchased equipment already on order or purchased
II

i

i installed

equipment us.ing the customer's purchase option credits.

I2.I,,

(Friedman, Tr. 50558-59-.)

13

industries" including "utilities, transportation, general manufactur-

t

It leased to companies in a "wide range of

,

l40 : ing, aerospace, textiles, petroleum, chemicals, publishing, banking,

1::
insurance,
;

I

16 it services".
._

~I;

auto manufacturing, finance, food processing and medical
(OX 2223, p. 9.)

Itel alSo diversified its activities and it stated in its

.1 ;

lS :f very first annual report tha t i t was

II

actively seeking acquisi tion of

:1

'Q

Jr....

complementary services and product lines.

:1

The obj ective of this

;~

:lprogram is to build a diversified company concentrating on data

za :,
."

Iprocessing activities

.1

- ' j

"

( OX 2 223, p. 9.)

This was an aim'

-

,iwhich it described a year later as its "continuing objective".
(OX
Z2 :1
•
;t 2 2 2 6, p. 7.)
In 1969 it acquired the Statistics For Management Data
ZS.l

Z4.

,!,proceSSing Corporation, a specialized service bureau.

(Id. pp. 8-9.)

'1

,lAnd, in the same year it "entered the peripheral equipment

2S _\
i
'f

'I

,\

:l
I
"

:1

;1

-825-

:1
11

l

1.:

field through the formation of an affiliate, Diablo Systems, Inc.",

2- i which would "concentrate initially on the manufacture of mass memory
1

devices and then intends' to produce other related peripheral equipment't.

4.
_

(OX 2226,

p. 10-.) *

j . .

.

In April of the following year ~

-

it acqu.ired Inter-

.'

: ; cont.1.nental S.ys·tems, Inc., a manufacturer of word processors, data
I

!

a it term:inals and o-ff-line systems. (OX 2229, p. 18.) In 1970 it reported
7 J -that its "European activity centers on container leasing, the word
;1.
..
f
S process.1.ng and. d-ata communicat.1.ons· term.1.nal field and sales 0 computer
9-!

peripheral equipment".

(Id., p. 9 •. )

Its most important acquisition,

i

10 ~ however, was' not to come until early 1971 with the acquisition of
11

~

Information Storage Systems.

(OX 14260.)

**

"

d.

I

!2ii

The Effects of Leasing Companies on IBM.

The dramatic

~ llgrowth of computer leasing companies in the 1960s had two kinds of

T~:leffects

on IBM.

~=\Ipurchases

~ i!Phenomenon
~ ..

!i

First, IBM's Annual revenues increased immediately as

by leasing companies and others spurted in the late 1960s--a
which IBM had difficulty in projecting accurately.

17 'ITr. 88737-38.)

(Spain,

Second, IBM faced accelerating competition from leasing"

13 :r companies culminating in the impact of the large amounts of 360 equip'1

Q ~tment

1_

in leasing companies' portfolios on IBM's pricing of System/370.

,I

i

20'------------------------,

* Diablo Systems, Inc. was sold to Xerox in 1972 (OX 2231, p. 29)
iat a profit of "[e] ighteen to twenty million" (Friedman, Tr. 50400.)

~_~1:\

~i

** Information Storage Systems was sold to Sperry Rand in July 1973
lfer at least $ 23 million.
(OX 14280; OX 2232, p. 35.)
However,
~ lpursuant to a comolicated financial arrangement based upon receivables
land future revenu~s, Itel eventually received approximately $60 million.
24. '(Friedman, Tr. 50438-39.)

Z2:!

2':

.

!~-

·i

I
I
I

';
'{
'\

'i
I

'f

·1

:\

-826-

Certain IBM employees recognized the competitive impact of

L

Z

leasing companies early.

An

analysis of leasing companie.s pr.epared

within IBM in September 19·66, for example, recognized the "increasing
potential" for competition from leasing companies, stating:
I

=,.

I·

" [w] i.th capable marketing pe·rsonnel, substantial inventories, and
attractive rental rates, leasing companies represent an increasing
potenti'al for replacing IBM installed rental equipment. We are
aware of current proposals which would result in the replacement
of IBM rent'al units.
(PX' 431SA, p. R-4; see also p. R-16.)

-I

I

,

a ;~
:1

!.

7 ~f

The. report also recognized potential effects. on future
90

generations of IBM equi.pment.

t

"Even though newly announced machines reputedly 'obsolete' older
·equipment, there is always a price at which the 'obsoleted'
equipment has a better price-performance . • . than newer equipmen
It 'appears that leasing companies will be in a position 1:0 offer
this price-performance advantage for some years to come." (PX

I

10 ;
I

U1,
I

,
t.2,.i

431SA, p. R-l6 •. )

I

13 :[ This is possible because:

14- ;'
15

"[w]hen leasing companies have recovered a significant
portion of their investment, they will be in a position to
manipulate the price/performance ratio of their equipment.
This could create an important additional consideration relative
to the price level of potential new IBM product announcements."

!.
iI

i

16 ~l

(PX 431SA,

17 ,I
lS

p~

R-S.)

The recognition of leasing companies as competitors· dic-

:J
;i

13 ~!

--------------------

• Other manufacturers also recognized leasing companies as competitors. Gordon Brown of CDC testified that lease plans offered by CDC
were designed to compete with leasing company offerings of IBM and .
Zl :1 other competitive equipment.
(Brown, Tr. S2609-S2610; see also James,
j Tr. 3S048.) McDonald of Univac testified that although leasing com7~ '\ panies were customers when they purchased 'Univac equipment, Univac
- - ;t salesmen reported that leasing companies became competitors thereafter.
2.3 :. (McDonald, Tr. 3995-3996; see also DX 7S; DX 76; DX 78, p. 1.) RCA's
I "accrued equity contract" (a contract for an installment purchase over
Z~ 'I six years convertible to a lease at the option of the customers) was
-, "to some considerable measure [brought about] because of the presence
of leasing companies in the marketplace
(McCollister, Tr. 9802-05.)
,r

zof
'I

.,=
._,:\
·1

.j

:1
.\

I
I

It •

/

-827-

1: tated their treatment as such, and IBM salesmen were so directed.*

2.

This early recognition of competition from leasing companies

1

,i

l

was reinforced in later periods.

4-

on leasing company ac.tivities stated:

:!,

By February 1968 an internal report
It

(c]ollectively leasing companies.

are potentially IBM's biggest domestic competitor • • . . It

(PX 3455A,

I

I

a :1

p. R- 37 • J

7~i

as competition to IBM during 1969 dramatically increased.**

s:

1969 internal IBM estimates projected that leasing companies' ownership

In 1970, it was also noted that "Sys·tem/360 inventories used
In March

;

;

9-

of the total installed base of IBM equipment would increase to 17.7%

1

i by year end 19-69 (up from

5%

i purchased IBM equipment.

(PX

La. ;

11

!

on December 31, 1965)--some 43.3% o'f all
2414, pp. 53, 55.)f

Such competition clearly constrained IBM's pricing of System/370.ff
I

For example, a February 20, 1969, Quarterly Product Line

Assessment (QPLA) prepared by the Commercial Analysis Department of

.~:.

~-:I IBM's

Data Proces.sing Division stated:

"When NSO and NSl [to become

;\1

16 ;I ---------------------------'I
* IBM salesmen' were required to report leasing company and other co~­
17 \ petitive activity, although these reports tended to undercount signifi:tcantly that competition.
(See Akers, Tr. 96868-69, 97112-13; PX 2512A,
18 II.! p. 17.)

I
I
expressed the Data Processing Divisionlsl\

~l

19:'
** On March 11, 1971, Rodgers
Jconcern to Watson, Learson and Cary about the high level of replacement
za ,: activity brought about, inter alia, by competition from leasing com\
I
:1 panies.
(DX 8059.)
I
1

...
"
/.

·1
"

-- j

f It was also estimated that leasing companies owned 16.1% of total
Z2 Jinstal1ed base of IBM equipment on December 31, 1968--41.5% of all
A-

:}purChased IBM equipment.

(PX

2414, p. 55.)

~':

! ff Withington also concluded at the time he testified that leasing
24. '\ company competition constrained IBM's pricing of 370.
Ovithington,
ITr. 57023-29; 58630-31.)
--::

'I

~ '\

i
'\
'f
,t
I

I

I

I

-828-

I
~

I
I

l

System 370/135, 1.45] are announced, IBM will be faced with competition

lI

2

from three sources:

I

I

computer systems, and (3) computer-oriented service companies."

4-

2388,

p,. 117.)

(1) other computer vendors, (2) owners of IBM(P~X

And, the report continued, "(c}ompetition from owner-s

l

of IBM: computer systems will come primarily from leasing companies and
from System/360 purchase customers who sell their used systems.

Both

of these sources could make lower-priced System/360s available to

7

compete with'NSO and NSl with competitive price/performance."

S

(Id. )

In March 1969 Gil Jones, IBM Senior Vice P.resident wrote in

9-

a report of the Management

to

Committe~

(MC) t.o the IBM Management Review

Committee (MRC) , that "[o]ur old 360 purchase inventory will remain a

I

11:

: major competitive product. There is an added unknown in the possible
!.2.[
;1
__ l merger of 0&"1' s, software houses and leasing companies."
This report

u:

also opined that System/360 equipment offered at a price discount of

1

14. ;

only approximately 30% would be an effective competitive product

I

I

I.5'

I

lS

•

System/370 at the prices then planned for the new system.

i

aga~nst

:1'

ticular exposures. identified were the projected 370 purchase prices

~,

Par-

17 :
:f and maintenance charges. Simply stated, IBM management was of the
1S ~
;1 opinion that leasing companies' offerings of System/360 equipment
19 "
JWOUld, with the 370 lease, purchase and maintenance prices then
ZOl
:!p1anned, cut deeply into the customer acceptance of System/370,
Zl :1
Jparticu1arly the purchases.
(OX 14201, pp.. 1-2; see also OX 14479,
22. ;\
:l p . 1.) In fact, thereafter the purchase prices on System/370 were
?":\ '

~

:1

reduced.

(See

~I

of the war ran ty per iod .

PX

4505.)

Renewed efforts were also made to reduce

,..4 .
_. ,ithe projected maintenance expenses and charges which led to an extension
zs :,
I
;1.,
.j

~

;,

I

~.1I
;1
'I

(See pp. 920 - 22 be low. )
-829-

In addi tion, on

~:

May 10, 1972, as w·arranty periods providing for free maintenance

\

, ; services were beginning to expire on the first purchased System/370
-:

i;

units, IBM announced a substantial reduction in its minimum monthly

I

maintenance cha-rges.• *

,,1

~l

: it

(OX. 13521.)
•

1

The competitive effects of ieasing company 360 offerings on

.. l( IBM's pricing of 370 continued beyond the initial 370 announcement

; ,I. date.

In January 1971, Learson and Cary, then President and Senior

a; Vice Pre'siderit, respectively, considered a proposal for a general
price increase by the Data Processing Group.

9:;
I

to five sales offices.

They each visited four

Learson wrote:

.0 :

"What we found there was . • . strong activity by the leas'ing companies in reinstalling available equipment at reduced
rentals for very short terms--12 to 18 months. In truth, what is
happening to the 360 line is that prices are being reduced instead
of being increased. In some cases, they are selling their leased
inventories at 50% off original price, with payments deferred 24
to 36 months. Coupled with this atmosphere is our own action in
reducing prices on files and tapes and the O&'4's reacting with a
further price cut."
(OX 8063 .. )

I

!

.l

f

.2 :l

i~

3 :1

-

i

.6

;1

=~
:

Thus as we have seen, the impact of leasing companies on

il IBM,

minimal at the start of the decade, increased rapidly in the

.7 :1 mid-to late-1960s.

And as the decade came to an end, leasing companies

.S

:1

substantially impact.ed IBM's pricing and plans for the new 370 line .

.9

:1

That constraint was to continue in the 1970s.

(See pp. 1026-30 below.)

~ '1

,i
,I

~

:!
~

~;;

!3

:t

I

!4. :i:

I

~ ~l

----------------------

* For example, the 370/1551 minimum monthly maintenance charge was
reduced from $2,160 to $1,730 per month.
(DX 13521, p. 2.)

I

'1

I

i

'I
t

i

I

;l
I

-830-

52.

2·1

Service Bureaus.

A service bureau "offers to perform

certain specific data processing appl.ications on its own equipment

I

1

i

(Pla'intiff's Admissl.ons, Set II,

for a fe-e".

I

~f

977.0.)

I·t "purchases

\

I

4-1:-or r'ents a computer from a comp.uter manufacturer or s.ystems manufac:. !r' turer and thea proceeds', to p:erfo'rm problems. for a customer, or to
I

.

a Jlet
i

a customer perform problems on the apparatus for himself I depending

on what type. of service bureau it is.

\1

8\ additiona.l
~

functions.

The service bureau may provide

They may assi.st the customer with his software

problems, they may assist him with printed copies of the material
and other things a·s part of their service".

10
II ; alsC? Weil, T·r .. 7159; 0 t Neill, Tr. 76020.)
!I

a.

I.2.:

Entry and Growth.

(Ec'kert, Tr. 917; see

Service bureaus were a natural

13 !!development in the computer industry.

They began before 1960 I but

i

l~lgrew

-,

rapidly, often explosively, in number thereafter.

It was easy

i

~~;to

start a service bureau; all that was needed was a computer system

Iland the ability to run it. * For example, Digicon, Inc. had six
16 ;.
;ffounders in 1965, each of whom put up about $330.
(DX 4085, Poe,

17 :.,t
lS

:Ip.

11.)

By 1970, Digicon had $1.5 million in u.s. EDP revenues.

.!

:i

:t{DX 8224, p. 356; see also OX 4076, DiPietro, p. 10 (DP&W, Inc.--

19

:t

zcr

"!

:ibegan on $75,000); OX 5930, Davenport, p. 12 (Davenport Data Proces-

I
I
j
i

I

:

(

~- ·i:l______________________

Z2:\

I

I

.

*

As the FCC stated in its Tentative Decision in Computer Inquiry I
Z3 ~1(Dkt. No. 16979): "For a relatively small capital investment, a
!service firm can be formed, computer equipment can be leased, and
Z~ '~rogrammers can be hired."
(Plaintiff's Admissions, Set !I, ~! 306.10.)

_. :I!
~=

I
-I
I
I

1sors--began on $5,500).)
'"'or

I

!
i

\

\

I

·t
~!
I

·1
,I
:1
I

!

-831-

I

I
L:

Many of these companies grew fantastically in just a short

2~i time.

Optimum Systems, Inc., for example, had $300,000 in u.s.

,

I:

I

EDP

revenues in 1967, its first half-year of operation, and SlO.5 million

!

4--f in 1970.

(DX 6015, Roach, pp. 12-13; OX 8224-, p. 504.; s·ee also OX

I

~! 3975, Moranz, p.p_ 5-6.; OX 8224·, p •. 313 (TCC, Inc.--started in 19'68,
I

~.

!

S6.7 million in

;llox

u.s.

EDP

revenues in 1970);

OX

5816, Vallario, p. 9;

8224, p. 621 (Bergen-Brunswig Corp.--entered the EOP business in

u.s.

8

t

1964, $2.5 million in

9-

1

3; OX 8'224, p. 50 (Bradford Computer and Systems--started in 1968,

i

$9.8 million in u.s.

.0 :

-2..1

EDP

EDP

revenues in 1970);

DX

5933, Biegel, p.

revenues in 1970); OX 5988, Leslie, p. 3; OX

I

8224 , p. 95 (Insco Systems--started in 1968, $15.4 million in u.s.

1 1
,

EDP

revenues in 1970);

DX

6190, Stapp, p. 10; OX 8224, p. 521 (Middle.

i

_ : South Services--started in 1963, $5.1 million in u.S.

~I

i

.~;1970);

OX 8122, Larribeau, p. 10; OX 8224, p. 577

~=\loeSign--started in 1966, $1.6
- il
~6 llOX 8224, p. 557; OX 13916, p.

million in u.S.

EDP

EDP

revenues in

(Information Systems
revenues in 1970);

6 (Tymshare--started in 1966, $10.2

. ;!million in u. S. EDP revenues in 1970).) The Association of Data
.7 il
~S ilProcessing Service Organizations, Inc. (ADAPSO) reported that the
1average service center firm's revenues increased SO percent in the
'Q .'

:~

~O

:Iyear 1965-66 alone.

(Plaintiff's Admissions, Set II,

~

325.11.)

. I

I

I
Ii
i

I

,I

J

Some service bureaus primarily offered computer time; others

!l ;\

joffered programming and other services ancillary to the use of computer
!2 'i

;ltime, such as systems and software design, application packages (often
23i
~roprietary to the service bureau) and other specialized services.
Z4 'j

;!(See, e.g., OX 7425, pp. 4, 12; OX 10324, pp. 52, 57, 86; OX 10667,

,:1

.. 'I
.\
'\

'\

I

.,
:1

-832-

l

1

I

l,i:

pp. 3, 10.)

2:

guages or other software tools which were available to the·ir users.

Some service bureaus developed the.ir own computer lan-

I

1 ;'Others offered their own configurations of hardware with enhanced

4.1 capabilities.

(See,

e.g.~

DX 6914, p.

~;

OX 10324, pp. 55, 119;

~

:-1

OX 13917, pp. 2, '7,. 8.)

I

!(

Entrants· sprang from a number of sources.

a fi
7

from scratch and offered computer services as their pr;ncipal busi-

;f

S :. ness.

(E •. g.,

Brad·ford Computer and Systems and Oigicon, Inc., above,

9- ; PP·. 831-32; ADP and Tymahare,

l.a!i
11

New firms started

be~low,

pp. 8'48-50.)

Firms already in

"the EDP business saw an opportunity for profit and opened service bureaus

!,

Those ventures began as an attempt to gain customers for their other

~ilcomputer
ox

13:

products and services.

(See, e.g., Lacey, Tr. 6611, 6687;

340A, pp. 3, 10; OX 367, pp. 21-22; OX 13912, p. 20.)

!

... ;

T ,t·

t

Thus, for example, Greyhound Computer Corporation, which

l5

I

began as a leasing company in 1962 (OX 14193, p. S), announced the

lo

~Iopening of two service bureaus in 1968 using General Electric and IBM

~tequipment. (DX 10346.) Itel, which entered the EDP business as a
17 :1
18 J1easing company in 1967 (Friedman, Tr. 50355, S0361), acquired a
:i

ttservice bureau business in 1969.
19 :,:,
.
tgave lot "a solid entry into . .

za :
"

_. '! the data processing industry".

According to Itel, the acquisition
one of the fastest growing areas of
( DX 2226, p.. 8.)

~.t

Systems manufacturers also had service bureau businesses,
J
Z2 '!
Jmany of which are described in the sections on individual rnanufac-

23t

.fturers in the 1960s elsewhere in this testimony.

By the end of the

2.~ i

,!decade, CDC, NCR, IBM, Honeywell and General Electric had extensive

1S I
1
r

';
:\

-833-

I
.

it

II

L:! service bureau operations.

(Lacey, Tr. 6634-35; PX 328, p. 21; PX

.,!

-, 4832, p. 2L; DX 123, pp. 28, 33; DX 2B4, pp. 1, 4; OX 340A, pp. 3,
i

3

! 10i- OX
i

367, p. 21; _ DX 13-843, p. 6.)

I

4.1-

F-ina-lly, businesses which. owned their own computer sys-tems

i

5'!

but were' not utiliz.ing.· them fully f'o'r their own needs naturally found

I

6; it attractive to o-ffer

unused time to other users for a fee.

:1

7 l! e .. g., Plaintiff' s Admis.sions, Se,t II,

a~
9

321.- 8, 341.5, 345.2.) Banks

and aerospace companies, in particular, began to sell computer

! services.
I

(See, e.g., OX 5819, Hammaker, p. 4 (Connecticut Bank and
..

Trust Co.); OX 6150, Pettit, p. 4 (Grumman Corp.); DX 6151, Lynch,

~:

Ll

1r~

(See,

i
1

p. 4 (Harris Trust and Savings Bank}.)

As time went on, brokers

t2i arose which made it a business to find computer time for users and
!
t3 ; often then went into the service bureau business directly.
The
r~;IBergen-Brunswig
Ia.
i

:s (because

Corp., a drug company, began in the EOP business

it "had idle capacity on an IBM 1401 computer, and at first

L6 ;!we started offering it to some of our customers who we sensed needed
1-

.1

;tt

helP in accdunts receivables. It mushroomed after that and six

I

~S Jmonths later we had to add a second computer to render those services".
;1

'S
~

.

:1 (OX 5816, Vallario, p.

:t

10.)

'cr,!revenues of $2.5 million.
-

By 1970, Bergen-Brunswig had

u.s.

EDP

(OX 8224, p. 621; see also OX 5637, Allen,

·f

!l :\PP: 24-2S (Fulton National Bank in Atlanta makes available its
~., ~excess
I
-;

computer time for a fee); OX 6180, Hager, pp. 4-6 (Marine

~

... _ ,lMidland Bank subsidiaries sell data processing services to bank
~i

:icustomers); OX 13943, niestinghouse offers services by using

Z~ I

corporate computer center); OX 13924, (Computer Usage Company

-834-

1,,,,
I

I

Ii
i

II
I

iI

i

i

brokers idle computer time).)

1.

is discusse,d more fully below at p'p. 843, 876-77, the

As

Z

Federal G'overnment also saw the benefits· to be derived from selling

3

excess computer time and, through the General Services Administra·tioll,
I

i.

set up a p-rogram which, by 19,66, faci.litated the use by one. gove'rmuent

!!
I

I

e:

agency of the EDP services of another gove·rnment agency.

7

;J

tiff's Admis.sions, Set II, ,t1f 368'.0- •. 2; see, e.g.,

S·

:f 369-.15, 369 a2I.)
~

:1

'1'

(Plain-

369.11,

GSA also operated Federal Data Proce'ssing Canters,

service bureau enterprises which offered processing, systems design,

~;

La:i

programming and applications software to various government age·ncies

u:!

for a fee.

I

:1

:f

remote computing network.

u:1

A final method. available to

The network was provided by Computer

Sciences Corp.'s INFONET Division under a government contract, and

:4- :i
i

....

364aO-.2, 364.4.)

government agencies to supply their EDP needs was GSA's full-service

I

!Z

(!9.:.., "

I
:

was developed "to provide Federal agencies with an economical and

f

broadly based supply of certain types of computer services".

~,

:1

is

:t

1-I

!I

~I

,,1f

15 ':iJ

I
II

- ,

367.2-.4.)
b.

I

Time Sharing and the "Computer Utilitv".

The develop-

,t ment of service bureaus was given a substantial impetus in the 1960s

I
I

!

Il
I

19 :1

by the growth of time sharing, the apparently simultaneous use of a

zo :I-,

i

Zl ,I

computer by many users.

(JX 1, p. llS.)

Instead of physically

~i transporting data between the customers' premises and the service
•

2Z :,

..,~i bureau, time-sharing services allowed terminals to be placed at the
~'1

'I

I

users' installations to access on line a central computer.

(~ee

24'\

,I Norris, Tr. 5828-29.)

23 'i

:j

The development of time sharing was responsible for the

:1
:1

I

I

:1

:1

i

't

-835-

II

1: entry of many new' service bureaus and encouraged the expansion of

,
z.; batch processing service bureaus already in existence.
~

Currie of

I

3:!

Xerox testified that

II

many

.$..j

It

(w1 hen the time sharing technique was deve·loped

entrepren~urs

saw an' opportunity to start a business· and

I

5'

I'

servic~e

offer this

to users·, and so many commercial time. sharing

i

! service bureaus were established in the late sixties, and (50S] pro-

a l~

7 jl vid.ed

compu·t~sto

many of these companie's".

(Tr. 15346.)

General Electric, in particular, emphasized time-sharing

a

services, although it started off in the service bureau business

~

offering batch services.

.0

most widespread and

~

b~reaus".

successf~l

(PX 4832, p. 21.)*

-:,
.3 ; originally based on the GE
?i

(Weil, Tr. 7133-34.)

In 1966 GE had "the

of the scientific, time-shared service
The GE time-sharing service was

235 and "was primarily aimed at solution

i of small engineering or technical problems".
(Weil, Tr. 7134-35.)
:
\ As the number of languages available for the 235 increased, the
:::
.
\ applications grew into "somewhat larger scientific and into the com-

~.;.

'j8

~I

.t: :
~I'

,(Weil, Tr. 7135-36.)

mercial sphere".

.7 \
;~

But the success of the GE

time-sharing service bureaus rested on the 635.

~S ;1

The. 635 was bigger

.

. :f and was "aimed at solving bigger problems". As more languages became
.9 .:
:i available "there were more and more" business applications for the
~

,I
"

'I - - - - - - - - - - '" :t

- :\

* Reginald H. Jones testified that

GE had lavished "very solid
on its time-sharing service bureaus, and had made "very
:imajor investments" in the business, had done "very good work" in
2.3 :t software and had "good technological offerings". Consequently,
lin 1970 GEls Ventures Task Force concluded that the time-sharing
'A 1service was "an opportunity that we should pursue", even though GE
_•. ihad earlier gone through "difficult financial straits" with the
2S ;! business and had had "substantial writeoffs".
(Tr. 8799-800 . .)

!2.

1dedication"

"i
I

.i

:\

f

'\

\
I

I

i
;1
;1
!

-836-

L; 635.

I
I

(Weil,. Tr. 7137-38.)

;

2.

i

Other time-sharing service bureaus started off performing

i-

scientific and enqineering:ap.plic-ations but progre-ssively shifted

3~

!

their emphas.i.s. to comm.ercial app-licatio.ns.

,

If

For example, the pre-sident

of Tymshare., Inc", was reported as s·aying that there had been a shift:

:!

in the usage of time-sharing services towards business applications

7 :1 in the 1960s; whereas in the late sixties 75 percent of Tymshare' s

a il

income came from engineering/scientific applications, by mid-U71 IOOre

9' than half- the firm I s· income came from commercial applications.
27657 see also OX 13917,

10

p~

1.)

The president of Time Share Corp. wrote in a 1968

U

(DX

article~

IS:

"Today the typical [time-sharing] user is no longer
buying just raw· computer power alone. He is beginning to buy
both applic·ations and computing power. And the applications
are increasingly being found in the business area. Time-sharing
is being recognized as- a powerful aid to business decisions.
The once-remote computer has been replaced by the fam·iliar
teletypewriter • • • at the manager's point of contact." (PX
2404-A, p. 2si see also Currie, Tr. 15346-47.)

16 a

As the concept of time sharing developed in the middle

r'"

I

i

..... 1'

13:
i

l~:

I

i

i

17 !land late sixties, observers were impressed by its apparent efficiency
15

'I and

economy.

There was growing talk of an "equipment utility" which

19 :1 would "directly connect terminals on the users' premises with networks
:t

za '1lof

computers and data transmission links", eliminating the need for

:I

11 leach user entity to possess its own computer.*

(PX 4832, p. 27;

:1

:

:l--*-F-o-r-e-x-am-p-l-e-,-t-i~-'th- ington wrote

in 1967: "It is apparent that
Iservice bureaus are evolving into a revolutionary new form, an
Z~ 'I 'equipment utility' · . . •
[T]en or fifteen years from now, of the
!money the customer spends for computing equipment (excluding expendiZS itures for software or services), perhaps 40% may be spent on the use
'I of facilities of the equipment utility, rather than for computers of
;l his own".
(PX 4832, p. 27.)
-,

.:I

'I

i

:1

,i
;j

.1

-837-

see also

l;

ox

53"24, pp. 1-5.)

According to GE r s Weil:

f1.[T]he hope- was here that what we could do was to permit
shared remote. access to a large and, hence, capable and efficient, central computer and make possible the carrying out
qf applica.tions· rem£)tely by this time shared computer as
opposed to havinq· each of the use·rs having" to have his own
smaller, less" c"apable I less fle-xible and potentially less
efficient system". (Tr. 7203-04.) *
Western. Union was

a~vertising

in 1966 a complex "designed

to provide info rma t.i on" , communications and processing services in
much the same way as other utilities supply gas and electricity".
(OX 13942, p. 26; see also DX 6872; Plaintiff's Admissions, Set II,
'r~

304.21-.23.)

One of the best-known prototypes for the "utility"

concept was the" ARPA network.**

-~

.-....-

* Weil said that in retrospect the technology changed and
"computer utility" never materialized:

.

I

'

"

,_ :1
.Q :1

'7
•

J:1

~s

:1

t..~e

"Right now it is possible to have a small capable remote
computer available at low cost so that the use of time
sharing systems for small engineering calculations which
we envisioned, small to moderate engineering calculations
which we envisioned, would be carried out on time sharing
systems, are today in fact carried out by very small,
usually desk-top calculation systems which are these days
quite capable".

il

'l Thus, in general, "there is much .. less reason today for having a
(Tr. 7257-58.)

:9 :t large central computing element".
·1

t

**. ARPA (Advanced Research Projects Agency) is a Federal agency
whose
primary mission is "to support research and development of
.i
-orf advanced projects which have potential value to the Department of
~!
(P lain tiff , S Admissions, Set I, 1f 1f 1.1, 1.2, 2.0.) "ARPA
~ Defense. "
22. ", is probably the largest sponsor of computer science research within
(~"r 5.2.)
_ ·t the United States Government."

ZO :;.,

~

t
II

.....

:1

I

'-- I
I

1

ZSj

I
I

I

-838-

ft

I
1 In 1968 ARPA conceived the idea of ARPANET, a network of intercon2 I,Inected computers intended to permit the sharing of computer resources
,

I

3' ;by many users..
CPlaintif-f' s Admissions, Set I, " 'l- 39.0, 4·1.0, 4-5.0,
I
4 1~48. O. )
The- network l)as large and small computers, minicomputers and
I.

5 : times"haring" terminals.

(OX 7528,

M-ahoney, pp. 82-83.)

"Through

I
I

6 -;ARPANET individual users can access processing capability and storage
7 capacity located in d-iff-e-rent parts of the country. n

(~"r

4-6.0.)

8 I. According to Edward J. Mahoney, former Deputy Director of the General
9 l'Accounting Office, the ARPA network was an "outstanding example" of
10

lithe "public util-ity" concept of computer use. *

11

li pp •

81-83.)

121 sharing
13

I

Dr. Perlis of Yale (who was an early user of time

at Carnegie Tech in the 1960s) testified that

"

I
I

15

Mahoney,

[I] n effect, what the ARPA network showed was that we were
about at the beginning of what we might call the Network Age
of computing where computers will be tied together in a
network like the telephone network, using satellites, etc."
(Tr. 1869.)

!

14

(DX 7528,

1

16 ,I

The opportunity to enter the service bureau business throug

Ii

17 ilthese numerous avenues produced a phenomenal number of entrants.

18 ilWithington estimated that there were approximately 1,400 service
19 i'bureaus in the United States by 1966 (PX 4832, p. 26); ADAPSO esti20

mated that there were 700 such firms with total revenues over $500

21

million.

22

As Withington wrote in 1967:

23

24

(Plaintiff's Admissions, Set II, "" 325.0, 325.9, 325.10.)

11-------I

* Mahoney felt t~at the term "public utility" was "carrying it

i out a little too far". What T,vas really meant was "many people
25 ilSharing . . . information . . . and using terminals to do calculations
in a sort of giant computer network" and that is what came about
with ARPANET.
(OX 7528, Mahoney, pp. 81-83.)

I

-839-

."

I"

•

!

"New, small companies have unlimited opportunity (and equal
risk) in the service area. Large companies not now in the
bus·ine.ss will try to e'nter, seeking the new opportunities,
and some w·il~ undoubt.edly succeed.
Overall, the growth
petentia.l of the industry appears as great as ever, though
the industry is movin.g. in new directions, and the pace o·f
e.volution and competition. shows no signs of slackening."
(PX 4832, p .. 32.).

.

As seen above, many who entered also grew at remarkable rates

I

i ~I during the 1960s. In doing so they became significant competition to
:1
r :i
the manufacturers of computer hardware.
:t
! I
c.
Competition. In providing computer time, programming

i-!

and other computing services, service bureaus compete with manufac-

I

I

1;i turers in providing users with alternatives to the acquisition, use
!..; or expansion of their own hardware and software.

(Currie, Tr. 15349;

!

Withington, Tr. 56986-89, 56993, 57001-02; DX 4076, DiPietro, pp.

~h

:!

J
it

6-7; OX 5652, B'runs, pp. 156-57 i OX 5821, Brownell, p. 16; OX 5937,
Alkema, p. 9; DX 58l6 r Vallario, p. 16; DX 6026, Gehring, pp. 12-14;

~.

=: ox

6088, Zweifel,. pp .. 19-20; OX 6128, St. Amant, pp. 11-12; OX 6243,

5] Mortensen, p. 6; DX 8122, Larribeau, pp. 11-12; OX 8175, Finelli, pp.
it
7;: 17-19; see also OX 84, pp. 2-3.)

S

Thus," [s] orne computer users may

obtain their own equipment, may have their data processing done by

.r

:1

.9.t:1 establishments such as service bureaus, data centers, time-sharing
I

:0 :I companies, or may purchase time from another user."
'\
~ :1

Admissions, Set II,

,r 957.0.)

(Plaintiff's

McDonnell Douglas Automation, among

,., :t others, advertised to this effect, urging users to "expand your
: \ computing capaci ty without leasing or buying computers" and saying
:..;\

, . . :t of the IBM 7094 that "you could buy one, you could lease one but
.~

i

__ :! it's cheaper and simpler to hire ours by the hour".

~:

:!

t

f

:i
"

t

·1

.\

-840-

(DX 10324, pp.

L

59-·60, emphasis in· original; see· also OX 6872, p. 1 (Keydata--tlall the

2.

benefits o·f a larqe computer with none of the problems"); OX 11202

l

{ADP--" [YJou donr:t have to buy a compu.ter to get [answers}.

4-

buy computing, ins·tead"); OX 11759 (Martin Marietta Dat'a Systems--

=

On-site remote job entry computing- s'ervice "as a rep1aceme-nt for an

a

existing- facility • • • e.g'. manuf'acturer r'eplaces 370/135 ") .)

7

You can

The small user, contemp'1ating the acquisition of his first·

s-

computer s'ystem, could forego or delay that acquisition by having his

9-

work done at a service bureau.

(Currie, Tr. 15605 -06 .)

Large users,

10

as well, w·ith heavily loaded equipment could off-load some of their

u
i.,
,
-I

work and thereby postpone or forego the acquisition of additional EOP
equipment.

(Norris·, Tr. 5819; Currie, Tr. 15350-51; J. Jones, Tr.

13 It 79982-84; OX 4085, Poe, pp. 19-20; DX 6088, Zweifel, pp. 16-17.)

to;.

~i Users also turned to service bureaus

It

in place of their own equipmen.t

to acquire flexibility, to fill in gaps in their own data processing
equipment without acquiring new hardware, to take advantage of the
additional services offered and to automate new applications (often
at lower cost due to less overhead than the alternative of installing
hardware) •

(See Norris, Tr. 6078-79; PX 4832, pp. 11, 32; OX 5821,

-,
I

I

I!
:

Brownell, pp. 16-17; OX 6026, Gehring, pp. 14-15; OX 7532, Parten,
pp. 188-91.)

Thus, the service bureau's customers included both those

with their own data processing installations and those without.
(OX 4085, Poe, p. 19; OX 6026, Gehring, pp. 12-14; OX 6088, Zweifel,

p. 18.)

As Applied Logic, a service bureau, described it:

"In large companies, many have their own computers but also
utilize Applied Logic services because of the unique, flexible,
large scale facility which permits greater depth in programming. In fact, of all Applied Logic's clients, 40% are
corporations in the top 500.

25

I

'1

:1

!

-841-

I
!

i

I

L'

"In small companies, not in a position to buy their own
computers, Appl,ied Logic time sharing is practical because
the user is charged only for actual computer time used.
There· is' no min-imum charge, capital expenditure, or maintenance cost involved." (DX 7393, pp. 110, 117; see also

1

l

OX 60S:(},. Ode·, pp. 10-11.)

That- th&.se alternatives- exist is· confirmed by customers'

I-

experience.

For example, Chemical Bank at one point decided to off-

load from its main IBM computer system its personnel recordkeepinq.
According to·James Welch, Senior Vice President of the Information
Services Group for Chemical Bank (DX 3656, Tr. 74673-74), the two

9;

alternatives conside·red were a service bureau in New Jersey, which

i

.0:

also offered a package program for the application, and a computer

'1 ;

~: system from Hewlett-Packard.
C,2.i

!3

se'lection of Hewlett-Packard.

:!

eight service bureaus instead of its own computer system to do time

r 4- '1

..

(Id.)

Southern Railway used six to

Its decision was based on "plain old economics and management

judgement" that it was cheaper and a better use of Southern's personnel

\1

]
.c :1 resources to use the service ~ureaus.*

~

Welch recommended the

I

~ _ '\ sharing.

~

(Tr. 75278-79.)

(J. Jones, Tr. 79440-42,

l7 ;, 79982-84.)
I

:S :!

Other examples of such choices include:

"

J

19 ;\
I

(a)

Oatamatic, Inc., which in 1967 submitted a proposal

-'0 :,

to the Southwest Louisiana Electric Membership Corporation

Z!. :!
;i

"to automate and process their accounting and engineering

j

.\

--

..,.,

'\

functions", and won over a proposal submitted by IBM involv-

.

23

ing IBM hardware.

1
.....
I
,~ .1

15

(DX 6128, St. Amant, pp. 4, 11.)

1--------------------i

;!

.;

* Although these decisions occurred in the 1970s, as shown above,

't.i.~ese

alternatives were fully available in the 19605 .

;

.1I

i
.\
i1
,i

-842-

1.i

(b)

DP&W provided Medica·l Associates of Chelmesford,

1

i

z'

Massachusetts, services '''which eliminated the complete

i

3:

i
4-i
I

ins·tallation of IBM equipm.ent" previously on lease from
IBM.

(D·X 4076,. DiPietro, pp. 3, 6-7.)
(c).

5"!

The Aerojet Company of Sacramento had two 360/65's

~

f

a ~,

installed.

7"

into three separate independent companie·s, two of those

it
~I

it

When its four operating divisions were organized

a:

companies· came to. Info·rmation Systems Oesign (ISO), a service

9-:

bureau, to do their processing and one of the Model 6Ss was

!

returned to IBM.

When the remaining company's business

declined a year or so later, it returned the other 65 to
IBM and gave its business to ISO.
13;

pp • 5, 12 -13 • )
(d)

, ....
.....
~-

(OX 8122, Larribeau,

The Federal Government saved millions of dollars

by having its agencies offer their excess computer time or

.

services to other agencies (see above, p. 835) as an alternative to acquiring new EDP equipment or services.

It

estimated savings of $26 million in 1966 and $86 million
by 1970.

Examples of such savings include the SEC's pro-

vision of computer time to the Naval Ship Systems Command;
the Environmental Science Services Administration's
prOVision of computer time to 23 different government
activities; and GSA

E~P

personnel's provisions of systems

analysis and program development aid for HUD.
Ad.'!1i s s ion s, Set I I ,

~r

,r

(Plaintiff's

3 6 8 • 2, 3 6 9 . 4, 3 6 9 • 9, 3 6 9 • 14; see a 1 S 0

369.6, 369.7, 369.10.)

-843-

~f ~f

1.

The competition provided by service bureaus was well under-

2

stood within IBM, as well as· by other hardware manufacturers.

As early

1

as 1964, Cary, at .the. time President of the Data Processing Division

4-

(Tr. 101325.),. rece.ived. a repo·rt entitled "Remote Scientific Computing"

5l"which
noted that time-sharing service bureaus could be profitably
i
I

I

a:\implemented by non-manufacturers because technical skill need only be
7:(devoted to one location.

a ;il development
g

i

of interest in the service bureau form of busine·ss".

(PX 2964-A, pp. R29-R30.)

La ~and

The report projected "an immediate, rapid

IBM employees continued to track this growth

reported on the increasing service bureau competition.

The

I

lllQuarterly Product Line Assessment (QPLA) of November 1968, written by

i

!Z members of the Commercial Analysis Department, examining competition
!

._ ; for the 360/25 and 360/30, stated that:
U;
i

"computer-oriented service company competition is getting
stronger every day as new service bureaus and time-sharing
companies spring up and existing ones expand. Both of these
sources compete by reducing prospective customers' computer
needs. rt (PX 2360, p. 139.)

.-..
,

,

i

May 1969 QPLA 'reiterated that such companies "offer services which substitute for additional computer function and/or capacity"
2437, p. 108), and noted that

"Timesharing services are being sold by almost every type
of business including computer manufacturers, service
bureaus, financial institutions and new entrepreneurs.
When all the vendors of services are grouped regardless
of their industry classifications, the explosive growth
of this segment of the data processing market becomes
apparent." (Id., p. 294.)
These same IBM employees analyzed service bureau competition
!in assessing the competitiveness of IBM's planned 370 line (PX 2388,
Z! .1,
I

i

-844-

I
I-

1,

p. 117), and Caxy testified that service bureau competition constrains

2

IBM"s, price's.

l

(Tr.

10~642.)

'S-imi1.a.rly·,

C~ie

of Xerox t.estified that Xerox Computer

Services salesmen" in,'acG!ounts with small computer systems, had "'been

4--

:

,suc:ce·ssful

a

ware" •

on

a number of oecas·io:ns in replacing the computer hard.-'

In other instances, xes competed with

n

the hardware vendors,

1:1 the small computer system vendors in providing a solution to a
8

cus.tomer" currently using another service bureau for accounting or

11
!

9l

doing its' accounting work on accounting machines.

i

10

1!

~e

services of XCS were offered as competitive

alternatives to the use of a centralized data processing system.:

"xes services are in my opinion an effective competitor
for all general purpose computer systems n .* (Tr. 15611-12,
see also Tr. 15477-90.)

!2,

13

In Currie's judgment,

(Tr. 15603-0-6.)

1

f

:t
T 4-

Norris of CDC testified· that a user has the alternative of

.. !
I

._' installing minicomputers or a larger computer system or using CDC's
~;

!
16 ;t data services in solving his data processing problems.

17 it also Tr. 5698.)
lS

'Reginald Jones, Chairman and Chief Executive Officer·

of General Electric, testified that GE has "always understood that the

:r
it

19

:\ service business, in effect, competes

:I'
"

~

~V'ith

the manufacturer, because

.i

za :r

,'1'

(Tr. 5997; see

i

,!

you attempt to sell the customer service rather than have him go out
and buy his own machine.

I

We say 'We'll put a terminal in your place-

.

I

j and you can use our system'''.

(Tr. 8848; see also Macdonald, Tr. 6900

Z2 :!

23 J (service bureaus competed wit..~ Burroughs "rather extensively" because

I
'! - - - - - - - - - - I

?A
-"'!"

,

:1

*XCS services were only offered after 1970, but

25 :, equally to the 1960s.

'!
{
:1

:1t

-845-

~~e

analysis applies

I

!at they are "an alternative for the user having his own individual system

Z' of a small-scale or medium-scale, which he could use for the- same
purpose") i Ro-oney, Tr ... 12:039-40, 12482.)

1

By- t.he end of . the' 19:60s service,bureaus had become a majo-r

4-

The pee, in its 1970 Te·ntative Decision in Computer Inquiry I

: \- force.
a.~

(Docket No. 16979), estimated that there were more than 800 service

7

bureaus with total annual sa~es exceeding $900 million.

;1

a :i' estimated that more than
and capacity.

9-

I

"T

5, 000 companies had sold excess computer time

(Plaintiff I s Admissions, Set II, lI'f 306. 7-.9; see PX

4835, pp. 36-38- (over $1 billion in revenues in 1970).)

~ j

The Commission

The history 0-£

a few service bureaus active during the period follows.

l

-:

McDonnell Automation (McAuto).

~!
11

:.z 1into

Among the early entrants

the service bureau business was the McDonnell Corporation.

L~:tMCDonnell
,

:.5 : million.

was a major aircraft manufacturer with 1959 sales of $436
(OX 11074, p.

2.)

It established the McDonnell Automation

.~ :ICenter in 1960 to provide "complete electronic data processing services
1.0

:!

L7 "both for scientific work as well as in administrative fields such as
LS "linventory control, marketing analyses, production control and account;\

.~

Jinglt.

1. .. :!

(,&, p. 14.)

The company had 300 EDP employees and was about

:Ito acquire an IBM 7080 and 7090.

'0 :
-

(,&)

The center advertised that

I

iits equipment "encompass[ed] virtually every size and type available
1:..1
This variety of machines enables the Center to process any
L .
Z2 -\

",_\size or type of program at the lowest possible hourly rates, because
~I
~
i

Z!

customer is not bound to a single machine" (DX 10324, p. 155) and

:istated that i to was the first commercial user to install an IBM 360/30,

23

.i

I
-846-

L

the first to install a CDC 6400 and the first to install an RCA Spectra

Z

70/55.

(!.£.:.' pp • 82" 2 3 4 • )
The McDo'nnell Automation Ce·nter also offered systems desi.gn,.

3,

4- ~ consul.ting and pro q-r amming: se'rvices..

,

In the late 19'60s it offered

~ II. ICES, a series o.f computer languag

In addition to its role· in supporting and funding spec'ial

f

·4-1'
t

_I· research and development efforts, the Federal government was 'important

::: Ii''
I

s-imply as a. user of computers and a customer of the EDP suppliers.

t

51

7;'

In fact, during the 1960s, the Federal government was the largest user

.

,

of computer equipment in the world.

S;

(OX 4355, pp. 6, 11; OX 7567, p. 9';

OX 13455, p. 1; Plaintiff's Admiss'ions, Set II, 1r 312.8.)

901

It "increase

its inventory o·f computer systems from 531 in June 1960 to 5,277 in

10

June 1970, when it owned ADP equipment which cost $1.9 billion and
II

rented equipment which would cost $1.2 billion to purchase."*

LZ

4355, p. 6; see also OX 7566·, p. 16; Plaintiff's Admissions, Set IV,

!3~

1r 221.0.)

I

14-,

By any measure, government use of computers was large and

expanded rapidly throughout the decade.

!

IS:

(See, e.g.,

OX

923, pp. 1,

7, 10-12, 17-23; OX 924, pp. 2-19, 595-97; OX 4589, pp. 5-16, 297.)

16 ;1

By the middle of the decade, the acquisition of computers

1711I..,

had become sufficiently important to warrant special attention in the

'fS d
•

(OX

Ii

form of legislation--the Brooks Bill.

Prior to 1965, the government's

.. :t:' EDP equipment was acquired in essentially the same manner as other
za
19

;1

'I

personal property, with each agency responsible for its own equipment

Z!.·I·

.
•
,
,.,--:f:\ decentralized
requ~rements

,!

.

.,_ it

-i
I

.... A

Such acquisition decisions were made largely on a
basis with a view only to the individual agency's needs .

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _

:f

'~:
* ADP (Automatic Data Processing) is the government's abbrevia2! 'i tion for Electronic Data Processing equipment plus unit record
:1 equipment.
(DX 924, p. 595.)

;i
.,

.1

:i

I

,I

.1

I

-869-

~

-i

However, there were three central-type agencies involved in the

~:

acquisition' of

EDP

e'quipment--the Office of Management

L1 the General Services Administration,. and' the
.
~:I (OX 43'55, PP'. ll~ll.,)

Oepar~uent

and

Budget

(OMB),

of Commerce·..

I

I
I

Cesp:i.te the deeentralizatio'n of responsibility" it was

t\
I

I,
•

f

government policy to acquire equipment at the least possible cost,

I

II

,.. :1 promoting and taking advantage of competition among manufacturers.
~,

r

The Bureau of the Budget issued a circular "to the heads of executive

S ;1

i: departments and establishments" in October 1961, stating:

i

"Two prime factors will be considered in the selectio·n
of equipment: (1) its capability to fulfill the system
specifications, and (2) its overall costs, in terms of acqui'sition, preparation for use, and operation •

J:

,. ;;
;
I

~!

" .'

;t

3;

•

•

e·

"•
The method of acquiring ADP equipment will be determined after careful consideration of the relative merits of all
methods available (i.e., purchase, lease, or lease-with-option-topurchase). The method chosen will be that which offers the
greatest advantage to the Government under the circumstances
which pertain to each situation." (OX 5207, pp. 1-3.)

I

4. :\

.....

I

-

I

5

;1

!

This decentralized decision-making failed to take into
7 ·1

s .1 account the availability of computer equipment elsewhere in the
:, government or the possibility that the equipment chosen by a particu-

c :;

· :t lar agency might also be used by another one.
'0
i

r,-

i expande~
.1

- j
~.,

'j

-

'j

._ J

its acquisition of

EDP

! Administrative Services Act of

.- ! puters
,'"

I

....

i

equipment, the potential benefits

I

1949 to include general purpose com-

and related services* under the GSA's procurement authority .

~.:

* The Bureau of the Budget's ADP Glossary defines "general purpose
-870-

I

!
iI

In 1965,

the Brooks Bill was enacted, amending the Federal Property and

,I

I
I

f~om the coordination of acquisitons decisions incr~ased.

~:

•

As the government

!

I

\

I

(See

I..!
!

ox 5703, p. 11 !:!:

~.;

Plaintiff I s Admissions, Set II, " 354.1.)

*I ~
I

As summarized in a report to Congress by the Comptroller

Zi

!

General in 1971, the new law:
": [glave GSA the operatio-nal respo·nsibility for coordinating
a- Government-wide: ADP' management program. • • • GSA was

I,
i-

g.iven ~clusi.ve autho-rity to acquire- all g.eneral-purpose
AD!' equipment· for use by other agencies.

!'1i-

,

: ;1

" • •- .. GSA was to administer an ADP Fund for the acquisition
of agencies' equipment requirements. The agencies were to
obtain a"nnual appropriations from -the Congress to reimburse
the ADP- Fund.

. ;1

7

jl

8

i

I

i

"The law also provided for the establishment of a
man"aqement informatio-n system of inventory and fiscal
data • • • • [**]
[for] efforts to achieve optimum utilization of ADp· res-ources and to ensure that the Government
evaluates all a-cquisition alternatives so that equipment
is acquired in the most economical manner practicable."
(OX 4355, p. 14.>

ll,
I

!.2.i

I

The legislative history of the Brooks Bill indicated that

ts :[
.:..• 4- :i
!

15:

'the

program to be implemented should have the results of:
"-- improving the Government's bargaining position
through volume acquisitions;
"-- basing rental-versus-purchase evaluations on the
value of equipment to the Government as a whole rather
than on its anticipated useful life to the initial user;
and
"
selecting equipment for purchase which, on a
Government-wide basis, offers the greatest purchase
advantage." <,&, p. 14; see also OX 5377, pp. 1-2.)

computer" as "a computer designed to solve a large variety of problems;
e.g., a stored program computer which may be adapted to any of a very
large class of applications." (OX 1783, p. 13.)

* The text of the Brooks Bill is contained in PX

481.

** Thus, the GSA has maintained an inventory of general purpose
computers in the Federal government.
-871-

~

1

1

1.:

Among. other things, GSA was to consider the "pos-sibility

2;

that additional procurement sources could be cultivated to serve as

l: .competitive
I

'alternatives to the. exc-lus.ive procurement of' equipment

r

directly from manfacture·rs

o£.\
•

I

rsic}'~

and the "possibility of p.rocurinq

I

!

I~' equipment and software

~

\1

~ ~I

16.)

'. as separa'te items

If •

(DX 4355 I pp. 15-

In addition, the Bureau o·f the· Budget* and GSA encouraged th.e use.

j \1

of' plug-compatible peripherals and the acquisition of EDP equipment

a:

from third party le·asing companies.

(DX 4321, p. 1; DX 5212, p. 1;'

I

OX 9071, Crone, p. 101; see pp.

759-61~

782-90, 960-61, 975-76.)

The' resulting effort was implemented by the GAO, the OMB,
the National Bureau of Standards and the GSA.

The OMB put out ins truc-

tion5 designed to· ensure that the agencies satisfied their EDP needs
in the most economical manner.

The GAO assured that the implementing

instructions issued by OMB and GSA were adhered to.
Standards provided technical advice.

la

~ ~1.

17

in combination could be analogized to the organization of a commercial

'I

establishment with top management, those responsible for daily opera- .

t

tions and the technical advisers.

·t

... .I

I

za '!I
.... .,

The operation of these agencies

:1

15 :!:1
fQ

The Bureau of

(See

ox

9071, Crone, pp. 50-52.)

Three of the programs arising from the Brooks Bill deserve
additional description.

They are the GSA Reutilization Program, the

" ADP Fund, and the ADP Sharing Program •
:1

4.:.;
~

The GSA Reutilization Program.

The Federal government

22. 'j
23
......

,1,

began taking advantage of its size as a user by actively seeking

I

efficiently to reutilize EDP products which it owned.

j

As with leasing

,,- I

1=

.\

* The Bureau of the Budget was renamed the Office of Management and
I Budget pursuant to Reorganization Plan Z of 1970.
i
.!
;\

-872-

L:

companies

~nd

used equipm,ent br.okers outside of the government, such

% 1. efforts lead to older, purchas,ed equipment competing for business
Z

with the new offerings of EDP manufacturers.

i

4. ,.

GSA was:

responsible for EDP' reutilization in the Federal

I

:'1'

government.

(Plaintiff's Admissions:, Set II, "134.• 6.>

And, DSA

·1

t

C-:

(the Defense Supply Agency) worked in close cooperation with the GSA

7

wi th respect to, EDP reutilization .. ,

,.,.1

,
;1

8 [I '1 134.7.)

-

(Plaintiff's Admissions, Set II,

Within the DSA. the Defense ADPE Reutilization Office (DARO)

acts- 'tas a marketing type' agency wi th respect to the disposal of

0.'
;

j

1O! excess computer equipment within the Department of Defense, and
I
through GSA to other Federal agencies and programs.
(!h, 11 138.0.)
i

~il
lZ
T 4-

-

il
;
i
\

15
j

Fede'ral agencies were expected to determine whether their
needs could be met either by utilizing excess EDP equipment or by
sharing installed equipment before seeking new acquisitions.
Crone, p. 44; Plaintiff's Admissions, Set II, 1r 357.9.>
tion program involved hundreds of millions of dollars.

(OX 9071,

The reutilizaThe acquisition

cost of government ADP equipment transferred or reutilized· during
fiscal years 1965-1970 totalled almost $563 million.

(Plaintiff's

I

I

Admissions, Set II, f 371.9.)

I

.

The increase in reutilization of EDP equipment by the govern-

I

I

!

ment was boosted, in part, by the increase in the amount of EDP
equipment purchased, rather than leased, by the government, beginning
around 1963, when the GAO urged more extepsive purchasing of EDP equipment by the government.

The percent of government-installed computer

equipment that was purchased rose from 17.0 percent in 1962, to 21.3
percent in 1963, to 59.8 percent in 1969.
tiff's Admissions, Set IV, ~r 215.4.)

(OX 923, p. 19; see P1ain-

It was also facilitated by the

:~
1

-873-

L

general purpose nature of the equipment, which by de-finition could be

2.

utiliz-ed in many different applications.
The GSA re-po.rte.d that the government realized cost reduc-

4- . tions through reutilization ·of gover:nment-owned excess EDP equipment
i

: I'between 1966 and 19'70,. totaling ove'r $330 million.
I

-

(Plaintiff f s

I.

e ; Admissions,

Set II, 1f 371.10.)

These· savings, of course, came about

I

711 because the reutilized equipme·nt competed successfully with new
It

S

! equipment

which the government would otherw·ise have acquired.

t

9-! Plain.tiff' s

(Se'e

Admiss.ions, Set I.I, 11'1 371.0, 371.1, 371.11.)

I

1a \:

Excess equipment which could not be reutilized efficiently

I

11 1 within the Federal Government was disposed of elsewhere.

Surplus

tZlgovernment-owned equipment has been donated to approved recipients,
I

I

U

i such

as state and local governments or educational institutions, or

I

14- ! sold on the open market.

(Plaintiff I s Admissions, Set IV, 1r 228.1.)*

I

I

15!

The ADP Fund.

In its 1965 Report to Congress (which led to

I

16 ;!the Brooks Bill), GAO recommended legislation to establish an ADP
17 !!reV01Ving fund,

'8
•

il
:1

11

(a)

to

be available:

for procurement of equipment;

'I

19 [I

20 :!,I
.,
2! :j
.j

"(b)
for procurement of ADP contracted services
when needed; and
" (c)

to facilitate the establishment of service

;j-----------

* One example was the Minuteman I guidance computer. Between
April 1969 and December 1971, the Department of Defense permitted GSA
Ito offer 230 Minuteman I computers for reutilization~ All were taken
24 :Iand as ot December 1971, there were 113 unfilled requests outstanding.
',(Plaintiff's Admissions, Set II, ,r 539.0-539.3.)

22

il

23

1

25

:1

ir
II

:1

it

-874-

centers, equipment pools, and time-sharing arrangements."
(Plaintiff I s Admissions, Set IV, 'f 223.0. >

L
%-

The B\rooks Sill aathorized the establishment of such a fund,

1

to be _manaqed by- 1:he GSA.

4-

wi-th an initial-

!-

The- fund was- "activated"- in

~apitaliza-tion

an additio-nal appropriation- of $-20 million in January 1971.

7\1
9

19-68

o-f $10- million in approp:riations with

p.3; Plaintiff-'s Admissions, Set I.I,

8

fis~ca~

1{

CDX 57-14 r

370.2.>

GSA wasa-uthorized in May 196,8-, to "acquire exc:ess govern-

1

ment owned equipmetlt and rent the equipment to agencies through the
ADP Fund at rates which would ensure the continued solvency of the

lO

fund but which

11

(Plaintiff's Admissions, Set II, 'f 370.1.>

wou~d

be lower than the rates charged by suppliers."
Thus, "[t]he GSA leasing

of EDP equipment financed by the ADP Fund is sometimes an alterna.tive,
to the extent of ADP Fund resources, to acquisition of EDP products
for Government agencies".

(Plaintiff's Admissions, Set II, 1r 370.4.)

One of the ways in which the ADP Fund increased the alternatives open to government agencies was by allowing them to take advantage of the lower rentals offered in long-term lease plans.

The ADP

Fund was established without fiscal year limitation, and accordingly,
could be used by certain Federal agencies to enter into long-term
leases for EDP equipment (instead of either short-term rentals or
purchases), where their own budgetary/statutory constraints would
prevent them from entering into a lease with a term beyond one year.
(See DX 4355, p. 15; Plaintiff's Admissions, Set II, ~f 370.9.)

In

addition, the ADP Fund functions like a leasing company for government
(OX 5654, Webster, pp. 129-31; DX 5834, Hiniker, pp. 4-5;
-875-

•

i

OX 7528, Mahoney, pp. 109-10; see al.so OX 6257, Go·ld, pp. 17-18; OX

t

11

9071, Crone, pp. 20-21.)

l ;

~p

Sharing' Program.

The reutilization program and· the ADP

I

~i. Fund. increased the extent to 'which Federal. ag~ncies actively cons-id~red
I

f

If

old equipment in' competition with new computers they might otherWi$e~
have acquired..

Such: competitio·n was further enhanced by the possible

i \r

r ~I
11-

! ;

use of exces:s computer

~

in lieu of hardware acquisition.

Indeed,

whereas through the reutilization program, the GSA acted as an internal
government compu·ter, broker/d.eal.er and the ADP Fund as an internal

;.

government leas.inq· company, the sharing. of computer time created
J
1.: internal governmen't service bureaus. As with service bureaus outside·
,; the government, this took two forms:
;

',:,1.

the use of excess time on com-

puters otherwise utilized by users, and the =eation of data pro-

t cessing centers with computers dedicated to the provisions of time and

~ II

services to a variety of users.

(OX 5188, p. 2; Plaintiff's Admissions,

5 11 Set I I, 11 364 • 1. ) Such service bureaus provided users with further
5 :1
7 :1 alternatives to hardware and software procurement. (See, e.g.,

'f Plaintiff r s Admissions I Set II, 1f 357.8.)·

S 'il.

:i

In 1964, even before the Brooks Bill, the Bureau of the

Q ;

I~

I;

,r Budget stated the following policies regarding "the sharing of elec-

!O!

· :i tronic computer time and related services" among government agencies:
"(a) The practice of offering available electronic
computer time and related services for use within and among
agencies of the Federal Government is to be followed as a means
of increasing the utilization of equipment.
n(b) The use of sharing is to be considered by
departments and establishments and their field offices

-876-

as a principal me'ans to perform essential computer work
for which electronic computer resources are not at hand
in the·organization.

L:
2:
I

". (c) . ~encies are encouraged and are expected" to
utilize the refe·rral services p·rovided by Computer
Sharing. Exch-ancges or equ·iva~ent services as may be·
established;to identify s~urces of assistance available
for sharingp.urposes. " (OX 5461, pp. 1-2; Plaintiff's
Admis.sions, Set II, 11 357.9 •. )

3;
I

~:I
_I

:1
I

a. :.
,.

I

As with the other EDP-using activities of the government,

7 iJ

il
a:

such activities ware systematized under GSA following the Brooks
Bill.

9-

The program was a success:

10,

~From fiscal year 1966 through fiscal year 1970,
cost avoidance by GS·A resulted in the probable avoidance
of expenditure of the following amounts of money by
sharing products of Government agencies as an alternative
to acquiring new EDP equipment or services": $250.8 million.
(Plaintiff's Admissions, Set II, , 368.2, see 'f~ 369. 0.18 for specific examples; see also OX 5654, Webster,
pp. 67-69, 106-07.)

I

11 !

IZ!
1- :,

~ it

1+;,

Separate service bureau operations were also set up.

15:

GSA

I

1S \\ operated 12 Federal Data Processing Centers (financed through the ADP
~ :t Fund) which offered the following services to government agencies
.7 :1
'{ and contractors: computer processing, systems design and programming,
~S

•

19

.,

,\data conversion, and applications software.

!
I

(Plaintiff's Admissions,

I
i

I

'j
'~

I

'I"

!

Set I I ,

I

,r , 3 54 • 5, 3 6 4 • 3- • 4 • ) '*

-----------

.:
'* In addition to the larger Federal Data Processing Centers, there
22. '\are a number of "Joint Use Centers • • • in which more than one agency
"with a data processing requirement joins together to do their work
Z3 't ei ther by time-sharing or splitting shifts".
(Plaintiff s Admissions,
.rl Set I I, 'f 366. a • )
I

,4

\

-I
I

:i

ZO :,:
Zl

I

i

ir

.~. .=. .!!
I

i

'i
'f

.,:1
1

.j

I

:\

,
I

:

-877-

:1
I

Il

1. \1

55.

2.

a.

1t

S!
i~
4;.1

Planning for New Products.
Intro"duction.

Even in 19,64, IBM management was deter-

mined tha,t the orc;anization would not simply sit back and enjoy the,
fruits' of the succe'ss whi'eh it· was already beg-inning to achieve with

I

:-1:

Sys,tem/360.,

IBM 'm&naqement' realized', given the lessons of theviqorO:1its

I

I

compe.tition in·. the e'arly 1960's, that however successful 3'60 would turn

a\l

7 il out to be., competition wo,uld not stand still.

a II

As Thomas J. Wats·on,

Jr., wrote in November 19"63:

"I believe tha.t whenever we make a new machine announcement, we should set up a future date at which point we can
re'asonably assume that a competitor's article of greater
capability will be, announced. We should then target our own
d'evelopment program to produce a better machine on or before
that date.1t (PX 1077, p. 2.)

9t.O.

Ll
t,Z!

Thus, pl'anninq commenced for

I'
_i

f~ture

g.enerations of equipment

I

~ ·i even before the System/360 was delivered.
l~:

On October 9, 1964, A. K.

Watson (IBM Senior Vice President) wrote to Gibson and Piore (both IBM

i

15 l Vice Presidents and Group Executives) :
!
... II
1Q :1
" • • • I think it is extremely important that you put
together a group of enqineers from each of your divisions
i\
who will now be starting to design the next generation
~J it
machine and do this on a continuinq basis, taking advantage
18 :[:i
of possible improvements in monolithics technology, any new
technology, printing, etc." (DX 14394.)
memory
:\
1-

19 !~

za

It was also recognized within IBM that the future competi-

~i
:1

!tiveness and price/performance advances of IBM's computer systems
." a
- j would depend on new peripheral devices as well as processors and
22. ;\

;imemory.

IBM's System/360 Compatibility Committee reported in August

Z3 :1

11964, that:

.1

24 'j
I

I
.-=
~I
I

!

'i

!

:11
,,

:\

.!

-878-

"The heretofore heavy emphasis on processor planning as
the criterion. for improved price/performance should be
re-orientaa towards I/O developments. The· across--the-board
imprQ:vements in pric-e/pe~formance which w-ill be required in
the, 19-6·7-68 time period will probably be brouqhtabout moore
~ Unp.ro.ved I/t;) capability than by CPU and memory improvements."
(n: 3908A., -p. 22; see aJ.so PX 6671, p. 27 •. )

Zi
!,
1;
i

~I

I'

!

I:
,
I

e:
7

In particu~ar, continued improvements in input/ou"t;put equipment were·
.

expected to be needed

I'·tO·

keep System/360 a viable product line. • •

n

!

~

(PX

3908A, p •. 22 .. )

As we

have seen., rBM did in fact announce greatly·

improved disk drives (the 2314) and tape drives (the 2401

Mode~s

4, S,

6 an-d the 24·15) in the two years following the announcement of System!
360.

(See pp. 393-95 above.)

Peripheral developments- were also even-

tual1y to contribute significantly to the next generation of computer
systems.
The history of System/360, as we have discussed to this

point, reveals an on-going pattern in which IBM introduced products,
competitors responded with lower prices or improved products, and then
IBM responded again with lower prices and/or improved products of its
own.

This pattern was captured at least in part by the testimony of a.

number of IBM's competitors who testified, in conclusory terms, that
they attempted to price their products, either by cutting prices or
introducing product improvements, to obtain a price/performance advantage over IBM's existing computer systems--particu1arly System/360
systems.*

As one would expect, that goal represented only a rough

* See, e.g., McDonald, Tr. 2883-84; Pa1evsky, Tr. 3149-50, 3176;
Norris, Tr. 5653-54; Hangen, Tr. 6350-51, 10861-62; R. Bloch, Tr.
7598-99, 7601-02; Beard, Tr. 8492-94; Rooney, Tr. 11826; Wright, Tr.
13082-84; Currie, Tr. 15175-76.
-879-

"rule of thumb" (see R. Bloch, Tr. 7599-601) and was necessarily

t

imprecise because of the functional differences between the competitive

2:

-I
,

I

systems and IBM':s systems and the variations in perfo,rm'ance among

f

~

,

i'

computer systems from application to, application.

4.

(Fernbach" Tr. 497-

I

- !!' 503;: Sche·rer', Tr: 2482;
:

.'

P'a~evsky,

Tr'. 3-27'O'-!-Tl;' McDonald Tr'.

4.1aZ~8:·3;;·

4195-96, 4207-12; Norris, Tr. 6038-39'; Lacey; Tr •. 6570-72, 6aOO-Ol;
Beard, Tr. 10091-9:3; Withington, Tr. 56758-60.)
Most of the, characterizations of those competitive thrusts

focused primarily on obtaining a throughput per dollar (usually
labeled "price/performance") advantage.

(Pa1evsky, Tr. 3270-71;

McDonald, Tr. 4188-90; Norris, Tr. 6038-39; Lacey, Tr. 6570-72; Beard,
Tr. 10084-88, 10097-102; Hangen, Tr. 10837; Rooney, Tr. 12129-30.)
Of course, important elements of value to users were not captured by
the price/performance equation, and many of these elements were
advantages of System/360 that competitors were unable to match.*

* Such as the disk drives and printers, the breadth of peripherals,.
software, service and other features. See Perlis, Tr. 1977-78;
Norris, Tr. 6040-41; Lacey, Tr. 6708-10; Hindle, Tr. 7448-51;
McCollister, Tr. 9370; Beard, Tr. 9048-49; 10088-95, 10276, 10322-23,
10325; Rooney, Tr. 12048-49, 12055-57, 12122, 12135-37, 12190-94,
12550-51; Currie, Tr. 15459; Butters, Tr. 46450; Withington, Tr.
55898, 56218-19, 56240-41, 56250-52, 56591-92, 56764-72, 5680002, Case, Tr. 72881, 73428~ Knap1und, Tr. 90504-05; Evans, Tr. 10113234, 101137-38, 101141; PX 1099A; PX 1967, p. 1; PX 4829, pp. 17-18.
~he point here is not to criticize the crude attempts to measure price/ i
performance, as an economic matter, but to recognize that the compe!
titive responses of IBM's competitors (and the resulting IBM responses) I
and the significance to users of those responses were both more complex !
and less clear cut than that single measure could indicate.
I
I

I

OJ

'i

:\
I

'I

I

;\

-880-

In any event, because- System/3'.60 was so overwhelmingly succes:sful and

Z.

widely accepted,rBM's competitors o·ften aimed their later announced

i

I
I

3".: and: delivered productsa.t. existing' 360. users·, at.tempting: to of·fer them:

4a!i

an inc.entive

1:<:)r~e·

instaJ..led 3'6o.,s to be replaced with different

(MCDCaa1a,'!r. 42'Q5-0'6; R. Bloch, Tr. 759-6-9'7; S'eard, 'Pr.

e~i.p~ent.-

10.10.3; .Roon'ey ,. 'rr. 12420.-21; Wright, Tr. 130.83-84.)
i

7 II

S

Th.is "leapfrog·qinqrt. nature of competition was, and is,

characteristic of the computer industry.

11

(Hindle, Tr. 7447-48: R.

Bloch, Tr. 7761-62; R.• Jones, Tr •. · 8866-67; McCollister, Tr. 969-7,

9-.

, 110.69-74; Beard, Tr. 10.10.3-0.5-; Hanqen, Tr. 10.414-15, 10.423-24; Butters,
1(1 i
Tr. 4944-9-50.;. With~qton, Tr. 56459-60., PX 353, p. 23; OX 426, pp.

!'

11 :
: 7 -8. ) As we have seen, IBM was as mindful of the need to outstrip its
tti
!l
I
competitors as they were of the requirement to be better than IBM, and
13\
i
repeatedly, IBM was forced to come out with improved products or lower
I

r~ :r
~.

; prices in order to r~ain competitive.
(Knaplund, Tr. 90.519-20.,
15:
~ 90.50.3; Evans, Tr. 10.1045-49; PX 10.45; PX 1077; PX 10.90; PX 1o.99Ai PX

15 if

2990., pp. 1-4; PX· 4256, p. 2; PX 4565; PX 4830, pp. 20-22;

I,·!'

11" :

:[ ox
rs :

·

4773, pp. 3, 6; OX 4795;' OX 4806; OX 8886, p. 43.)

ox

1525;

Neither IBM nor

its competitors could have been successful for very long had they done

;1

19:

;r otherwise.

*

That "leapfroggingn competitive interaction presented

ZO' "l

. ·1

Zl :l.i

J

----------------------

*

Hindle, Tr. 7447-49; R. Jones, Tr. 8865; Hangen, Tr. 10.431,

Z2 '\ Currie, Tr. 15751-53; Brooks, Tr. 22704-0.6; Withington, Tr. 56522-25,

:t 56540., 56556-57, 56560, 56565; J. Jones, Tr. 78990-91, 78995-97;
Z3:i Knap1und, Tr. 90473; Evans, Tr. 101271-72; DX 426, pp. 7-8: OX 1404A,
! pp. 73-90 (App. A to JX 38); ox 3726;
PX 1079; PX l194A, pp. 1-3: PX
24 ;\ 1214; PX 1256 (OX 14504); PX 2964A, pp. 4-6, 26-30 .

,c: 'I

.1

-

1I

I

I

''{I
I
I

"

I

~f

:1
"I

I

-881-

III awesome challenges to the industry participants:

they were compelled

2.: to strive fot' a. sufficient lead w·ith each product to withstand the
i

competi tive res.·ponses destined to follow·.

!.;

Thomas J..

Wa tS'on,

Jr."

I

express'ed that challenge in· mid-l963, as· the announcement of Sys·tem/3'50.

"lI
,

a:pproached :
"I 'think it important to note, however, since we seem
to have suffered for a few' months· or even years becaus:e our
machines predated theef'fective competitive machines now in·
the marketplac.e, that we' now make these machines good enough
so they will not be just equal to competition, for I am sure
that once ~"'ey. are announced, our competitors wil~ immediately
try to better them. This is all to the good and I am for
competition, but I want our new line to last long enough so
we do not go into the red." (OX 4806.)

,0 \
~

I

!

As

Watson predicted, competitors closed the lead that

zit System/360 had given IBM and put IBM to the test again in the latter
l part of the 1960s. By then those competitors included, in addition to
:3 :t
:1 the systems manufacturers, vigorous and rapidly growing groups of

..4- ;

?CMs, offering simple box-far-box replacements for IBM equipment, and

I

~'

leasing companies, offering individual boxes and configured systems

I

,1*

it

.c "

.

:t"

!7 ::\

in competition with IBM.

Moreover, service bureaus and software

',', houses had proliferated and grown enormously over the decade, assuming

~S ~ i

:, roles of increasing competitive importance in the EOP industry.

L9

responded to the competitive challenges with a new line of improved

I,

20

.! equipment which became System/370.

U. ;\

Design planning for what would become System/370 began in 1965,

.j

Z2.

.~

..- ::d.nd
.,
~

IBM

Lhe engineering work began "in earnest in 1966".

(OX 4740: Evans,

I

! (Telex)

...... :I

Tr.

3937.)

Case, who was Director of Architecture at IBM during

,- I

i the planning for the new systems, described the objectives for the

.. -

~=

i,

I
I
I

I

I
I
!

'I

:1

-882-

I
I
I

L

development of System/370 a·s follows:

IBM was to develop its own

Z

inteqrated logic circ'uits''''-MST, i.e., MOnolithic Systems Technology

1

(see E. Bloch# Tr. 91SQ·l-02)--and integrated memory c·ircuits.

4--

nto eXtend the' a-rchit.ecture 0·£ System/3.6.0 in- order to make S:ystem/370

I

I

It was·

f

I
!!I more valuable to 'users and, there-fore·, more attractive to them".
I
System/370 was to be upward~ compatible from System/360. Dynamic

a~

1

7

Address Transla.tion·i· deveJ.oped in the Model 67, and related. systems

if

a!

r

so·ftware were to be' added to support virtual memory.

Various othe-r

improvements, related to program control facilities, reliability and
availability', were also to be included.

All of these features, of

course, contributed toward an overall objectfve:

nIt was our objective'

in designinqSystem/370 to design • • • a new family of central
processing units utilizing new circuitry and new technology to achieve
new levels of price performance for the user."

(Case, Tr. 73609-13,

73732. )

15:
I

Such new levels of price/performance for central processing

I

16' ;1

17

1units were to be accompanied

15

,I

(as would be required if system perfor-

mance were not to be limited by input/output performance) by improved

:t price/performance in peripheral equipment.
19

!i

.. Similarly, we had an obj ecti ve to make available
new technology and new circuitry to achieve new levels
of price/performance for the auxiliary storage devices,
that is, for the direct access storage devices and for the
magnetic tape devices." (Case, Tr. 73732-34.)

;1

20

Zl

-f

:\
.!

j

2.2 'i

~_

;1

~

.1

". A

~I

I were

In addition to the new disk drives and tape drives, there
to be fixed head file devices (Case, Tr. 73734-35), block multi-

,- I

I plexer channels (Case, Tr. 73695-99), new terminals (Case, Tr. 73737-

25

i

I
;!
'!

'j
:1
I
:1

I

-883-

i·
I

1.. i 41), a 3705 communications cont-rol unit (Case, Tr. 73741-

z;

4-7), a mas·s sto.rage system which Case des'cribed as an "ance'stor n . of
the 38:50

(Cas~.,-

Tr-. 73747-48), and a new. high speed printer, the- 3211

(OX 14~3 7) •

Fifteen months prior to' announcement of the first System/370'

models, the plarm·inq.- goals- were discussed by the Management Committee·:
[Vice-President, O-eve1opment, SDD] summarized
the inte-nt of the meeting as being to review- basic NS objectives and strategy, terminal-oriented and data base computing
system-s,NS plans, and marketing plans as they relate to the
NS systems:. The bas-ic NS objectives are to allow customersand IBM to mee-t market requirements on an evolutionary basis._
Kennard- de~icted the marketplace of 1970-75 as moving towards
communica.tions oriented, on-line usage. He enumerated the
basic functions which would have to be improved,. increased or
added to satisfy this demand. Improvements are required in
O?U's and channels, availability, access methods and front-end
tie-ins. Increased function is required in memory size,
channels, and on-line data files. New functions are required
in I/O device's, . such as tape, terminals, displays, printers,
and conversational compilers with associated control programs."
"'Kennard~

.a ;
I

l

J.I

!I

:21

!,

u!
!
r J;.

;

( PX 2 399, p. 1.)

•.

I

~

i

L6

il revolution".

The strategy for the new systems, however, was "evolution not

L7 :1

(PX 5621, p. 17.)

In addition, based upon the experience with System/360, IBM

Ls:1

I

planned to stagger the announcements,of its next generation of CPUs to

I

I

19

'I

avoid the excessive strains and demands which the simultaneous announce-I

20

:1

ment of the entire 360 line had placed on the business.

:

Since the

I

I

U :! con.cept of compatible families was now well established, this approach, I
Z2

13

.i

'j

unlike the situation at the announcement of System/360, would not

,I subject the customer to unnecessary uncertainties.

The new processors

I

z.! 'i were

to be announced "one or two at a time at approximately six month

I
....
_,,_11:

l intervals" starting with the largest two models in the summer of 1969.

:\
·1

I

:1

-884-

L

(Cary, Tr. 101359-361.)

Z

As we shall see, the design for and development of the new

3:

systems were to involve a complex in·teraction among the development

4-

and applicat.ion of new technologies fO'r memory, logic circuitry, disk

:: i drives and tape drives and the. achievement of advances in operating
i

I

systems architecture.

a :1

Although some of these pieces constitute stories

- :l in and of themselves, they each played a crucial role in the ultimate
I

tl

8; announcements· of System/370 and in the achievement of the basic goals

for the next gener.ation:

9-

La

the attainment of a substantial price/p.erf:o·r-

Mance improveme·nt over System/360, the extension of the System/360
I

i

11!

architecture, the maintenance of upward compatibility from System/360
and the addition of improved capabilities and function--to respond to

13

competitive developments, to meet the changing demands of users, and

J

i

to foster continued expansion of the use of EDP products and services.

!.4- ;
~

~

b.

Tape Drive Developments:

The 2420 and 3420 (Aspen).

In

., 1965-66, after its announcement of the 2401 and 2415 tape drives, IBM

,.1

:; J began
15

a longer range program to develop new and superior tape drives

it to supplant the ones just announced.

.I

That development led first to

19

Zl

:1

Z2

~\

the 2420 and later to the 3420, known in various stages of its develop-

.i

-----------------------

'\
I

* In the mid-1960s, IBM's "development focus" was on the System/360.
IBM "in essence took development monies away from magnetic tapes . . •

I (and]

other technology areas" and concentrated on System/360.

"As the

i development bulge of Systern/360 began to pass", however, IBM reassigned

;1

Z:

i
I

(OX 4740: Evans, Tr. (Telex) 4122-24;
:t ment as PRIME, HATS and Aspen.
20 :l
'I Aweida,' Tr. 49617-22; DX 2158; Cooley, Tr. 31942; OX 7751, pp. 3-7.)*

2~

I

!
I

Ii

:i
~I
i~

~

I

.1
'1
:1

development resources to "programs of technical excellence . . . that
led to • • • the development of what became the 2420 and later the 3420
tape subsystem family".
(Evans, Tr. 101294-96.)

d

.1
:j.

-885-

!

I
I

I
I

\

The 2420.

Development of the 2420 (known in development as

the "D30R")· was· review.ed in late 1966:

Itwe started.- e~rlyin' 1965 to develop a· truly superio.r tape
(bive "tha.t uses the late.-st technology to achieve imp·roved: relial)'iIity and 'faster thrUput while staying· compa·tible with the 24€H)
line. Th'e 1;echno.log:ies. cho-sen provided increased tape speed,

; 'I'·
.!
!

~.

faster acce·ss time and' linear rewind characteristics far superio-r
to any known drive. These cha:racteristics substantially improve'
the· thruput of our Medium and Large scale Systems/36.Q.n (DX

r ::·1
I

~

"

.,

II

~ ~~

7751, p. 3.)

r ~I
S

1'I
:1

~:

automatic threading (id., pp .• 3-4), the use of a single capstan to
enhance reliability (id.·, p. 5), the use of SLT technology throughout

I :

(id., p. 6) and the use' of fewer components leading to greater relia-

i

l

Among the. features of·that new tape drive technology were

I

I

,

bility and serviceability.

(~)

It was anticipated that the D30R

I

, i

-\' drive with these advantages could be manufactured at the same or even

..

'

~ ~

less cost than the 240X.

~.

(OX 7752, p. 3.)

It was also proposed in

late 1966, that a new tape drive (later called the "D30X") utilizing

~

::

- ; the D30R mechanism be introduced to supersede the existing 240X drives
!

6
7

J for

~'Ii

"small and medium system users", in order to give them the same

advantages.

S :1.j

(DX 7752, p. 1.)

The need for such improved tape drives was even more apparent

:1

9·i.f by the time they were announced.

In December 1967, the Management

:1

.0 '\ Coromi ttee reported to the Management Review Cornmi ttee that, al though
I

:11

the DP Group analysis of "peripheral equipment exposures and related

~I

2 ! action programs" indicated that IBM's peripheral products were superior

I
~ .\ to competitive alternatives in most areas, tape drives faced at least
I

~! ,t a potential threat:
.!I

-886-

I

"Frank Cary recognizes an immediate exposure, especially in the
tape drive area, which stems mainly from an improving marketing
and- service capability, and the attention the trade is giving to
these obviously better performing tape drives. Frank feels this
exposure can be contained at the level of about 1,00-0 drives,
since· at the announcement of the D-30-R in January we will re-El's-tablis'h' tecilnical snp-eriority and inclicate to the market that
our en-tire t;ape- line will be renovated.

f

I;
....

i:
t-

n'

I

I

,..'

ai

7

. . . .'

"In retrospect, it is recognized that our strategy in tapes,
whi.ch stretched old' technology too far, too long, created the
threa·t we: are now expe·riencing. Conversely, because of our technical superiori.ty in the file area, we are able to react and keep
ahead. The Group is cotmn'itted to avoid this problem in the
future. It _ (PX 2152A, pp. l-2.)

11

II

S:i

9-

On April 15, 196,8, C .. B. Rogers, Jr. (Vice President, Marketing, Data
1Q I
I
II f Processing Division) wrote to F. G. Rodgers (President, Data Processing
!

!.2.

, Division):

"The competitive tape unit market is moving fast .and we

anticipate even greater acceleration in the future", pointing out the
agreement by which Potter and MAI would market Potter tape drives.

14- ;
I

-r= I
i

--16

l7

(PX 3958, p. 1.)

a

II use

The IEM 2420 Model 7 was announced on January 30, 1968, for
with the System/360 Models 50, 65, 75 and 85.

It incorporated a

:,., single capstan drive, 200 inch per second tape speed, automatic

lS

:i threading, cartridge loading and compatibility with all IEM 1600 bpi
19 'i
a phase encoded tapes. * (JX 38, p. 840.)
20 '!
:1
Meanwhile, plans were being implemented to extend the D30R.
:1
111
.I technology to slower speed tape drives (DiOX program) for use with the
Z2 ;l
23

·l--------

\
* The single capstan drive was directly coupled to a unique high
24 :\torque, low inertia motor developed at IBM. The characteristics of the
I motor helped to make the 2.0 millisecond access time possible. (DX
2S 'j 7751, p. 5; see also DX 12689, p. 9.)
-,I

''fr
:!

!I

I
:\
.,:1

-887-

.. -: 360/30 and up.
i

~.:

(D"X 7710, pp. 5-6.)

Because of its high data rate, the

2420 Model 7 could not be use4 with systems smaller then the 360/50,

I
I

t ; but other as.peets of its technol.oqical advances were desirable fo·r the
•

f

~

\. us-ers of those smal1.er rBMsystems.

il

("See' DX 5155 , Gruver,*' pp. 42-43;

I

£ see also DX 783'S,- p. 3.)

i!

on January 5, 1968.

(QX

That p.rogram was given a "kick o-ff" meet.ing

7710, pp. 1, 4.)

By February, it was reported

:1

i;1 that "Boulder is makinq r-e-al progress on the slower speed 030R-like

~ !II drives".

(OX 7669 .. ).

Important goals of the pro gram- were improveme-nts·

;;' in reliability and serviceability as well as cost reduction.

(Id.; OX

:l i17698. )
In July 19-68, the Management Committee received a presenta-

1i

" : tion on periphe-rals.

-',I

It was told that "the 2401 Models, one through six

3 ]are the most vulnerable to the competitive compatible products in that

~]they are roughly half the price of our products and are of a newer
._ !l technology" •
.= 'I

The DPG strategy "to

com~ete

in the competitive compatible

I

;, products area" was, among other things, to "[m] aintain technical
,0. '
,7 'Isuperiority ".
(PX 2267B, p. 1.)
The pla=ed schedule of a=ouncement .
'1 for the new technology IBM tape drives was also reviewed.

.S ~i

(Id.)

The

, !,Management Committee reported to the Management Review Committee:
.9 :i.,
I
"We have announced a tape drive which is technically equal
~a .,!
in the high performance area, and have plans to announce
technically competitive products in the other capacity
I
u,'
ranges in October 1968 and June 1970. At those periods
of time we will be equal in technical performance. We
~
,., ;i
will be technically equal, but not equal in price/performance
I

-!

,_ -t

~

I

11----------~

* Howard Gruver, at the time of his testimony, was Vice President of
!Engineering for Peripheral Development at the Telex Corporation.
(DX
25 -5155, Gruver, p. 3.)
z~ ~

-888-

basis. DPG is actively working on strategies to combat
this· exposure but in the Me I s opinion,· we are, at best,
in a weak posture in this area today.

L

2-

"''Bas·ed en t.he: e*tende.d capa.city of the competitive
manufacturers, we stand to lose a sig.nificant amount of
highly .pro·fi.table· bu:siness. unless a plan· can be implemElnted
topluq~ the dike.
D'PG: has been as.ked to report back' to the
Me by S'ep-1:elitber with a validated- forecast of expected
impact of competitors" and their plans to respond to this
threat. It. (PX 3086.)

3
4.

IBM~ ~ad

7

development

o·f

caught up and was pushing ahead in its technological

tape drives.

A presentation to the Management Commi.ttee

in mid-October 1968, stated that "while we were behind in technological
i

development in the tape drive area in 1965 and 1966, the increased

i

inves~~ent

10 i

U

in tape drive engineering in 1967 and 1968 had produced

t

products which are technically superior to the competitive offerings".
(PX 3096A, p. 3; see also PX 3104, p. 2.)
lJ.. !\
..

In November 1968, Cary (IBM I

Senior Vice President 'and General Manager, Data Processing Group) wrote

f

to Watson (IBM Chairman of the Board) concerning tape drives and dis-

I

~li cussing competition from Telex and MAl who were "actively marketing
l5 .\

direct replacement of IBM's 2400 Series drives".
17 :1
!I

'9

;1

• J
..,,., :f
~,t

,I
.1

2l :!
·i

Z2 '\
~_ ;t

'-I
I

24.

,I

He stated:

- I

"Our tape strategy is to compete with superior
technology and function, and not price alone. •

lS '{

'I

I

2: ~I

:,i
,!

:!

.

·1
I

•j

·1,
:!
i

I
!

"We believe the new 2420 single capstan technology
• will narrow the price differential between us and
the other manufacturers, increase customer satisfaction,
and regain technical leadership for IBM. • • •

I

"OUr next move is the planned announcement of the
second model of our new technology tape drive, the 2420
ModelS, which is scheduled within the next 30 days."
(PX 2343.)
The 2420 Model 5 was announced on December 2, 1968.

Accord-

ing to the announcement, it was attachable to System/360 models from
-889-

I

I

the

~..odel

30 through the Model 91; offered a format compatible with the I

..

2400 .and the 24·15 serieS Models 4, 5 and 6, as well a·s the 2420 Model

:.
, I

7; but had half the speed' of the 2420 Model 7.

(JX 38, p •. 932.)

I

-I

Al though the component parts ·o·f the Medel 5 differed larg.ely from the-

I.

rlf parts of the earlier Model.7 (see
~:I

DX 7710, p. 2), the Model 5 embodied

most of the advantages of design· that the Model 7 had introduced,

r;1 including automatic threading and cartridge loading capability.
;}
~

38, p. 932.)' The goal had been to "cost reduce [the Model 7J to make

;

it a more manufacturable machine" and that was

pi

l'
r

(JX

~

accomp~ished

in the organization and packaging of the machine.

I

49091-94~

;

,:

OX 5155, Gruver, pp. 38-40.)

by changes

(See Aweida, Tr ..

The 2420 Model 5 was offered at

:

a substa..",tially lower price than the 2420 Model 7.

- i,
~. :

Outside IBM, the 2420 Model 5

i

development.

~vas

(See JX

38,

~D.

841, 932.)

perceived as an important

A memorandum written by three engineers of The Telex

Corporation stated:

;;

"The [IBM 2420] Mod 5 is a very well planned, designed,
engineered, and production-designed machine, taking advantage of high. production type tooling. It has been cost
reduced far better th~n any IBM drive I have seen.

I

"
"The IBM 2420 Model 5 is a completely different tape
drive from the IBM 2420 Model 7. It is very apparent that
the Mod 5 is the drive that they have spent the greatest
amount of time and money on. It has been cost-reduced
and highly styled."
(OX 1769, pp. 1-2.)
The 3420 (Aspen).

2. :.

Around 1967, a new, more ambitious

progr~~

31emerged from the development effort that had produced the 2420 Models 7
1

I

'.4

,.

:1

1

and 5.

That program, first known within IBM as PRIME and then as HATS

:j
I

'c: I
,~

:!

-890-

and then, in 1968, as Aspen, resulted in the 3420, announced in

L

2

November 1970 as part of the System/370 announcements.

i

l

(See Aweida,

Tr. 49617-22; OX 2158; Cooley, Tr. 31942; DX 4740: Evans, Tr. (Telex)

+

4122-241 JX 38, p. 981.)

I

I'

In August 1967, a Phase Review of the project, then called

· \1

HATS (High Availability Tape Subsystem), set forth as objectives the

!

a )t
7 ii improvement of availability, price/performance, reliability and service

a il ability with the use of one-half inch compatible tape.

9!

Drives were

planned for 320.0 and 1600 bits per inch, and were to have 360 programminq compatibility and incorporate NS (System/370) architecture.

.0

They

were to have a much hiqher data rate than any existing IBM drive,
~.~!

includinq the D30R (2420 Model 7).

-- f

:3

September 1969.

If

!-

1
~

-

I

,

'S

(DX 3116, pp. 1, 2, 3, 6, 13, 28.)

A year later, in September 1968, the name of the project had

I

. .to '
-. i
.:;

Announcement was planned for

been changed to Aspen.

The goals remained generally the same, but

t
'\ announcement was scheduled for June 1971.

I

I

(OX 3087, pp. 1, 2, 5, 7, 9.) I

I

~7 il

I

,

i

I
That 1971 announcement was one piece of a multi-part strategy.
;( The strategy, which included the announcement of the 2420 Model 5 and

~S It

il the

f9 "

~

first customer shipment of the 2420 Model 7 in 1968, was to go on

in 1970 with the announcement of a mass storage device and then to the

;1

ao :,

'1 ~t announcement of the first Aspen drive in 1971.
-.1

.

~

That time table proved too

s1ow~

(See PX 2343.)

By October 1969, activity

,-, l\

-- JbY leasing companies and peripheral manufacturers was expected to
2S l'
Z~

1increase.
it

It was reported in IBM that while the 2420 was "currently

;' competitive", competition was "expected to equal or exceed the capa-

'c
..... '
I
;

;1

il
I

:1

'I

'I

-891-

I

I
I

I

I!
I

bilities· n thereof with rental or purchase prices I-ower or comparable to

l.

, : IBM's.

(PX 4'033', p. 28 •. }
In order to accelerate the development e·ffort, the Aspen

i :
i

$.\ program was divided into. two parts, Aspen Intermediate and Aspen.
:=\ Advanced, to be announced in Se-ptembe·r 1970 and June 1973, respecl·

I
I

., !,I

tively.

:l J

~

(Id-., p .. 20.)

"The As.pen Intermediate Program is currently

targeted to meet the. OEM competitive pressur'es that are increasing in

ill

the field today.

a;

...

It

With the Aspen program concentrating only on

;.: Aspen Advanced, "Li]t has become apparent that this product by itself
;

:J

!

would not s·top erosion of our tape products inventory. • • •

1

1

the competition then, the Aspen 'Intermediate' Program has been intro-

To me.et

2j, duced to supplement the Aspen 'advanced' high performance plan".

3 :1 5360 , pp. 1-2.)

(PX

Aspen Intermediate was planned to have a density of 1600

:t bits per inch; Aspen Advanced, a density of 6400 bits per inch.

,.4.'i

Aspen

Intermediate was to have tape speeds of 50, 100 or 200 inches per

5:

second; Aspen Advanced; tape speeds of 100 or 200 inches per second.

_ 11
J

o

:t

As a result, Aspen Intermediate would have a data rate ranging from 80 -

,7 :'

'1

S :I to

320kilobyt~s

l

per second; and Aspen Advanced, from 640 to 1,280

:t kilobytes per second.
Q

,. !tape
~a

Aspen Intermediate was seen as "protecting our

"

:·1

investment" on 360/40s and 50s and early A48s (subsequently

i announced as the 370/155), while Aspen Advanced, to which Aspen Inter-

~·I

.

jmediate was "a more logical step", was seen as a way of insuring long
~'i

._ '! term system price/performance.

(Id., pp. 2 - 3 • )

Competition to which

'.,.
-

I

lthe strategy was addressed included both systems companie5 that had by

~~I

!1969 announced tape subsystems equal to or better than the 2400 line

-892-

II
I

I

it
I
I

I

L

!

i. and were expected to match the 2420 in the near future, as well as
j

2;

leasing companies and peripheral manufacturers.

j

(PX 4033, pp. 28, 33;

see also PX 53;60:.)

1, : :
t

There. were' pressure·s· within IBM to speed up delivery of the.

4;..
I

As·pen Intermediate and the announcement of Aspen Advanced.

:. f.'

(PX 5-564:: .

I

I

see also PX 536'0;- OX 14388.)

a :1

Indeed, Corporate Marketing expressed

7 ~i do·ubt·s that the 'entire stra·teqy wo.uld be in time· or would be sufficient.·

s

11

In early October 1969, R. A. Pfeiffer (IBM Director of Marketing) wrote
to w.. D. Winger (Product Manager, Tape Devices, SOD) concerning the

9

Tape Devices Strategic Plan:

La

"Corporate Marketing disagrees with the subject strategy
for the following reasons:

II
!
)

::1

ttl. The strategy does not address critical requirements in the 1/2 inch tape marketplace identified by
market requirements statements and increasing competitive
penetration of IBM's tape drive base.

L4- :
i

"

lS:
I:t
16

"3. The strategy does not positively indicate· that
IBM will regain and maintain price/performance superiority
over competitive manufacturers.

!I

11 :1

"4. The risks of insufficient advanced technology
efforts are identified in your strategy, but resolution
is not addressed." (PX 4212, p. 1.)

l8 :r:a
:l
19 .~

za

J In particular:

:1

:I

Zll

:\
22 :\

"The growth of. the OEM installed/on-order position,
coupled with their projected production capability,
requires immediate IBM response to p.rotect and grow our
market. .. ( Id., P . 2.)

..,~
il Furt h er,
~ .'\
24 :{
,j
Z5

. t h ref
t0 '
erence
pr~ce / per f orrnance

w~

"Inclusion of OEM plug-compatible units shows
IBM price/performance deficient in the critical Intermediate and Large Systems areas.

:1

.,,

.j

./
'I

I

:1

il

.

cornpar~sons:

-893-

II
I

•

.

do not see positi.ve assurance that IBM will
regain price/performance superiority from competitive
manufaetur·ers." (Id.~ p .. 3.)
"'We

!

~

t :

~

W:inqer replied o:n' Oc·tober 30:
f;;..\

,
I

It'I believe· this has' been answered by the funding
of As:pen Intermed·i.ate- top.ermit·announcement 9/70."

il
ill

Aspen Intermediate was. to be announced for' both System/!60 and the new

• :1
I iI

manufacturers

i

a

systems.

prices n· but the lo-ng range

(Id .. , p. 2 .. )
Howev~r,

1
Z,!

a
:f

- ~i
.4- ;
l ilt

at their lowes·t quote

strategy called for "'additional functions and improved performance".

o

-

and OEM

was '''price competitive with system

I.t

i

i

~

(PX. 5·5:63', p •. 1.)

t

these efforts presented

"a problem of adequate resources to bring out a burst of
products while at the same time building a technology base
for future products and product enhancements. The alternatives are to add resources or to accept the risks or to cut
out product programs. I have listed the choices in order
of my preference. This is an SOD funding issue." (Id.,
p. 2.)

-

I
.

Pfeiffer replied in mid-November, saying:

-:

"The first custo-

mer shipment date and delivery schedules for Aspen Intermediate drives
should be improved. •

The lack of advanced product technology

efforts has not been resolved."

(PX

5564, p. 1.)

In particular, "in

iI
f

light of current OEJ.\1 strength, first customer shipment [of Aspen
Intermediate] should be reduced to 9-12 months after announcement to
maximize competitiveness of the new drives".

Also, while it was

understood that advanced technology efforts were "primarily a funding
issue, [w]e are not satisfied that acceptance of the risks involved
with insufficient new product technology development is a proper
strategy".

(Id., p. 2.)

That debate had occurred repeatedly over the

-894-

Ii
i
I

ii

i

Ii
I

1..; years between

IaM' s staff and line organizations:

how best to fund the

I
I

2. i expenditures and absorb the risks involved in the rapid technological

developm.en·t demanded by the competitive race. '*

1

As.pen. Intermediate was announced as the 3420 tape drive,

40.I

_ j:

Models 3, 5 and 7', . on November 5,. 1970, wi.th first customer shipment

=I·
I

II

a; scheduled for October 1971.
..

As announced, the drives were

attachab~e

\1

-, :I:1 to all 3-60 models above. the Mode'l 20 and to all model.s of System/370 ..

!i

(JX 38',

I

pp. 981, 983.)

The three models had tape speeds of 75, 125 and.

200 inches per second and provided format compatibility with all IBM

~l

! 240X and 2420 tape drives through the ability to accept both NRZI and

LO ;
I

II

phase encoded tapes.

i

~
!
I

-- :,

(JX

38, pp. 981-3, 985.)

Although IBM capitalized on the basic design of the 2420 in

T'" i

its development of Aspen (PX 4033, p. 48), the end result was a signi-

t

13'
! ficantl.y improved tape drive and control unit.

1.

Some of the differences

between the 2420 and its control unit (the 2803) and the 3420 and its

;I

15ilcontrol unit (the 3803) were:

16<1
17
J.

(i)
:1

densities and tape speeds than the 2420.

18.t;1
19 ;!

j

requirements.

I

(Telex) 5709-10.)

:1

2! :\i

(ii)

~i

:i

(JX

38, pp. 840, 932, 982, 985;

OX

7619: Winger, Tr.

The 3420 achieved on the order of 20 percent improvement

in access time over previous tape drives.

~_ it
~

This gave the user

greater flexibility in configuring a tape subsystem to meet his

2.0 :

Z2

The 3420 provided a wider choice of recording formats,

\1

(OX

7619: Winger, Tr.

!

1 - - - -_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __

\

14. '\

,i

*

IBM had spent more than $10 million on Aspen by the time it was

25 :lshipped.

(OX 76l9~

Winger, Tr. (Telex)

I

.,

-895;1
,!
:1

;j

5695.)

i

1.1

(Telexl 5714-15 .. ) *
The 342.0 ·achi.eved a 25 percent imp:rovement in rewind

(iii).
i

1·;

time· over the 2420.

(DX 1619t W'ingerrTr.

(Telex)

57·16·.).~*·

~ .

. 'rhe· 3420 S'imp~.ified main·tenance..

{iv:}'.

No adjus.tments in. th4:

I

~~

basic read/Write circUitry were required (OX· 425·3, p.o"), and a
ntllUer of manual pne:U1ltatic adjustments were eliminated (DX 42.53, .

e \i

p .. 9').

7jl

n

CA] n Qutstand·ing development in Boulder Lab [was] a

pneuma.tic. device which a.u.tomatically adjusts and controls the

8;

pneumatics piped to various. portions of the drive, making a
mu~ "t,i:t.ucie:

of individual adjustments, that appe.ared in the· 24ZO: I'

unnecessary."
(v)

(Cooley, Tr.• 31941.)

The built-in proqrammablediagnostic capability of the

3803. controller also contributed to Aspen's maintainability.

Aspen was able to detect and identify problems in the tape sub-

-

system as they occurred.

c·
,

.s

I
;~

J

I

~S

:.:1

'[

(PX 3784B, p.

36~

PX 3962, p. 8; OX

2137 r p. 6; OX 4253, pp •. 17-22; DX 5155, Gruver, pp. 62-64, 73,
96-97~ DX 7619: Winger,
(vi)

Tr.

(Telex) 5706-08, 5713.)

Use of monolithic circuitry in the 3420 drive and 3803

.,

controller provided for more logic capability on fe·wer cards and

~91:;1'
~

in a smaller space with a resulting improvement of more than 25%

~O ;\

,.,

.i
;1
,
~'\

-

'1

23

'I

U.

in reliability over the 2420 family.

As a result of the reduction

I

I
I
I
1\

II

II
I,,;

* "Improved access time was achieved by positioning the readhead
i
gap closer to the data, thereby reducing the access time interval in
!
I subsequent reads."
(OX 2137, p. 1.) OX 2137 is an article by three IBM:
24 .\ employees at the IBM Systems Development Division Laboratory in Boulder,
.1 Colorado, which discusses what those individuals believed to be the
.
,:
.
\
"design
innovations"
of
the
IBM
3803/3420
Magnetic
Tape
Subsystem
•
.... !
1

**" Improved rewind time tN'as achieved by more posi ti ve control over
lthe tape as it enters the vacuum columns, and the control was obtained
:\with a new configuration of tachometers for high-re~~~tttion tape speed
:\ infonnation.
(DX 2137, p. 1.)
.1

II

:1

:

I
i
l

I

I

I

in space requirements, the 3803 controller was only half the size

L

1

of the. 2803, and the sw·i tching circuitry (which in the 2420/28,03
was contained in' a standalon,e box) could be included under the

!

'4'74'Q~::

I:

mvans·,. ,'1'r.

('re-lex), 4129'-ll.;

ox· 5155, Gruver,. pp. 59·-6,0,

I

i

65.~67,

all
7

8:-9;,

(vii)

\1

~4;

ox

76·19: .Winger , Tr

It-

(Telex) 5·698.)

The 3420 offered a n.ew method of attaching the tape

drive to the tape control unit--a radial attachment with the

a:
;

control u.n:it at the center and drives attached as the spokes of a

9~

I

wheel. are', rather than as a "daisy chain" attachment, with a whol.e

i

lO.(
u!

string of drives attached at one end to the control unit.

Whereas

in the "daisy chain" attachment the failure of one tape dr:ive

I2.l,

would mean the failure of the whole string, radial attachment

13 !f,

meant that "if a tape unit malfunctions it could be worked on

t~:

!

while the rest of the tapes were on line".

I

1- ;

~Il
16 a

(OX 4740: Evans, Tr.

(Telex) 4130; seealsoPX3962, p. 8; OX 2137, p. 5.)

In addition, the

radial attachment increased users' flexibility in the physical

17 ,I
18

arrangement of the computer installation.

(Case, Tr. 73735-36.)

:1

19::t - - - - - - - - 'f
*" • • • [el ircuitry changes were made in the 3420 tape drives
20 ':which had the effect of putting some of the very critical circuits

I associated with reading and writing on the magnetic tape itself
21 :! actually in the tape drive rather than in the control unit where they
:.: had been before. Putting those circuits actually in the tape drive
.,-, 'i rather than in the control unit where th~y had been be'fore improved
the reliability of the signals transmitted from the tape drive to
Z3 :\' the control unit when the magnetic tape was read; and it also allowed
for longer cable lengths betv/een the tape drive and the control uni t,
Z~ '\because the signals were more thoroughly conditioned and were capable
,I of being sent without distortion down longer lengths of cable." (Case,
25 i Tr. 7 37 3 6 • )

--:i

'I

I

"

i
·1
I

I

:1

:\
:!

-897-

r

I

-Ii
I

I

I
I

I

I

i

I'
I

(viii)

I
I

Finally, the 3420 included a new digital inte·rface

I

between the tape drive and the controller; the 2803/2402 had used
an' ana·log interf:ace..

'''The significant difference is in the faczt

that the- hig-hEg' voltage. 'of the digital interface gives better

!'

noise rejection characteristics."

.

Cooley; Tr •. 3l94(}-4·1i OX 5155, Gruver, pp •. 91-92.)

it~I

(OX 2137, pp. 4-5; see'

a~so

The 3420., with the faste.r rewind and faster mounting and

if dismounting of tape reels,.. provided higher thruput than the 2420..
4740: Rvans, Tr.

In addition, it had considerably

(Tel-ex) '4135-37 •. )

lower manufacturing costs than the· 2420 Model 7.
(Telex) 4139-43.)

.
r

(OX

JL1~,

pp. 1-4; OX 4201, pp. 1-6; OX 4421, pp. 1-2.)

,

~I

c.

Disk Drive Developments:
•

3340 (Winchester).

The 3330 (Merlin), 2319 and

With 5ystem/360, IBM had placed disk drive,s in a

position of central importance.

r:

By the late 1960s, disk drives had

proved a major competitive success and IBM again planned its 370

.:1

r

(DX 4740:, Evans, Tr.

The advanta,ges of the 3420 were widely acknowledged.

l ;1

~

(DX

I

;1 systems around new, high performance disk drives, including the Merlin.
:1

and the Winchester.

:j
'I

) ;1

:1

..

'\

'1 'j

..
oJ

"

"

.I

,j

~I

'i
T I

• '!
~

z. 'I

.. Ii';

"(I1t was important for the whole System/370 family
that the new disk storage capabilities be made available,
because the relative speed and cost of the central
processing unit was such that they really demanded
improved speed and cost characteristics in the direct
access storage devices if the system was to remain
reasonably balanced; that is, if it was not to be held
back by the lack of available technology and disk storage."
(Case, Tr. 73734.)

~

I

~

'I

I

_ I perceived

(i)

The 3330 (Merlin).

50 important was the Merlin file
t

1

to be to the success of System/370 , that the initial announce-'

... 'I ment of the 370 line was held up for almost a year because the Merlin
!
I

i

'i
'i

!

-898-

I
I
i
I

l.; file (also known as the.

a.! ment time of
i

3;

late 19:6·9.

I

231.45) wa.s not ready at the planned announce(Cary,

Tr'. 101360-63; see also Case, Tr.

73732 ....3:~; PX 23:9'9', p. 4; l'X '24'6S"A; p. 2.; PX 2474B, p. 1; PX 25028, p.

I

3. )

Oespi,te the wo:rk. pro~ressinq on Melilin, there was concern

within IBM aJDout the adequacy- of' te:chnoloqical development in the diskdrive area" wnick was fe'lt to be critical to IBM's continued technical
8 ; superiority..

On March 5", 19:69, Erich Bloch (Director of the Pouqhkeep-

sie La-boratory" SDD') wrote to Al S'huqart (Product Manag.er, Direct

9-

Access Storage Products, SOD), concerning that development effort:

la,

"In summary, let me make a general observation about the
DAS:D product area. OUr systems are competing across an
increasing spectrum of performance and applications aqainst
improving competition. At the same time DASD devices are
becoming more important to good system balance and performance.
In this environment it is important that IBM market a full
set of DASD products in order to fit the right combination
of cost, capacity and performance to the application. . . •
It is important that you understand and recognize this need
so that you can plan for a broader and more fle-xible DASD
product line than the very limited one we now have." (OX 13442,
pp. 2-3.)

,

12.1
i

13;
14. ;
!

r.s:

l

16 ;!

The delay in the announcement of Merlin was seen as serious,

17 :1

18 ,I not only because it was needed to make 370 systems competitive but also

19 I}:1 because of the increasing pressure from plug-compatible disk drive
~

za '1 competition.

For example, in April 1969, T. V. Learson (President),

"

I

Zl ,I wrote to F. T. Cary (then Senior Vice President), concerning a recent

Z2

'.j
~i

A_

:\

~

t

ISS* disk announcement:

I--------~----------I

Z! '\
* ISS was a PCM formed in 1967, by 12 former IBM employees who had
I been working at the IBM San Jose facility--some of them specifically
2.5 .\ on the 3330 development.

(See above, p. 775.)

I

'i
"

.j
i

i

~I
:1

-899-

i

I
I

"You have read of the ISS 701.

~-

that it has· been announced prior to and at superior
specifieations to our 2314·A-3. They have moved to the
new. electro'magnetic actuator which we a·re postponing
until announcement o-·f the: Merlin fi~e. ,Their ave-rage
a,<::c:ess time"is' one hatlf .the. speed that we are planning
o·nthe 2,3'14A-3·. and is- 25',\ faster' than the· ~Merlin file.

:
i

I

-i

.j

...
~

I am quite alanned

"I rea-lize- that we have mQre capac'ity planned, but
there i.snothing . to stop them from adding capacity."*

(.

!
I

I

(DX 12115.)

t:

r:'
!

The actuator involved was the voice coil actuator (or high s'peed elec-

-;1
l ;' tromagnetic actuator (s'ee'

rf

ox 14.37, p. 3», which was conside-rably

faster than the hydraulic actuator used on the 2314 (see Haughton,. Tr.

1 ~ 94857) and the development of which was responsible for some of the
L

i

3330 delays.

, II

(PX 2474B, p. 1.)

By July of 196·9, a number of competitors had announced

-U
.
~l equ~pment comparable to IBM's 2314, which was first delivered in
i.
~ 1967.
(PX 2474B, p. 1.) By January 1970, an evaluation of the "file
;.,
facility environment" in connection with Merlin Phase III level fore5";
I

.

~

cast assumptions, stated:

5 :1
7 :1

s J:1
Q
...

;t,i
'f

:i
r"!i

.... 'I

I

"From the announcement of the 2314 in 1965 until
late 1968 IBM had significant competitive advantages in
this product area, as no competitor could offer a
,
direct access device with the price, capacity, performance, and interchangeability characteristics of the
IBM 2314. The situation today, however, has changed
radically as most system manufacturers now have announced
devices which are virtually identical in specifications
to the IBM 2314." (DX 7858, p. 2.)

! :!

:2. ~--------------------'\

:t
* Cary wrote back to Learson, explaining that the electromagnetic
3 !actuator that Learson had written about was "not itself applicable to
!the 2314", that it would take about a year to develop such an actuat..;r
~4 '\ for the 2314, and that it was "impractical" to begin such a program so
ilate in the life of the 2314. Moreover, Cary added, the Merlin as then
= [planned would give IBH a "significant edge" in "both technology and
.- 'I product performance" over "all the competi tion" . (DX 12116.)
I

•

'I

:i

I

,
'!
;

-900-

I

I

I

I

l(

ISS and Memorex were expected to announce in late 1970 or

2:

early 1971, "modular Merlin-Type drives at 10% to 15% below the IBM

I

equivalent price and no extra shift charges"; first customer ship of

i
I

4-

those devices was expected by late 1972.

By 1973, Merlin-type

I

~ II

announcements we·re expected from major systems manufacturers , with
first customer ship anticipated late in 1974, by which time it was

a tl
7

~f

expected that "plug-compatible devices of the Merlin-Type will be in

!i

heavy product.ion".

s;
9:

(DX 7858, pp. 4-5.)

Thus, even before the announcement of Merlin, competitive
responses were expected:

I

10 :

"MERLIN competition will be from both plug-compatible
and system vendors. The key point here is the timing
of this competition. It is our opinion that the significance of the MERLIN release will force the data
processing industry to react faster than the assumptions
predict. This reaction will probably be in two areas-MERLIN equivalents and 2314 price cutting and/or enhancements. We expect the latter to be the key competitor
to MERLIN initially and improved MERLIN equivalents in
the 73 timeframe.
• Experience has shown that
the competition is not limited to direct plug-compatible
devices.
.

l

U:

I

,

!2!
~

l3;
i
., ,f

'

...

f

.~

.

~ \1
10 ~I

17 .I

". • • We, therefore, see the t-IERLIN competi tion
in two categories:

•

'I
TQ ,i
-. :i

"System Vendors--Must offer MERLIN price performance
as soon as possible to be competitive.

ZOi

"OEM Peripherals--Active development of MERLIN
equivalents with 2314 price cuts and enhancements in
the short term." (DX 4237, pp. 2-3.)

it
~s :1
ii

:1
.j

Z!. :!

J

The 3330 disk drive and associated 3830 control unit were

Z!J
't

-i

announced on June 30, 1970, with the initial processors of the 370

Z!

line.

,-: t

j

I

.\

'j

2Si

It was announced for use with System/370 and with the 360

Models 85 and 195.

(DX 1437, p. 1; see also PX 4505.)

'I

'j
~I
'~

.i

1
I

I

I

'I

i

'I

I

.j

-901-

The 3330 was a

very substantial advance in IBM disk drives.

li

:'
!

It offered disk capacity

!;

up to 800 million bytes in a single facility.

i

number of tracks and the dens·i ty, and over three times the capacity of

f

~I

the 2314.

It had almost double the

Its data rate was'2-1/2 times that of the 2314; its average'

! i' access time with'the high speed electromagnetic actuator was half that

of the 2314.

(PX

6414A, p. 6; DX 1437, pp. 1, 3.)

The 3330 was also recognized outside IBM as a significant
innovation and advance.

Rooney of RCA listed it as a "significant

a:
...

innovation" which "brought to the users significantly improved price/

a\
i
l!

performance, capability of storing and retrieving data on disks at much

?:

that it was better, it made it very difficult for other people who

--~

wished to compete with IBM systems

to compete with those systems".

(Rooney, Tr. 12048-49; see also Wright, Tr. 13131-33; Currie, Tr.

•4-:!

-

He agreed that, "to the extent

faster speeds than we had hitherto".

15495-501; Withington, Tr. 56250-51.)

~

I

;

(ii)

.S :~

The 2319 and 3340 (Winchester).

;1 most important disk drive development planned for the System/370, it

.7 ;1
.S

-

J was
:1

""

:1

right combination of cost, capacity and performance" (DX 13442, p. 2}

:1
~

for the lower end of the 370 line, that is, for processors from the

'
I

..... ,!

_.

(OX

13442.)

It was evident that Merlin would not provide "the

196 9 •

- :j 370/145
,-:-I
.
,,-

The need for a

·1

aa:
.....

(See Case, Tr. 73733-34.)

broader line of disk drives had been stressed by Erich Bloch in March

.,.. :1
•• .,:1

U.

not the only one.

I
. II

While the 3330 was the

i

down.

(Haughton, Tr. 94913-14; PX 3696A, p. 5.)

After unsuccessful attempts to create a program for such a

i!

disk drive, and with 370 processor development far along, those respon-

1

sible for intermediate and small systems were beginning to think in

~

-902-

I

I

II
Ii

L

terms of an alternate, interim solution--the attachment of the existingi

2

2314 drives to the new processors.

1

Intermediate Systems, wro·te to Shugart., in April 1969, concerning: "DASD

4-

Support for Intermediate Systems":'

!

!I

all
7J
11

S;

i[I
lQ

1

II
!2,i,
I

I

13:
14- :
I

i

r c;
-:
!

E. F. Wheeler, Systems Manager for

"For tfte past year we have been unsuccessful in
obtaining a f'irm committed program for Intermediate
Systems future systems.
"Attempts by ourselves and Small Commercial
,Systems to negotiate a file program for the low end
of the line have resulted in several iterations
starting with Clover, Shamrock and finally Zen.
"The delay to evaluate yet another technical
solution coupled with the uncertainty of funding and
manpower.has left me no choice but to proceed with a
23l4A file attachment for the Ca6.

"

....

"Accordingly I am removing references to Clover/
Zen from the base case of the current S68/C86 (370
Models 145 and 135] Forecast Assumptions. If at some
future date firm committed schedules can be laid in
to support a new file program, we will be happy to
negotiate an alternate case to measure its effect on
systems acceptances." (OX 1456.)
In 1969., Haughton, an IBM Senior Engineer, was attempting to_
develop a low-cost, low-end file, by looking at "new technology",
rather than the heads and disks developed for Merlin or the 2314.
After a number of iterations, "by mid-summer we had come up with a
rather revolutionary new approach", which would involve the removability not only of the disk pack itself but of an entire disk "module" in
which the heads as well as the pack would be contained.
ment was to

becorn~

Winchester.

This develop-

(Haughton, Tr. 94912-21; PX 3696A, pp.

1 , 5, 8; PX 4 538, P • 1 • )

Mid-1969 was very late, however.
-903-

The announcement of the

I

·:

first processors of the System/370 line, 370/155 and 165, had already
been delayed from mid-1969 to mid-1970, because of the lateness of the

~.

; Merlin program.

.

It was, evident that Winches'ter would not be ready for

• ;' the planned announcements of the 145 (568), 135 (e86) and 125 (T55)
,t

rl processors, annoUncements expected to begin in the fall of 1970.

(OX

I

i

i;, 4740: Evans, Tr. (Telex) 4010-11; P-X 4143; PX 4149.)
"

As a result, the Data Processing Division wanted to announc'e

rJ

s :i.

attachment of the 2314 to those processors as an interim step.

At the

end of July 1970, J. J. Keil, Director of Systems Marketing, wrote to
l' M. J. Kelly, New Product Manager for Direct Access Storage Products,
I

.

SDD, that the plan to attach 2314-type devices to System/370 was

T 1

,
!

-;,

,; "solely due to the lack of a timely new DASD technology fo.r the low-end

1370 CPU's". (PX 4143.)
S:
IBM faced a dilemma.
f

~)

On the one hand, it could not do

without a relatively low cost disk drive for the low-end processors.

5~
I

As

6 :!

C. T. Carter, Product Marketing Manager for Intermediate Systems,

wrote to Keil, in, April 1970, the attachment of a 2314-type device was.

7

:1

S

:1

I believed to be

,j

9 :\
:1
'rr.

'j

~~
..-

"T

.u .1
I
!
i

~
~'!
!

"needed to enhance the NS systems price in the 1970-1973
time frame. It is in this period that we must maximize
our competitive posture in the Model 20/25/30 marketplace.
The competition in this market will include not only
today's NCR 100/200, MH [Minneapolis Honeywell] 115,
and UN (Univac] 9200/9300 but new competitive announcements
as well as discounted leasing companies 360's." (PX 4138,
p. 2.)

-:!
~t

On the other hand, plug-compatible manufacturers were already

~~

IBM 23145.

,

~

! replacing

Winchester was ready

To use the 2314 as the disk drive of choice until
~eant

continued exposure to replacement by PCM
-904-

,

Li
I

competition.

Moreover, customers, once having acquired these 2314s

j

i

Z;

from IBM or 2314·-type devices from PCMs, might be reluctant to move up

1

to Winchester or Merlin--moves which would be necessary if they were to

~.

expand their usage of data processing to take advantage of' th.e full

I

capacity of the 370 line.

(See, e.g., PX 5343.)

: it

The 2314s that had been marketed for System/360 were at this

5 :1
7 ;,

time "coming back almost by the trainload" because' the competition was

8·

1i

(DX 4740: Evans, Tr. (Telex) 4011.)

The attach-

ment of the 2314 at its current prices to the new processors was, o.f

9

lO

displacing those devices.

j

course·, out of the question..
i.
I

rt would simply invite a flood of

replacements by plug-compatible manufacturers already supplying 2314-

II !

type disk drives.

(See, e.g.,. PX 4214.)

Moreover, it would not fill

the need for a low-cost disk device and would raise the 370 systems'
prices to unacceptable levels.

_.

r= ;

Therefore, a new, low-priced disk drive

of the 2314-type was the chosen solution.

The result was the 2319.

Even though it was recognized that the low price of the attachment
would put n(p]ressure on Winchester Price/Performance Improvements"
(DX 9374, p. 6), Group Finance took the position in the financial
analysis of the 2319 in September 1970, that IBM should announce it at
"the low-price assumption" of the "$1000 price in that this price level
assures maximum revenue and profit to IBM".

(~,

pp.

~,

7, emphasis

in original; see also Powers, Tr. 95336-40.)
The new, low-priced 2319 disk drive was achieved through a
combination of factors.

IBM employed a re-IJ.se program for the 2314

spindles that were being returned to IBM as a result of competitive
displacements, incorporating those spindles into the 2319.
-905-

(Whitcomb,

II

!!

q

I'

il
Tr. 34505-07; OX 474-0: Evans, Tr. (Telex) 4012, 4023-25; see also
Dunlop, Tr. 93812-13.)

In addition, the 2319 was announced with

"native attachment" to the CPU, meaning that an entire box--the con-

3
4

i,

tro1 unit--had been eliminated by the incorporation of its functions

5

!II

into the disk drive- and into an integrated file adapter in the

The use of n-ew, more compact MST technology (as opposed to SLT) facilt

611.:
7 I'
:I
,...,

~
9
10

cpu.

itated the integration of that function in a cost-effective way.
(Haughton, Tr. 95021-22; OX 4740: Evans, Tr. (Telex) 4023-25, 4076-77.

I-

"

11

The native attachment represented a long recognized approach

II

Ii

'\ to cost reduction:
It

minimization of the number of boxes.

(Hurd, Tr.

II
86622-23; OX 1656; OX 1657; OX 1658; OX 7630, Herzfeld, pp. 21-22.)
11 II
ii
12 I Analyses conducted within IBM indicated that such attachment was a

I
13 !; feasible approach for the 2319 and that it would provide significant
il

14

15
16
17

Ii

cost-saving benefits both to IBM and to users.

II

7619: Winger, Tr. (Telex) 5686-87; see also

11

(PX 4132, p. 1; _OX

ox 1662.) Native attachmsnt for

!i

II System/370 was first announced as the optional Integrated File Adapter

H

i!

(IFA) for attachment of the 2319 to the 370/145 in September 1970 (PX

I-

18 114527 I pp. 1, 3) and the 370/135 in March 1971 (PX 4528, pp. 1, 3) ...
!!

19 iiIt constituted a product improvement, as well as a cost savings.

20

!

i ox

(See

4740: Evans, Tr. (Telex) 4023-25, 4084; OX 4742, Kevill, pp. 523-26.)

I
I

Winchester itself was eventually announced as the 3340

21 :
I

22 ! Direct Access Storage Facility in March 1973.
23

I
Ii

73734.)

(PX 4538; Case, Tr.

It was a highly innovative and successful product and has

:j

24

II been

25

Il ll05 ,
II
II

II

widely copied by others.

(See the discussion below, pp. 1055-56,

l300.)

-906-

d.

L:

New Processor Planning (NS and System/3).

Coincident

1

wi th IBM's planning and development of improved peripherals, particu-

2;
!

3'! larly t'ape drives and disk drives, its strategy for the development

of

,

a new 'generation of CPUs and memories was formed and implemen·ted. .

4. :
I

(i) . Monolithic Logic and Memory.

During the development of

SLT from 1961·to 1966, IBM laid the groundwork for the eventual use of
monolithic semiconductor circuits.

The same substrates and tooling

used to manufacture SLT were applicable to the assembly of monolithic
circuitry.

9-;

IBM r S WQ·rk on development of monolithic semiconductor memo-

10

ries (of which the two principal types are bipolar and FET memories)

U'
12

began around 1964 "in an attempt to find a memory technology which

il

could overcome the speed, cost and size limitations of magnetic core

13:1

.

(E. Bloch, Tr. 91500-501.)*

't technology."

l~

:

"IBM undertook the development work on monolithic semiconductor memories • • • because of the potential of
monolithic semiconductor memories to be faster, cheaper,
smaller and more reliable than magnetic core memories.
The potentia~ advantages of monolithic semiconductor
memories were based on projections that they would be
denser, would require fewer external connections, less
power and less cooling and would be fabricated using existing
semiconductor processes and would avoid duplication by
using the same technology and packaging as monolithic
semiconductor logic circuitry." (E. Bloch, Tr. 9l537-38.)

!.5:

!

!

l6 ~I

17
lS
19

:1
:1
.!

:\"
:i

·f

'0 !
-

.,1

~I
.\

Thus, it was hoped that in addition to the performance advantages of

I

.

-- ,.\; the new technology, IBM would be able to achieve economies of produc-

.,
"""" '\ tion

...

"

and packaging by utilizing a single integrated technology for

2:3.
1 _ _ _ _ _- - - - - z.. ,!

.. \

zs

* Since 1963

Erich Bloch has held a variety of executive positions

i in connection with the develooment of IBM's processors, memories and

I, memory

and logic components. .. (DX 9116.)

'It

..,I

.iI
f

r

,I
~

i

-907-

logic and memory across a family.

(See E. Bloch, Tr. 91563; PX 4401;

PX 6312, p. 3.)*'

I,!
I

i

Logic technology moved to MST:

r"
I

"'As- of 19-6:g the de';elopme'nt of monolithic semiconductor
had reached the point where major 2erforMance and cost improvements c.ould be achi.eved by using
monolithic semiconductor instead of SLT circuits in logic
circuitry. IBM first used monolithic semiconductor logic
circuitry in the 360/85 and the System!3 Model 10 computers,
which were 'announced in January 1968 and July 1969, respectively .. , The, particular family of circuitry used in the
360/85 and System/3 Model 10 computers was Monolithic System
Technology ("MST')."
(E .., Bloch, Tr. 91501.)

~i

circ~itry a~ I'BM

J :\ The MST modules, cards 'and boards used the same packaging techniques as
I

1; those used with SLT modules, cards and boards, which_provided costl : savings advantages.

(E. Bloch, Tr. 91502; see OX 3564.)

Other advan-

tages were greater density, a higher level of integration and a substantial increase in reliability (by a factor of 10 over SLT) .'
Bloch, Tr. 91502."

(E.

Monolithic semiconductor circuitry was used for

logic circuitry and buffer storage in the 370/155 and 165, announced
1970.-

( PX

4505, pp. 2, 4.)
IBM's first use of monolithic semiconductor memory was in the

storage protect memory of the 360/91 and 360/95, the first of which was \

I

l
i

2 :1

I

delivered in October·1967.

(E. Bloch, Tr. 91539-40.)

The experience

,0 :i gained with design and development of monolithic semiconductor
'I

'.,

.j

;

- :j

I

i

* Erich Bloch testified that another goal and potential benefit of

the new technology was the integration of memories into the CPUs, with
the
resulting benefits of improved performance and reliability as well
;3\
as cost-savings.
(Tr. 93324-26, see also Tr. 91548-51.) That goal
.~ I could not be achieved with the 370/155 and 165 because of IBM's inability to produce sufficient components.
(E. Bloch, Tr. 93325-26.)
I

i
~ ~.I

,=!

-I

-908-

I

1\ memories by 1968 "led IBM's memory designers and developers in the
2

it

Components Division • • • to conclude that it would be feasible in the

I
I
l
I
I

near futur'e for IBM to utilize only monolithic semiconductor memorie-s".
(E. Bloch, Tr. 91541.)

That view was accepted at the highest level

I

within IBM.

=

i
:1I

"On -January 25, 1968, IBM's Management Review Committee

decided to abandon any further magnetic core memory development and it

: :1

was decided that from that point on, IBM would develop only monolithi.c

7J
[I

8

memories."

1

29; ox 8056.)

9

That switch in technologies represented the new applica-

tion to memories of an existing logic technology.

to .

11i

16

(E. Bloch, Tr. 91541; PX 2l77A, pp. 3-4; Cary, Tr. 101428-

91874.l

(E. Bloch, Tr.

Cary testified:

"We made a decision way back in January of 1968, that
core memories • • • were not going.to be the memories
of the future; that semiconductor memories were going
to be the important memories of the future and we
stopped development of core memories completely. We
took a tremendous risk in doing this, because a lot
of people continued to cost reduce and improve core
memories. We stopped our development on them and we
went full bore into the development of semiconductor
memories."
(Tr. 101428.)

:!

17 :l,I
As in other areas, competition was increasing and certainly
,t
13 ,!was
not going to stand still. By July 1969, J. A. Haddad (IBM Vice
l
~

19 JPresident) wrote to G. E. Jones (IBM Senior Vice President), to nominate
rI
J

ZO 1corporate memory strategy as a key corporate strategic issue:
·f

i

"The last year has seen a drastic increase in competition
in memory, with every indication that we shall soon be
facing major inroads to both install.ed and on-order
memory as well as increasing price competition in all
phases of the memory market. We must have a strategy to
lead the competition (we no longer possess our previous
lead position), rather than to be pushed around by it.

201 '!

--

"

.,~

-909-

.!
I

Memory is central to our products, processors,
and profits. Memory profit is a majo·r factor in processor
profi.tability as wel~ as the key new factor in performance.
In large systems we a;re lagging in speed and price, and in
very small systems. we are non-competitive in both price and.
speed. Mem0ry prices affect memory size,. which affect
procgramminq requirements, I/O' and storage requirements,
and total sys-tems thruput." (PX' 4·S65.)

ti
--.

!. :

: ;,
7

II

.._

As

the announcement date for the first 370 processors

approached, however, it was apparent that IBM would not be ready to

~

produce monolithic memories in adequate quantity and it was decided to

a:

announce the 155 and the 165 with core memory.

~~i

was announced a few months later) was to have bipolar monolithic memory

a .~I

derived from SI"T (see E. B'loch, Tr. 92294); although by that time, FET

.1 !

The smaller 145 (which

memory was preferred but could not be readied in time.

(E.

Bloch, Tr.

I

Z l 92910-12, 91542: Cary, Tr. 101412-13; OX 4740: Evans, Tr.

311 42 ,

(Telex) 3937-

3959-63; PX 3130A, pp. 2-3; PX 4324; PX 4400, ?p. 2, 4.)

It was recognized that the memories announced with the 155

'.5j

,

and the 165 were "very old technology" and "were going to go very

I

I

l6 J shortly non-competitive in the sense of the availability of semicon-

l7l!• ductor memories".
~S :\;1

.TQ.., :1.,
.!
2Q
;~

t

II

.J
'I
·1

j

.

(Cary, Tr. 101403-04.)

Cary testified:

"[W]e knew that they did not have long life and that if we
didn't get competitive technology in the marketplace that
we wouldn't be competitive either with the plug compatible
type of manufacturer or with the other systems manufacturers .
Everyone was going this way just as hard as they could
go • " (Tr • 101429.)
Nevertheless, monolithic circuitry was utilized in the

.,? -\

-- :\processor logic and the buffer storage for the 370/155 and 165 announced
23i

.! in June 1970.

,

Despite the use of the old, slow core memory, the new

"'Al
,,~

!processors were two to five times as fast as the earlier 360/50 and 65,

15'
:!

because of the use of the new monolithic circuitry.

I

'I

,I
.\

.,'\
:J

-910-

(DX 4505, pp. 2, 4.)

II
I

I

1
\

II
II
jj
tl
I:
1 :/

Monoli thic logic and memory circui try, including FET Memory,

I,

2 I!were
to be utilized in subsequent products when available.
p
:1
3 l'see
also E. Bloch, ,Tr. 91501; Cary, Tr. 101430.)

4 '

achieved.

(OX

3256C;

That goal was

9'157A; see also E. Bloch, Tr. 91543-45, 91550-51.)
Sys'tem/3.

(ii).

5

(PX

In designing the 360, IBM produced an

6 architecture that was to last for a long time.

It was an architecture

7 which, as the SPREAD Report (DX 1404A (App. A to JX 38)

had predicted

8 was suitable for processors in the range initially announced on April

9 7 , 1964.
1

However, as the report had also indicated, "it was not yet

I

10 evident" that compatibility could be extended downward to less power11 ',fUl proqessors.

(JX 38, 11 2, pp. 2-3.)

As we have seen, IBM's

12 ljattempt in this direction, the 360/20, resulted in a system only
I,

13 "partlY compatible with the rest of the line.

(JX 38, p. 297; see also

I
I

14 Icase, Tr. 73370-71.)

In 1969, IBM announced a small, low-cost system

15 Iithat departed from System/360 architecture:

the System/3.

(OX 8073.)

II

16 il This was the first of several such low-end IBM systems.
:t

17

11

IBM was able to introduce its low-cost system in July 1969 .

h

i!

18 ;i part because "[a] s of 1968 the development of monolithic semiconductor
19 ilcircuitry at IBM had reached a point where major performance and cost
I'

20 ;Iimprovements could be achieved by using monolithic
'I
21 i\instead
of SLT circuits and logic circuitry".

•

sem~conductors

The System/ 3 Model 10

22 llwas one of the first two IBM computers to use Monolithic System Tech,;
23 ,:nology (MST).

(E. Bloch, Tr. 91501.)

:1
'I

The System/3

24 \1
25 !Ia new processor.
I

annol.~ncement

It also involved "new families of disk files and

!printers, a keyboard and console

typew~iters,

I

I
i
j
i

!

was not merely the announcement of

-911-

and unique

progra~ing

I

:j

I

I
I

I

I

capabilities". *
computer system

(PX

2459, p. 7.)

The System/3 "was a new, low entry

I
I

• that was aimed at bringing total computer capa-

bility to the small user at the thousand dollar a month rental price,

I

~

approximately, having full

l~

supportlf.

~(

10) offered both a card-oriented and a disk-oriented system.

\\

8073.)

ii!

c~pability of

(Jame's, Tr. 35037.) **

I/O function and programming

The initial announcement (the Model
(DX

The card was of particular interest because If(t]he focal point

of System/3 'is a new 96-column card lf •

This card was "about 1/3 the

size" of earlier cards but could contain 30 per cent more information.
This meant Ifless space

~~d

storage requirements, easier handling,

reduced mechancical [sic] loads, smaller sized machines for processing
the cards and, therefore, a lower cost system.

Hence, the 96-column

I

"l",I' card made it possible for System/3 to become the economical, high

'performance system that it is."
•

I
1
\

~he

(PX 2459, p. 9.)

system was designed as a "low entry" system.

Some fore-

i \

casts within IBM indicated discontinuance of 40 per cent of the

i
•t :I!I

· Iia
~

't

:1

il

, :l

accounts using leased unit record equipment.
estimated that 50% of these discontinuances

wou~d

go to competition

(Univac 9200, Honeywell 110, GE 105/115, NCR C-IOO).

System/3 will

"

~

,
,

;1 allow the company to save approximately one-half of these losses".
:t
,I
'/
,I
"

~

:1

J
~

(~,

users.

p. 16.)

But, it was not a system intended merely for small

As IBM's 1969 Annual Report stated:

, II

- ~t
i
~

.I
"

* The 5445 disk drive for the System/3 utilized the 2314-type spindles that were also used in the 2319.
(Gardner, Tr. 37456.)

:i

** Jack James was President of Telex Computer Products, Inc., at the
: ;I time
of his testimony.
(Tr. 35012.)
:1

!

'I
~I
I

i

'i

-912-

I

"Without System/3, it wa:;1

"AI though it was designed pr'imarily for small business,
it is also expected to find application in· large firms that
wish to decentralize their data processing capabilitie·s. tt
(OX 3 364 , P • 8 .. )

l;

1;,

To manufacture and develop System/3 enhancements and other

I

products not·

us~g.

the· System/36 0 architecture, IBM formed the General

Systems Division within the Oata Processing Group in early November

1969.

(OX 8072.)

Thi.s "was done in order to have a mana.qement focus

on the product line that was currently in development and to . .. • do
a better job in the plans for improving the product line that was
9-! transferred to General Systems Division
• and to do a better job in
i
i
10 : enhancement in follow-on plans for the products that remained in the

-

11

i:

Data Processing Product Group".

.

A dedicated marketing and service

capability was provided in the General Systems Division five years
later.

(Akers, Tr. 97401-03.)
Customer reaction to System/3 was "enthusiastic".

lS l p. 8i see Withington, Tr. 58435.)
I

By the end of 1970, its first year

of deliveries, more than 1,600 had been installed in the United States.

.16

;J

1.7

J
,I

~s ,I

•

(OX 3364,

(DX 2609B, p. Ul.5.)

(iii)

;j

Virtual Memory.

As we have already seen (pp. 431-35

'I

19;j above), IBM developed Dynamic A4dress Translation (OAT) as a hardware
·'I1

20

! device in the 360/Model 67, combining it with systems software to

Zl

I

I

enhance the system's time-sharing capabilities. That effort had proven
J
.
Zl .; difficult and expensive and, despite earlier plans to include those
23\ features with the new systems, by 1969 the plans were proceeding, with

."'~
. ,. ,I, OAT (or relocate) not to be included in the initial 370 line.
./

25 'I Evans, Tr. (Telex) 4184; PX 6672, c. 2; PX 2500, po. 1-2.)
.i

t
\

'\

:i

I
I

:,
I

i

I

::

-913-

(OX

4740:

However, at

:1

I
I

I
I

that time, it had been

L~plemented

successfully in the Model 67.

I

(See \

if pp. 435-36 above.) . B. O. Evans, on returning as President o~ the
i

\
I

Systems Development Division from the Federal Systems Division in 1969,
I

I

was "quite surprised" to

a\

dis~over th~t

assuming his new office.
,r

(OX 4740: Evans, Tr.

'I

He considered it to be "fundamentally wrong"

(Telex) 3938, 4184-85; see Evans, Tr.

l0129~-301)*:

"I felt so ·intensely about Dynamic Address Translation and the
advantages of virtual memory that within the first hour that I
was in my new job I hand-picked several professionals from across
the development team to go to work full-t~e immediately and get
me a plan for virtual memory on System/370." (OX 4740: Evans,
Tr. (Telex) 3941.)

l ;
I

omission on the night before

:

i
t

1i

Evans understood

I

th~advantages

of virtual

memo~J,

which

I

r

i

•

1

would give the appearance to the user of having a very large memory at

I

~I his disposal, and facilitating multiprogramming and communications
! :/ oriented applications.

That understanding began at the time of the MIT

~1 Project MAC procurement and grew through his work in the Federal
1

:;
~

; Systems Division with various government programs.

5 II (Telex) 3942-52; see Evans, Tr. 101300-01.)

i

~

(OX 4740: Evans, Tr.l

The reason for concern abou,

the absence of the relocate feature and virtual memory in the plans for

S 1fII the 370 was an awareness of the growing importance of time sharing and
g

!I

communications-oriented processing.

a :1
1 ~

The System/360 had, indeed,

been built in part on the belief that communications-oriented process-

~I

ing would grow in importance.

The initial planning for the new systems

~ :l

~ ~.I Systems
* Evans' surprise was natural. He had
Division as Ita little punishment"
:~

~:

been sent out to the Federal
precisely because the "very
II demanding IBM management" viewed it as a "fundamental mistake" in
:1 System/360 architecture that Dynamic Address Translation had not been
;1 included.
(DX 4.740:
Evans, Tr. (Telex) 3950-51.)

j
:1

;\
I

:

;1

l

-914-

I
iI

I
I
1

[

l; recognized the demand for more and more on-line usage and toward multipIe users acces·sing the computer from remote locations.

2
I

1 :

That need was discussed at a meeting of the Management

4. t· Conuni ttee in March of 19'6·9.

(PX 2399, p. 1.)

I

!: 11

Several days later, the Management Committee reported to the

5:1

Management Review COll1lllittee that "[t] he cOll1lllunication based data

7:1 processing market is large and rapidly increasing".

About 30 percent

s: of that "market" represented "the true remote terminal time sharing·
9 [ market
10

i

tl

including in-house time sharing and service bureaus.

position in this area was

1

fe~t

IBMts

to be weak with IBM "behind in both

I

ll!

hardware and software".

(DX 14201, pp. 5-7; see also

PX

2399, p. 2.)

The need for virtual memory was being felt by others in IBM.

1

IZi
13[1 In June 1969, C. B. Rogers, Jr. (Vice President of Marketing and
.1

J Development,

OPD) , wrote to C. E. Branscomb (President of SOD), stating

il

1.4- the Data Processing Division's view that "progress has been unsatis15 \(.

factory" toward the production of "a viable NS announcement plan".

16 ;1

~7 ;1
J.

stated:

.,

II

lS ,I
:l
'I
19 :,~i

zo
'1"

,

.-,!

"

i
!

.... i
~i

Z2. .;
..,~

"Market requirements are not being met with SOD's current
announcement and support plan. The CPU's provide improved
price/performance for doing today's processing, but do
not offer significant new function for continued growth.

I

'~

...:-\
f

......
,- iI

"Implementation of the virtual memory concept -with functional compatibility throughout the NS line,
combined with multiprocessing -- can extend NS's price/
performance range dramatically. We view virtual memory
implementation as necessary and fundamental to meeting
market requirements in the early 1970's." (PX 4270, p.
li see also PX 4272.)

.1

z:

.r
I

The anticipated solution was a phased introduction of the

of

f

I

.1

I

I

:1

,I

.,

'-,I

-915-

He

l

I·

II

\

,I

iI

I

relocate hardware, with the initial machines designed to utilize it

,it when it was available.
difficulties.

.

(See

PX

But, that plan entailed development costs and
239'9, Pit- 1.)

I
I

Spe.cifically for time sharing, a

proposed answerwa·s "an interim plan" involving increased funding for

~.

r II time sharin.g·under DOS and as operating systems and a re-emphasis of
I

the· TSS time-sharing operating system.

r ~I
~

;1

of two parts, the first, the new NS operating system and a new DOS

:1
:

ope·rating system both "designed to enhance time sharing" and,

~ :1

,

The long range plan consis.ted

"

" [t] he second, and equally important part of the strategy, is the.
relocation hardware necessary to really do this job. This is
scheduled for announcement in 1973 with installations in 1974."
(PX 2412, p. 3; OX 14201, p. 6; see PX 2399, 9. 2.)

l: That plan was adequate in concept, if' attainable; but, it had two
~

i,

timing questions:

Could the initial 370 announcements be made in 1970

;

i : with provision for relocate and virtual memory?

ready?

~:

I

When could relocate be

The plan said mid-1973 or 1974 in response to the second ques-

i

:' tion.

That was too late according to C. B. Rogers, Jr.:
"Not having relocation support until 6/73 or 1/74
is totally wrong. It's too far out. The logic that we
canrt support it until then is unsatisfactory. We think
TSS could be modified to acconunodate the '67 scheme on NS."
(PX 4270, p. 4.)

The mark.et, trending toward remote computing, would not wait on the
IBM development effort.

The need for relocate was a matter of increas-

ing concern through the fall of 1969.

(PX 2487A, p. 2; PX 4033, p.

., J" 13 • PX 4233.)
I

-j

3
,~

-\

- By late 1969, it was too late to get relocate into the first

.\ System/370 announcements, scheduled for mid-1970.
I

(PX 2502B, p. 3.)

_ [Evans considered delaying those announcements or shipments until the

_

i

i

..,

.

:1

-916-

!

L;

design of Dynamic Address Translation was finished and the monolithic

2.;i

memory technology· was available, but that delay would have left IBM at .

l

an even more subs·tantial competitive disadvantage:

l

"But the

~

situation. was·. • • that System 360 had been out

in the fielc;l for about six ye·ars· and competition had become,.

s:l

since, 360's announcement, with ever-improving components
and systems· I and so, competitively speaking, the System 360

I

I

-'

was out of gas, and when we looked at the users' requ~rem.ents,
as we saw them in late 1969, that delaying System 370 another
two years· or more to get dynamic address translation, et ce.tera,
into the machines, didn't seem reasonable.

c::t!

7~
a;

"So we made a thoughtful decision'to proceed with the
155 and the 165 and the so-called vanilla version of the
System 370 phasing in dynamic address translation and semiconductor memory technology as quick as we could." (OX 4740:
Evans" Tr. ('l'e~~x) 3961-·52; see also PX 4324 j. PX 4421, p. 2-; p;x
32S·6B,pp. 1-2; Cary, T"r. 101394-95 •. )
IBM also sought to improve its offerings for remote computing
in other ways.

In December 1969, it announced new software:

the

1'.;.:

Interactive Terminal Facility (ITF) , "a new low-entry timesharing

15:

system" which provided "timesharing power for System/360

te

t

I under 05 or DOS" (OX 14335), and the 05/360 Time Sharina.
16 ;t
17 II Option (TSO) which was "intended to support the terminal-oriented
requirements of a wide range of users" under 05/360. (DX 1091, p. 1.)

'J

15 :
•

:i

The 370/155 and 165 were announced in June 1970 on a schedule

II

19 :1 that had been already delayed because of the unavailability of the

za'l

Merlin disk drive.

:1
-1

~:!
~

22:,
_
;t
.,
~i

.1

Z.!

(PX

4505.)

Relocate and virtual storage were not

·1

announced with the initial System/370 announcements in 1970j the first
announcement of virtual storage for System/370 was made in August
1972, when IEi.'! announced the 370 Models 158 and 168, containing Dynamic

.j

! Address Translation. IBM also
25 .
':1I purchased to implement virtual

announced at that time that DAT could be
storage on the 370/155 and 165, and was

II

i

i

!

i/

:I
:1

-917-

available on the 370/145 (announced in September 1970) and 370/135
(announced in March 19'-11) Ttlithotlt additiona·l charge.
1640. )

I

I

!
i

By

, I;

ntid-19~72,.

(DX- 1639; D-X

.

the principal goals of System/370 had been

I

if attained.

(Case·~

(iv)

,I

Tr.- 73749...-5·1 •. )

NS Prices.

We have already seen how competitive

il
, ~f developments impacted the planning for almost all parts of the new

iI
~ f

i,

!:

systems, influencing with respect to most parts, the technology
employed, the capabilities
schedules used.

souqh~and

the development and announcement

All of those things, of course, plus the prices of

i competitive products and services affected the price that the user was

.,;:
l :1
:1
~:

"

,;

willing to pay for IBM's offering when compared to that of the competition.*
The Commercial Analysis Department of the Data Processing
Division, in its Quarterly Product Line Assessment of February 1969,

.

reported that:
"When NSO (370/135] and NSl [370/145] are announced, IBM
will be faced with competition from three sources: (1) other
computer vendors, (2) owners of IBM computer systems, and (3)
computer-oriented service companies.
"It is expected that Burroughs, NCR, and Sperry Rand will be
our strongest competition in respect to marketable products when
NS is introduced. • • •
~
* For example, Currie of Xerox, testified that if IBM had lowered
2. ;\
t
its
prices in 1970, then ItI expect some other companies would have had
_ :i
to
lower
their prices to some extent as well . • . [b]ecause I think
~ \
: that computers are selected based upon price/performance . . . and if
IBM lowered its price that would give it a more favorable price/perfor,-A .!i mance."
(Tr. 15694-95.) Also, if, in the 1970 time frame, IBM were to
raise
its
prices, "IBM would lose orders, tvould lose lease base".
(Tr.
=~
15752-53.)

-

-918-

I

.I

"Honeywell is expected to announce a new series in 1970.
Thus, they could once again be a formidable competitor • . • •

1. :

z:

" .'

I

i·

l!

I.

..

...

"In World Trade, Ame·rica·n or American-associated companies
should be the prime competitors. However, ICL will continue
strong; P'hilips may have gotten a fOQthold with their PICOO
seri.es~· and· ·S·iemens may have introduced a new series.
In addition competition may come from Japanes·e companies such as Fujitsu
offering their products outside of Japan.

I

*1
!

=1I

,

a:

'1

1

.

"Competition from owners of IBM computer systems will come
primarily from leasing companies and from System/360 purchase
customers who sell their used systems. Both of these sources
could make lower-priced System/360·s available to compete with
NSO and NSl with competitive price/perfo·rmance.

'I

81
g.:

"Computer-oriented service company competition will come
from time-s'harinq companies and service bureaus. Both offer
services which may substitute for additional computer function
and/or capacity." (PX 2388, p. 117.)

10

!.2t The report went on to compare the price/performance (on a monthly lease
13

price basis} of those new systems configurations with the lease prices

11

1.4-1 then expected to the "best of competition",* concluding that "NSO and
:1

15

l NSl are rated superior to competition · · · ."

1S

J upon

the assumption of "no significant price changes".

17;1121, see pp. 125-128.)

lS

That conclusion \..,as based
(PX 2388, p.

Similar conclusions were expressed with respect

t

t
J

II
I
I

1\

I

j

* John Akers,

19 :1

IBM Vice President and Group Executive, explained that

l

Jthe "QPLAs represented reports from "the salesmen s critical perspec- !
za: tive how our product line compared" with IInot all competition" but "the I
lbest of competition".
(Akers, Tr. 96584,96587-88.)
!
""1
Over the planning period, IBM management regularly compared the
11

-

I

;.1

Z2.; price/performance (of which "price" is obviously an important element)
:.\ and capabilities of competitive announcements with the planned characZ3 ',teristics of the new systems. (See, e.g., DX 14199, concerning the
I RCA Spectra 70/46; DX 13864, concerning the Oki-Univac 9400, announced
24. !l in Japan; OX 14317, concernl.ng the CDC 7600; DX 14200, concerning the
:i GE 655.)
~.-

~=

.,

,I

a
I
,I
I

:j

I

-919-

,I

to the price/performance of the NS2 (370/155) and the 553 (370/165),
assuming the availability of the Merlin disk drive.

(PX 23·88, pp •. 48,

68. )
As of March 1969-·, it appeared that the price/performance of
:!

the NS systems (5ystem/3·70). would repre·sen·t an improvement on an

· I.

average of 1. 8· times over System/3 60.

Wi th the exc'eption

0

f the

: :1 dramatic change from the 1401 to the 360/30 "this is not too dissimilar
from the historic past".

1;1

(PX·Z.39'9, p.

3; see

al.~o

OX 14201,9.2.; PX

I :

2502B, .p. 2.)

However, that meant that System/360s owned by leasing

I ; companies and users would "remain a major competitive product".

·
,..
t

In

addition, "(t] here is an added unknown in the possible merger of

!

,

OEMfs, software houses and leasing companies" (OX 142~1, p. 2), with

!
;
~

!l the possible marketing of 360 CPUs enhanced in price/performance by
I

.

~ plug-compatible peripherals and independent software.

~ ~ 2388,

· :, that
• \1

pp. 119-120.)

(See, e.g., PX

It appeared to IBM management as of March 1969,

with the planned prices for the NS CPUs, "a leasing company can

:l :1

.,. ~tcompete on an equal basis with NS by discounting the 360 30%".

,

(OX

"

~ :114201, p. 4.)

On March 13, 1969, Cary wrote to Branscomb, listing issues

'I

;

i

:l concerning NS strategy to be discussed at the next General Managers'

:J '1
!meeting.
I
.,

Those issues included "competitiveness of our purchase

!

- jprices" and "high maintenance costs".
(DX 14479.)
The principal
2.i
tconcern was that high purchase prices and high maintenance charges
:3
!would cost IBM sales of System/370 CPUs, with many of the losses being
A

.i

,- Ito leasing companies and other owners offering discounted System/360

-

I

;

!CPUs for sale or lease.
i
i

.i

,j
I

.j

.!

-920-

L

2

That concern continued through early 1970 (]?X 2468A, p. 2;
I
~ .

11
4.T,

PX 2S02B, p. 2; PX 255a.S, p. R2l; PX 4.233),

and, as announced in June

1970, the purchase prices on th-e' 370/155 and 165, as well as on the

l

3360 p·roces.sor storag.e-., were lowered: subs·tantially from the planning
.

:- I'

assump.t±ons..

(S.ee PX 4-5'05·, pp. 3, 5-6 .. )

i

a II

The substantial differential between 360 and 370 maintenance

7lf prices contributed to the competitive exposure as we·ll.

a ~maint.enance

charge for the NS2 (370/155) was $4,930, although cost

reduction actions were expected to reduce it to $2,620.

lCl! 4.)

The planned

(PX 23'99,p.

The differential was due in part to the fact that mainte·nance

. prices for the 360 were felt to be too low "probably by half" (PX

11

2399, p. 4), and to the cost of the "increased inventory of maintenance parts, brought about in part by integrated circuitry" for the
new machines and to the time necessary for field engineers to gain

14- :I
15 : experience with the new software and hardware.

(DX 14201, pp. 2-3.)

As had been forecast, by the time of announcement substantial

f

15 ;1
11 :1 improvement had been made in reducing costs and thus prices of NS

15:f
•

maintenance.

(PX 2399, p. 4; PX 3256C, p. 2.)

Thus, at the time of

Ii

'f announcementl. the monthly maintenance charges on the 155 were about

19 'I $2, 200--less than one-half those contemplated by planning assumptions.
Ze! I
'r (PX 2399, p. 4; PX 4505, p. 3.) Moreover, IBH decreased the effective
Z!. ·1
J maintenance price of System/370 still further by increasing the warranty!
22:\
JJ time on purchased CPUs, channels and memories to 12 months from the
... _

I

-

,
't

... ,.4

.t

";"

I

,- I

:\

151
:1

three-month warranties on System/360.

'I
!!
iI

.1

~.

1.)

Later, in 1972, as warranties began to expire on the purchased:
System/370 units, IBM announced further reductions in maintenance

i

:[-,

(PX 3256C, p. 2; PX 4505,

-921-

charges on those machines amounting to, for example, about 15% on the

1

2
3

! 155 processor.
! about ,$1,750..
I

This made monthly maintenance charges on the 155
(DX 13521, p. 2.)

Adjusted for inflation, the

4 I, decrease was even greater.
,

51

e.

Conclus-ion.

Notwithstanding the enormous success- of

61

IBM's System/360 as announced in 1964, and IBM's continued techno-

7

logical. improvements thereafter, by 1969 IBM confronted serious

8 I, compe-titive- challenqes to its position of technological leadership
9 I and price/performance superiority. The state of technological
10 11:\development and implementation for the new products being planned
11

I

I

in the face of those challenges caused consternation among IBM top

12 'management.

Pressures were exerted throughout the organization by

the insistence that the new products had to be better and announced

13
I

14 ljand delivered sooner.

The organization responded, but IBM was unable

15 lito announce on schedule the range of product capabilities that manage
16 I!ment felt necessary to sustain IBM's superiority.
Ii

Consequently, IBM

17 !\entered the 1970s engaged in a struggle to achieve the ambitious
II

18 !igOalS it had established in response to competition for its next
19 i, generation of systems.
20

I

I
21 !

II
22 !I
: : 11

il
25 tl
I
1

I

II

I

II

-922-

1:

56.

Growth of the EDP Industry.

One fact about the EDP

Z II industry is so clear and unequivocal that its significance c'an be

3: ;1it ea-sily overlooked.

That fact is the extraordinary growth in the use

l'

4-1-Of computers over the first 2.0. years of -the EDP industry's existence--a
i

~ I:phenomenon that continued unabated over the next decade.
I

I

Descriptions from a wide range of sources attest to the

a ;l

7:ldynamism and unprecedented growth of the industry over this period.

a !FOr
I

Sf

example, Donald F. Turner in 1966, while- Assistant Attorney General

Iin the Antitrust Division of the Department of Justice,
I

wrote:

"The computer industry is one of the most dynamic in the
American economy, in terms of absolute as well as relative growth,
and further rapid expansion is anticipated." (OX 9110, p. 1.)

10/

I

111
!;

The General Accounting Office (GAO) stated in a 1971 report

12!
I

13 lito Congress that "[t] he automatic data processing industry is very
l~iyoung

i

15 1971" •

and the industry grew at a tremendous rate from the late 1950s to
(Plaintiff' s Admissions, Set IV, 11 231. 0.)

Lacey, Vice

15 l,president, Corporate Development, CDC, reported to new CDC employees

I
I'

17 in 1969 that the industry "is unique in industrial history in the
18

rapidity of its growth since its birth little more than twenty years

!,.

ii

19 it ago" ·

438, p. 1.)

(OX

The GE APL Master Plan of 1970 reported that

20 ll"[t]he computer industry is one of the fastest growing segments of
:1

21 ;!b~th the U.S. and overseas economies".

(PX 353, p. 18.)

And Butters,

2Z ;!in his "Computer Industry Review" of 1970, wrote that- n[t]he computer

""~.

1\ industry has been considered the fastest growing major industry in

~:\

24. 1\ the wor ld" .
-j

11

:1
:1

iI

(DX

1553A, p.

2.)

The Department of Justice stated in 1968 in a "response"

-923-

1. submitted to the Federal Communications Commission's Computer Inquiry

2: I
,

(Docket No. 16979):

I

1

I
I
I

}

4-\

"Although only 20-odd years old, the computer industry
app.ears· 1ik.ely to become one of the world IS larges·t industries
within the next 10-15 years.

5 !\.
I

e, .
I

;

711·
:1

11

"The g.rowt.h o·f the computer industry has been startling.

"In 1950, only a. handful of computers were in use while
today it is estimated. that 60,000 computers are in use and
25,000 more are on. order.
(Plaintiff's Admissions, Set II,
312.5-7.)
If

S!

,r"

The' growth in the use of computers is evidenced by es·timates

I

;:1
lof the numbers of computers installed and also by estimates of the
1Q

!.

I value of EDP e.quipment.shipped by the manufacturers.

For example, the

I

l1 l1972 Census of Manufacturers (prepared by the Bureau of the Census of

l2.1

Ithe Department of Commerce.) reported that the value of shipments by

13j all
1

producers of "electronic computing equipment" (Standard Industry

-~iClassification Code 3573) grew from $4,048.8 million in 1967 to
I

!

1- .

~ iS6,l08.0 million in 1972.
•-- !I

(DX 14310, p. 35F-1S.)

~Q i:government estimates are comparable.

17~lunited

Other Federal

The Comptroller General of the

States, in'a report to Congress in June 1969, estimated that

•'8 !:ithe computer industry had grown from "a few experimental computers" in
;i
19 ;Ithe late 1940s I to "400 computers installed in the ani ted States" in
20 iil955, to "approximate (ly] II 6,000 in 1960, to "installations" in
~i
2' ;1
• ;lexcess of 67,000 in 1968. He stated: "The computer hardware market
~
22. 'I
_ liS believed to have reached a value of about $7.2 billion during 1968

23iand is expected to grow at a 15 to 20 percent annual rate over the
Ii
Z..... :Inext
5 years."
(DX 7568, pp. 13-14.)
25 :\

.,

The magnitude of and the rate of the growth in the use of

'\
;1

I,

:1
'1
il
;1

;i

!

"

-924-

1.

computers are also reflected in the results of the jOint deposition

a

program of suppliers of BOP products and services over the period

1

through 1972 ("Cen,sus II")..

(See DX 3811; DX 822.4.)

l~52

Of the 618

companies reporting U.S. EDP revenue in 1972, only 9 had s'uch r'evenue·

4a.
r

=I

I,

in 1952; 75 in 196'0 and 18·8 in 19-64.

I,

The total U. s. EDP revenues

reported by those companies grew from $39.5 million in 1952, to $1.3
billion in 1960, to $3.2 billion in 1964, to $12.8 billion in 1912.
(Id.)

These revenues grew at a compound growth rate of 33.5% over

9i that period.

i

12.

u
14-

)

This phenomenal growth indicated by these aggregate statistics

10 :

U

. (!£.

l consisted of
1
11

il

the following parts:

(i)

The number of users of computers continually increasedr

(ii)

The number of uses (applications) of ,computers continu-

ally increased;

~

I

,
1
T:: :
I

......

(iii)

Existing users of computers continually increased the

I

i

:

l6

a

~ 1 ;[:1

computational power that they utilized; and
(iv)

The price/performance of computer products and the ease -

J.

of their use continually improved.*

lS :\:r
:1

19t., --------------~------

* In October 1964,

'I

ZQ

:l.,

---

l
·i:~
.j

"

22 'i

.,~

:\

~ '\
I

24.

!
I

~ithington

wrote:

"We believe that the major factors in the development of
the computer market have been:
"Constant increase in the number of computer users .
"Constant development of new computer applications.
"Constant increase ~n the nU!wer of persons engaged in
making use of computers.
"Constant improvement of cost-performance that causes
users to replace old equipment with new."
(PX 4829, p. 8.)

.I,r

-,.,

'5

!

'\
'I

.1I
;1

!

-925-

Moreover, the rate of growth in the demand for computers was.
continually underestimated by most participants in and observers of
the industry and.,'· in· retrospect, called, as. in the quota·tions. aho-Ye,

.

"startling", "un-ique It,. ana "tremendous I f .

(DX

5504, p. 8;- see also

OX 5476, pp. 6-7.)

. ji

a.

I

'I

rnc~ea-se

in the Number of Us-ers of' Computers .

!l

Withington

. ~I wrote in 196-4, after the announcemen·t of System/360, that:

il

t·The single most important factor in the historic
growth of the: computer market has been the increasing
ntllt1ber of computer users. This increase has been made
possible by con·stant reduction of the minimum cost of
computers and greater understanding of how computers might
be used."
(PX' 4829, p. 8.)

;1

But, h.e went on to project, "new users will become increasingly hard
I

~

to find in the United States".

1

He reasoned that "there are approxi-

\

i
~'I

mately 25,000' companies with net worth of over one million dollars.

·;-.i

is not likely to acquire a computer:

t

In general, it is fair to assume that any company smaller than

~~at

in fact, many firms with a net

: ~~ worth of five million dollars do not use a computer."

(PX 4829, p.

r J:1 8.)
$ :t

By the very next year, however, Withington had changed his

:\

..-: !i:~

. d

m~n.

He state d :

·1

..,

:t,

'T

;I

.. :I

I

- 'r
~

2,1

t

'1

,~

i
JI

=

:j

3

,_

.!
I
I

i
'!

:!

\

.i

1
I

-I.,
:1
'I
:1

"The number of organizations using computers continues
to increase rapidly, primarily because computer systems with
complete capabilities are becoming available at steadily
lower costs. Thus they come withih the reach of organizations that could not previously afford such computer systems:
for example, the IBM 360/20 and 1440, the Honeywell 120,
and the Univac 1004. More than 2,000 such machines were
installed during 1965, representing shipments of considerable
dollar value to the manufacturers."
(PX 4830, p. 8.)
By 1967, it had become apparent to Withington how wrong he
-926-

had been in 1964:

1.

"[T]he experience of recent years has shown that, as
the costs of small computer systems decline, great numbers
of new users enter the market. We expect this trend will
continue, and by the end of 1971 there should be many
thousands of new· computer- users who do not now have machines."
( l?X 4:8 32, p. 8.)

2:

3:
4-

I
I
i

!1.

'*

I•

5:

"The situation is becoming more dynamic rather than
less so, and the only safe prediction at this point is that
pace of change, and the growth of the industry as a whole,
will rema~n extremely rapid."
(PX 4832, p. 6.)

11

7[1
;(

8·:

I

Withington's observations that the number of users continued

9-!i
lO

!I to expand were repeated in

1968 and 1969.

(PX 4833, p. 10; PX 4834,

I

i

ul

p. 14.)

I

!

T~e

12t
13-

\I

i industry and to the expansion of the business of individual suppliers
I

l~[

was just as clearly recognized by the EDP companies at the end of the

I,

IS ! decade.

I
.. (:!

:1

J..... ,

II
Il

19 ;'

za

For example, in its "Master Plan" of January 1970, GE stated

that:

1711
18

continued importance of new users to the growth of the

11

:,

"The computer industry has grown and will continue
to grow at a rapid rate. The influx of customers new. to
computing, combined with the expansion of present customers
to more powerful systems and more sophisticated applications,
provide a growth thrust that is discernible well into the
1970's." (PX 353, p. 18.)
Indeed, in that Master Plan GE predicted that 30% of the

;j

21 llusers of its new APL system would be "new users" of computer equip1I

~ il ment .

(~., p. 54)

Similari y , Ray Macd?nald of Burroughs testified

2S :\when asked whether the number of users for data processing equipment
.I

Z~ ;1 had increased or decreased over the ten years from 1964 to 1974:
I;

25 ij

-927-

1

"Well,. I think two phenomena have taken place. I
think that we have a very conside'rable number of new users,
and I think we have much more extensive use of data processing
equipment by those that were already using it ten years
a.qo.

2

3"

~l

i

5'\I
I

5(
1

7

il
i

I

81

i

9-1
1Q

I

II

!! Also,

"I would think that (the ·trend of users switching
from. electromechanical methods of data handling- to computers}
will continue because the cost of stored program computers,
very small sto'red program computers, is continually declining
and will.be offered -- is being offered and will be offered
in many of these applications at more cost-effective rate·s
for stor'ed program equipment than for the prior types of
equipment, and I think also we are finding new applications .•
I think they are the two effects. The replacement of older
applications that have been identified with older types of
equipment, and I think that we are also finding many new
applications." (Tr. 6926-30.)

as we have seen (pp. 395-400, 911-13), when IBM announced' its 360
,
12.!
\' 20 in 1964 and the System/3 in 1969 I an important goal was to attrast newI

13;

! users of computers and to compete with other manufacturers' efforts
14- ;
- Ito do so--a goal that was to continue to motivate IBM product announce15 !
I ments in the 1970s.
16 II
~.
b.
Expansion by Existing Computer Users. Of course,
I

i

17
18

~substantial contribution to the growth of'the industry came from the
1

!talmost insatiable demand for additional computing power from existing
19 l!users
:i
.
of computers. That demand was clearly recognJ.zed
by t h e manu-

20 :,

:!facturers.
.j

21;1

(See, e.g., Macdonald, Tr. 6926-30;

PX

353, p. 18.)

.

iiHart, from General Motors Research, stated that through 1970, the

22.
23

!I

lili rtdemand

.

for computJ.ng power supplied by

'I

GMR

•

•

:land a half since we installed the 701 in 1954".

•

doubled eyery year
He continued, "We

;i

24

JfUI1Y expect this growth to continue over the next 20 years".

"5 Ii
- :13753 (Tr. 80198).)
.j

.\

:\

i
j

it

-928-

(DX

I

I-

I

i
An important example of the trend in computer usage in

1

2': general was the increasing use of computers by the United States
,
I

3-: government, the world'-s largest us:er of computers.
i

4-1,, als'c' DX

1"5,&6;,-

pp:•. 1~:,_: :tS-;,P:laintiff's- Admissio-ns,

(OX

4355, p.

6:

see

Set IV, 'If V- 2{)6.0,: 2--~.O-..

! I·That growth obviou~l.y refleets the expansion by existing users as w.ell
I

6- : as the introduction of- new agencies to the use of computers.

Accord-

I

7 tI ing to reports by the Comptroller General and by the General Services

a

a : Administration,
9

! government

the numb-er o-f computers installed in the Federal

went from five in 1952, to 531 in 1960, to 1, 862 in 1964,

10 Ito 5,277 in 1970, and kept on growing.
(OX 923, pp. 11-17; OX 9-24,
I
.
11 IPP. 2,596-97; OX 7568, pp. 13-14.)
Indeed, according to the Departi

LZ!ment of Justice's 1968 submission to the Federal Communications Com! .
.
13 i m~ssJ.on:
I

l~

!

\

I

lSii
f

l5 n

11

II
!I

18 11"

"There was approximately a four-fold increase in
the use of computers by the U.S~ Government, the computer
industry's largest customer, between 1962 and 1967.
"This four-fold increase in the use of the number
of computers understates the actual increase in computer
capability.
"One dollar bought about four times as much computational
power in 1966 as it did in 1962." (Plaintiff's Admissions,
Set II, ~, 312.8-312.10.)

19 :1
20 :1.,

c.

21

!Id~velopment

22.

-I

Explosion of New Applications of Computers.

The initial

of computer applications consisted of applying computers

~to perform jobs that had been previously performed by other means.

ltThereafter, comouters
were increasingly- applied to perform jobs that
..

23 :,

Jcould not previously have been performed without computers.
24 .\
:l
Thus, for example, Knaplund testified that when Consolidated
25 il
:!Vu1 tee, later Convair, the aircraft company, first acquired an IBM 701
:1
:1

.\

;i

I.

f!

il

-929-

1

i in

the early 1950s, the work that was undertaken "was in part a

I
I

2.iI transfer of· work from unit record equipment, but it was very largely,
i·

l ; and I would say within· a mattez: of months predominantly, work of the
I
i

4.1· type

that could not have.' been done, in the same form or perhaps at a'll

i

!

I' on

unit record equipment".

(Tr. 9061.3, 9062'0-22.)

Hurd testified

i

I

~ ~

~

that computers could "perform problems which punched card equipment

II

7 !I simply could no·t perform·'.

For example, General Motors and North

8 ! American Aviation "were processing data which involved a totalit.y of
l

9-\

applications such as order entry, checking the validity of orders,

1Q ! placing requirements on the factory, scheduling production, controllin'g
I

II

! inventory,

and controlling manufacturing, all in a single, integrated

i

lZ!operation and ~i.th no human intervention".
i

U : using computers to

sL~ulate

Oak Ridge Laboratories "was

a diffusion plant, the purpose of which

;

14- r was to enrich uranium" '.

And various "property, casual ty and life

~ I insurance companies were using computers to maintain and update on a
I

16 lldail Y or weekly basis files which, in the case of large companies,
17 jcontinued millions and even tens of millions of policies".

(Hurd,

18 :,Tr. 86347-50; see also Hart, Tr. 80221-22.)
:\

Indeed, the General Accounting Office, in a report to
19 :'
20 ilcongress in 1960, stated that the "[p]rogress achieved in the develop-

.,

21 'lment and application of . . . automatic information processing systems
:ihave borne out earlier predictions" that computers will cause "a
22. :;
lisecond industrial revolution."
(Plaintiff's Admissions, Set IV,
A_

~.,

~f

I

24

j205.0; see also DX 44, p. 5.)
I

?= ·1

However, by the early 19605, although more and more ways in

-- 'I

.jwhich computers could be applied were being conceived, only the first

'I
.1
'f
,I
;j

:1
'I

:i

-930-

L

steps

~owa.rd

realizing such applications had been taken.

Withington

stated in 1964:
I

3: !
!

~I'

51
I

"In the p·a·stdecade, most compu·te·rs were sold to do
s.imple· jobs. -- payrolls and sc.ientif·ic applications. Mos:t
compute;rs today a·re sti~l doing simple' tasks. The exotic
computer applic'ations that abound in the literature are
the exception, not the rule.

I

Ci 1\

7 li
rl

81

i

gj

I
La i

"We be-lieve that the next wave of computer applications
is jus·t beginning. If the first generation of computer
applications cOI'lsis.ted mainly of record keepin.g and scientific
computation-s, the second generation will consist of automatic
decisio·n rules (for inventory control, credit, etc.) and
de·sign automation. Third~generation applications will
-involve real-time systems. • -... No one has begun to define
the limits of computer technology."
(PX 4829, p. 9.)

Similarly, in its 1960 report to Congress on computers,

i

11 i

!

!2.\;
13

~I

i

the General Accounting Office gave a "partial listing" of the applications in which computers were then being used by the.government.
These included:
n(a) air traffic control; (b) automatic production recording;
(c) business and management control systems; (d) communication
systems; (e) engineering and scientific research; (f) information
retrieval systems; (q) intelligence activities; (h) linguistics;
(i) mathematics; (j) medical research; (k) military surveillance
systems; (l)' military tactical operations; (m) statistical studies;
and (n) weather forecasting."
(Plaintiff's Admissions, Set IV,

'f

207.0.)

The GAO noted:
n(A]pplications in several of (those] fields . . . were in their
infancy, but that some of the techniques'which had proved
useful in one field were being carried over to other fields."

(lli,

11 211.3.)

In the 1960s, real-time systems were increasing in importance.

SDS, perceiving this trend early, capitalized on it by building

on the uses of computers for real-time applications such as process
control to achieve an impressive success.
-931-

(See above, pp. 693-96.)

Others saw real-time- applications in terms of interaction between man

..

and computer.

t

In June 1964-, Weil, in a presentation to GEts executive

office, stated:
- "'l'hesinqle- mos-t impQrtant trend in the information
p.rocessinq ~arket today is that we are moving away from
batch. p'roce-ssing, where- information is collected for a farflung o·rqanization by fundamentally manual methods and then
processed in a batch through a computer system. . • .

i!

I

i [t

i

"The informa-tio-n processing business of tomorrow . . .
will have transaction- data entered into the system through
communications lines, processed against massive central
files- on a random-nonscheduled basis and returned via
communication lines to the us-er, frequently all in a matter
of s-eco.nds. Prototypes of this kind can be found in the
airline rese-rvations systems, in military command and control
systems and in process computer installations.

\1

;1
II

S;

il

I

0;,
l!

It

I

2.!

"The direct access system • • . will play a large part
in the growth of the computer business in the next few
years. We predict by 1974 80% of the domestic shipment
volume of information processing systems will be serving
the direct access market and almost one-half of this will
be remote terminals. The classic batch system, which
dominates todayts market, will continue to exist but will
playa diminishing role in the equipment market." (PX 320,
pp. 9-10.)

3;

Users were active in developing real-time applications.
William Francis, Director, Information Systems Office, of the Department of State, testified that "in my work in the State Department
since 1963, . • . almost all of the focus of my activity has been on
developing on-line systems in various subject matter fields."
5416, Francis, pp. 7-8.)

(DX

John Jones testified that when he joined

Southern Railway in September 1963, D. W. Brosnan, Southern Railway's
President and Chief Executive Officer:
"was quite dissatisfied with the progress that had been
made in learning to use the computer to support rail
-932i

:1
-i

I

i

11,
i

21

I

i

3l

t

40;

I·
I.

:1

1

I

51

I

7'

i

operations, and . . .. the view he clearly expressed to me
was tha't the company had put a lot of effort into learning how
to' use the computers. in accounting, but where the business
of the· railroad really was, where the big money was really
made. and spent, wa's in operations. And so he gave me a
t W9-fold charqa, which wa·s to first of all get on with. the
job of supporting operations by the development in his
werds:,·o·f a· real-time' sys;tem, and further', to do this in
such: a way that the end result was . . • -a single general
informa:tion system for the railroad as opposed to what he
had right then, which was three segmented systems."
(Tr., 78954-56.)

II

Surveying the industry in 1965, Withington wrote:

I

Sl

i

9-!

i

lQ !

I

11

I

I

:i,14.1

nNewuses for computers- are continually being developed,
but the rate of d.evelopment of important new applications
has never been greater than it is now. Because the new
applications are particularly heavy consumers of computer
capacity~, their effect on the total market can be very
great .. Most of today's important application-development
efforts are concentrated on providing direct and immediate
service from the computer to the user -- the timesharing
concept, in which all users receive simultaneous and
immediate service from a central machine."

"

I

1

lSI
16

;!

"The effect of the proliferation of these systems will be to
expand both the uses to which computers are put and the
demand for computer capacity, and to significantly expand
the total market for computers." (PX 4830, pp~ 10, 14.)

17 ;,

People were exploring and discovering new ways to use

I

l8 l!computers.

President Johnson, in June 1966, urged the Federal govern-

it
19 :Iment to do the same.

He directed the head of every Federal agency lito

20 :lexp1ore and apply all possible means" to "use the electronic computer
:t

2I (Ito do a better job" and to "manage computer activity at the lowest

~ ilpossible cost".
23 '.i

,I

24 ~I

He went on to state:

"The electronic computer is having a greater impact on
what the Government does and how it does it than any other
product of modern technology.

I

"The computer is making it possible to
"-- send men and satellites into space

il

II

-I

ii.1
)1

-933-

"_- make significant strides in medical research

·!

1._-

I

fI _ _

add several billi:ons of dollars to our revenue
through improved tax administration
adminis-te.r the huge and complex Social Security

an,a

.1
i

Medicare progr'ams

"-- manage

sys,tem.

a multi-bill,ion dO'llar defense logistics
.

"-- speed the is-.suan-ce- of G.I. insuran.ce dividends,

at much less cost
It _ _

soave lives through better s.earch and rescue
operations

"-- harness atomic energy for peaceful uses

1

J ~
i

"-- design better but less costly highways and
structures.

l;

"In short, computers are enabling us to achieve progress
and benefi ts which a decade ago were beyond our gras,p.
I

1

l. ;

"The technology is available. Its potential for good
has been amply de·monstrated, but it remains to be tapped in
fuller measure.

.4- :

-..-

.

"I am determined that we take advantage of this technology by using it imaginatively to accomplish worthwhile
purposes.

,6 :{

- ;i

"I therefore want every agency head to give thorough
study to ne.w ways in which the electronic computer might
be used • . • • " (OX 5377, pp. 1-2.)

.1 ;,"

'J

.S

:l;i
,j

~9 .;.1

ao
U.

By the date of this memorandum (June 1966) the Federal

!f
~I

government was reported to use 2600 computers, employ 71,000 people
in computing activity and to spend "over $2 billion annually to acquire

;1

i

~

~., 'i
-:j

and operate this equipment, including special rnili tary type computers."

i~ (Id.,
z!\
Z3

_

,_~

P • 2.)

The Department of Justice reviewed the growth of the

I

:industrv in its submission to the Federal Communications

I

.

I

!
f

,I
"

I

!i
I

-934-

Co~~ission's

I
i

1 I computer inquiry in 1968.

After commenting on the

n

startling"

i

2./growth of the "rapidly evolving, highly competitive data processing
l: I:indu,stry'" (Plaintiff's Admis·sions, Set II, ,t1f' 312.4- .10), the
I

4-\'Justice' Depactment stated:;
i'

5 I'
I

I
I!!! , t
~1

"'The qrowth of computational capa'bility has· been
accompanied by a rapid growth in the diversity of
computer applications, •.

I

7' if
11

8 ,
I

I

9-1
'10

(One source listed over] l, 200 computer applications
in such diverse fields as business, government, manufacturing,
educat'ion, law, medicine, sports, science, engineering,
natio·nal defense, social welfare, music, and language."
tf

(!!h,

!

1111 312.11- .12.)

The Department of Justice identified quite clearly the

11 ! increasing importance of communications processing and on-line

I

.

l2. I computJ.ng •

I

13i

i
I

l~\

lS!

I

"The number and variety of remote access data
processing systems, both real-time and batch processing
time, is already very large and rapidly growing."
(Plaintiff's Admissions, Set II, ,r 312.23.)
The Department of Justice gave examples of the uses of

l6 a

:' remote access computing:

17

I

18 II
19

1l

zcr .,
11

21

a

!f
[1

22. !t

231\
Z4

il

Z5

;1

"The following categorization of existing applications
is sufficient to underscore the commercial and practical
importance of the entire remote access computer industry:
"(a) Conversational time-sharing systems (always
real-time) -- these involve the simultaneous sharing
of a central computer among a group of users located
at remote terminals and connected to the central
computer by communications circuits.

.

"(b) Inquiry systems (usually real-time)
in such systems, typified by stock quotation services,
a large number of terminals are connected to a single
data processing center by means of communication lines;
the system enables remote users to query a frequently
updated central store of information.
" (c)

Remote batch processing systems -- these

II
:1

11

li

II

-935-

systems permit the central processing of tasks that
originated at and are transmitted from distant
locations.
It

•• (fJ In£o·rma,1:·ion distr'ibution systems -- thesesystems, capabl.e or operating on either real-time
orba,tch basis, o·ften operate like inquiry and
docume-nt-produ:ction systems without the need for
specific-, repeated customer inquiry.

I

"(g) As information relevant to the needs of
a particular subscriber is received by a centr·a·l
computer of 'such a system, the information is automatically
and sele'ctively transmitted to the subscriber via
communications lines.

\

t :
~ :
;

i

"(h) The distribution of railroad freight traffic
information to railroad traffic age·nts, shippers,
and consignees is an example of such a system."
(Id., 1f 312.24.)

t;
I
It
,

~

•

I

The variety of new applications and the changes in the types
of uses were highly interrelated with the

:1

~ J

and planning efforts for new products.

I

-.

EDP

suppliers' de.velopment

As we have seen, IBM designed

:. System/360 to facilitate communications-oriented processing (see above,
.. it

::;~

7

pp. 290-94, 311, 314-20, 324-26, 417}: and the-perceived growing impor-

]

., tance of r'emote computing and time sharing heavily influenced the 360

;1

S ;\ Model 67 and then the System/370 planning.
~,
.. ;; 18.)
Q

'I

(See above, pp. 419-31, 913-

Similarly, these were the years of the Proj ect

MAC

development and

·t

o :\

GE's emphasis on time-sharing capabilities.

(See above, pp. 505-12.)

:1

1. :\ Technological advances and improved capabilities. implemented by EDP sup~

2 :! ?liers facilitated the expansion of computer

~ 1~ime,

a~plications.

At the

individual suppliers had to tailor their development efforts to

~~ .\ satisfy the changing demands of the users.
I

~ !

sa~e

As stated in GE's APL "Master Plan" in January 1970:

-936-

I
i

1.:

"This unusual- gro-wth rate [of the computer indust-ryJ stemsfrom high customer accep-tance and his exploitation of the
computer I· s . abi-li ty as well a·s the industry 1 s ability to
con-st·an-t;~y imp-cove the p.rice/performance capability and
system adaptal:i·ili.ty. The shift of customer usa.ge from
batch:· to., di.ref:t access, the greater use 0 f communications,
and· the eve-r-e~di;nqs,e:t of a1?p·li:cat~ons -- all indicate
the· dynamic"# g~rGwinq nature of the· industry and, in fact,
provide the basis for the growth- which must be in tune
with these moves-by the customer.
(PX 353, p. 18.)

Z ;S
4.
•

I

:-

It

a [t
T\I

s;

d.

increase in the

Il!lP·l:oved Price/Performance a·nd Ease of Use.
~ay.s.

The

in-- whi.ch computers were used were made possible

by- sharp price/performance improvements, increases in computer capabili
9

ities,- and, in particular, by increasing ease of use..

to;

I

il

These change-s

both increased computer usage by existing users and produced a large

i influx of new users in the period 1963-1970.
,
I

!.2.!

Similarly, Perlis testified that as the "price/performance

I

lZ

!.1 of

the hardware- side- of the computer" improved, "our appetites as
,
l4- :! users of the computers" increased.
(C]omputers are so much more
,
II

capable of doing things than we know how to tell them to do at any
stage, that they represent a reservoir for our wishes, as it were,
and everything seems to indicate that we are just going to continue
to load these computers with more and more software in order to per-

I

II

- II
!

I
I

form the tasks that we have in mind . • . . n

(Tr. 1830-31; see also

I

j
!

i

OX 3753 (Tr. 80193).)

!

Withington wrote in 1965 that "[t]he improved economics
thus make it possible to use computers for previously unprofitable
work.

As users discover this, total usage grows."

(PX 4830, p. 9.)

Again, in 1967, commenting on improvements in price/performance:
"The most direct effect of this improvement will be
-937-

I,
I
I

!
I

i

further growth within existing markets. Present users of
computers will find it economically justified to use
computers: for applications not justified before."
(P"X
4832, p. S.)

L

z·
I

i

I

1·;'
i

i

In 196$:

~I

·"As the costs' of complete computer systems decline,
thousands· 0'£: new llS:eI:S appear and marginal applications
0-£ existi!lg us_ers bec:ome' justified."
(EX 4833, p. 10.)

i

s:f
I
61
i

The computer was becoming more familiar and, in particu·l.ar,

I

7 !I
I

i

!.

a!
j

i

•

eas·l;.er for human beings to use.
improvement in software ..

~ I to
10

i' the

A good deal of this was due to the'

Highe·r level languages had made it possible

program in languages more readily accessible to human beings than

ones and zeros which characterized machin.e languages.· Also,

I
II I, advancing operating systems made it possible to program without the

tt!
!r annoyance of having to keep track of memory addresses or do hexadeci-

01

mal arithmetic.

14-!

I
lSi

Donald F. Turner, then Assistant Attorney General for Anti-

I trust,

16

[J
I

1

17 lI
I

1a II!.

191'
"'0 it

~

i:1l

21 II

stated in 1966:

n[CJurrent practice and trends in programming . • .
remove the programmer further and further from the necessity
of considering the details of computer circuitry, or even
machine language. Programmers increasingly concentrate
on developing algorithms; they spend less and less time
with the details of how the algorithm is handled by the
hardware of the computer. This appears to be the most
efficient use of programming talent."
(OX 9110, p. 3.)
This was an important feature, because. programming talent

22. !t was "scarce".

(~, p. 2) *

Given such shortage, the improvement of

2310perating systems and other sophisticated programs became more and

Z~ : \ - - - - - - - - ;1
* Similarly, Withington wrote in 1965:
25 'I

"[T]he productivity of the individual computer programmer is
increasing. Until recently, it was necessary to prepare all
computer programs in the specific language of the computer and to

I
11
'I

il

-938-

L

more important.

%

specialized in providing such programs to users.

Not surprisinglYr software houses developed which
(See above,

p~.

851-

53; PX 4832, pp. 10-11; PX 4833, pp. 27-28.)
The increase in interactive computing was interrelated with
the increasing ease of use of computers.

Hart of General Motors

#

wrote in 1971:
"There are two phenomena which we have noticed with
the advent of interactive computing:
(1) the threshhold
of complexity--of the difficulty associated with using a
computer--has been lowered significantly. As a result,
the number of new users has increased rapidly during the
past five -years. Probably more than half of the 2000 or
so users of our Honeywell (GE) time-sharing system were
previously non-computer users--and would not have become
users of a batch system.

,

al
a.. !i

lO

11

i
t

i
f

!,

t2.

11

13

II

"The other phenomenon has to do with human productivity. Whereas the average engineer may be able to get
five times as much work done per unit time, the outstanding
creative man may get 10-20 times as much done. With a
batch system, this man was frustrated by turnaround time-whereas with an interactive system, he can proceed full
speed without the computer getting in his way.

1£ :

-. I
ISI
I

!

16 I"fl

l7

\

II

lS [f

II

19ft
....4 0
.

2.l

11
,I

~1
:1

~
22. :1

23ij
.... ,4

t

4-. :

carefully design the programs to circumvent the inadequacies of
the machines. Now the computers have fewer limitations for the
programmer, and the use of automatic programmirig languages
(particularly COBOL) is increasing. A programmer can probably
produce 50% more work per day now than he could five years
ago. • : . The requirements for computer programmers are
generally satisfied rather quickly because retraining takes only
a few months. However, project leaders and systems analysts do
not become available so quickly. • • . There is already a
shortage of these creative and managerial personnel, particularly
for the development of the newer and more advanced applications. . • . However, the scarcity will have less effect on the
growth and the use of computers for conventional applications,
for these applications are well established and require minimum
creativity and few top-level personnel."
(PX 4830, pp. 9-10.)

I

2.5

I

-93911

'I
I

1.;

a

ItIf it sounds like I am promoting interactive computing,
it's because ~ a·m.. I believe it represents a revolutionary
new way of using computers to solve problems, and we are
only beginning to understand what it means."
(OX 3753 (Tr.
8019·1).}

i
1

I

3:1

I

i

4. ~

Computer E'J::ice/performance was also improving very rapidly

i

5. I~i in quantifiable way-sa

Hart, w·riting in 1971, wrote that "[t] he

I

a!

changes which' occu.rred in the 14 years between the 701 in 1954 and the

I

t

7 i1360/65
,!

8~!

in 1968 can only be described as revolutionary."

problem had improved by a factor of 100.

9'-!1 purchase
10

! This,

11

i

The cost per

"For $20,000 you can now

a whole minicomputer which could run rings

a-round~the

701.

It

of course, enabled more efficient use of increasingly expens·ive

scientific personnel.

"It is interesting to note, during the past 20

i

IZ.!i

years • • • while computing cost has gone down by a factor of 1,000,

13

costs of engineers and scientists has tripled."

11

!

l~!

These improvements

"have largely come about from revolutionary changes in computer hard-

i

15 : ware technology", however, "[t] here has also been a revolution in
I

16
17

I

~!software

technology which has helped to make more efficient use of

!I computer

hardware':'-this is the operating system (currently typified by'

18 :1 IBM's 05/360).·
19

il

(DX 3753

(Tr. 80187-88).)

Other witnesses also attested to the improvement in price/

za:lperformance.

For example, Frank Heinzmann of Eastern Airlines observed I

J

21

iIi?

1973 that "there has been a fairly dramatic improvement in the

2.2. l!price/performance, particularly over the last six or seven years".

23 :1 (DX

5l54~

Heinzmann, pp. 3387-88.)

William Terry of Hewlett-Packard

:1

24 :jexp1ained in 1973:
:I
:!

I

"[I]t has been my experience there is a continuous innovation of technology and an almost continuous and very
-940-

rapid degree of change. • . . I have seen it in our own
product line. Our first computer [~n 1966], the 2116 was
a very large box, hea·vy, ho,t, with 8,000 words of memory
and sold for something like- $28,000. Seven years later
[1973] we offer an improved machine, in almost every
r~spect fo-r sottlet-hing· like $-5, 000.'
That is an illustration
from my own company of how ra-pidLy this change has been
taking place."
(DX 4113 ~ Terry, pp. 33l4~-lS.)

1

2.

I,

I.

3:

I

~i'
j

5"1

The statistical evidence of the price/performance improve-

I

I

5;

i ments is dramatic.

Some e-xamples' for IBM products make the point.

7 11

:1 The IBM 65'0 process-or, announced in 1953, was able to proces-s 700

!f

S'l! ~nstruct~ons
.
.

per second; the 1401 processor, announced in 1959, was·

i

9-1

able to process 5,000 instructions per second; the 360/Model 30

10.,
11

processor, announc-ed in 196-4, was able to process 30,000 instructions

!\ per

second, a 4·0 times increase in speed over about ten years.

I

LZ

I (OX

4755.)

Max~um

main memory increased from 10,000 bytes on

I

13 II the 650 to 65,536 bytes on the 360 / 30, or by 6-1 / 2 times.

14.1 p.

11 ; DX 911, p. 5.)

(DX
1 4 02,

The rental price of the 360/30 at announcement,

lSi

I however, was about equal to the rental
16 a
Ii ment. (OX 1402, p. 3; OX 911, p. 6.)

price of the 650 at announce-Welke testified that with

17 llrespect to the cost of the central processing unit's operation "from
18 ;,one generation to the next on computers, if you speak of the IBM line
:1

19

11

0f equipment, the second generation being a quantum step lower than

20 :, the first • .

Taking the first generation as one, the second

tl

21 It generation was ten times as fast or 1/10 the cost.

The third genera-

~

~ lltion would be ten times that or 1/100 of the first."
Z3 J17304-05.)

(Tr.

In addition, progress in memory components has meant that

;1

24

J "not only have the components been improved in their efficiency, in

I,
25 ! their ability to perform reliably, but the space or the sizes that
; they occupy has also gone down . . . . n
i
I

-941-

The "number of cubic feet

1

taken up by a byte of information, if you will, again normalized to

2: one in 1948, [has gone] down to one thousandth of that in 196'8, and
3: hopefully down to a millio·nth of that in 1988."

(PX 289;: Perlis,

40-. Tr. l829.)
Similar improvements were achieved in peripheral devices.
6

For example, IBM's 350 magnetic disk drive, announced in 195-6, had a

T data rate in characters per second of 8,800, an access time of 600

a
_9-

milliseconds and a capacity per spindle of 4.4 million characters.
(OX

I

3554D.)

The 2314 disk drive,

announc~d

in 1965, had a data rate

10 IOf 312,000 characters per second (over 35 times faster), an acc.ess

I
1l ! time of 75 milliseconds (80 times faster)

I

and a capacity per

I

ttl spindle

of 25.87 million characters (5 times greater).

(OX

35540.)

i
IS i The storage capacity per dollar of rental increased from 7,692 characI
l~!ters to 38,255 characters.
(Tr. 94860-61; JX 38, pp. 439-40; PX 6072.)
i

15 !IBM magnetic tape drives from the 729-III, announced in 1957, to the
I

16112420 Model 7, announced in 1968, achieved a three-fold increase in

17 ilrecOrding density·and a six-fold increase in data rate per dollar of
(Case, Tr. 72650-55; JX 38, pp. 840-41; PX 4526, p. 3;

181frenta1.
1\

19

1'ox

2D

il

21

'I
!!d~creased

3553B.)

Or. Perlis estimated that the price per operation had

"

"a thousand to one" during the period 1948 to 1968 and

22 t!prOjected the same decrease for the period 1968 to 1988.

~_ ;t
~"

- These improvements in ease of use, price/performance and

Z~ llcapabilities,
25

(Tr. 1993.)

attracted new users, enabled existing users to expand

: their data processing and contributed to the explosion of the uses of
To take advantage of such improvements, existing users
-942-

L

upgraded and conve'rted their old equipment.

Withington testified

2

that "during the entire eight-year period, 1955 to 1963, something in

l.

the range of: 30. to 40 percen.t of users having acqu.ired one computer

+-1' sys.temchanged· to a computer system of another manufacturer."
(Tr. 5,7678.)-

Further, "'perhaps 40 to 50 percent of users acquiring an

initial system from one manuf·ac·turer subsequently converted to a
no.ncompatible compute:r system of the same manufacturer.

II

(Tr. 57680-

Such changes generally cost users time and money--personnel

9:
1

la 1· had to be retrained and programs had to be converted--and customers
(

took those costs into account in making procurement decisions.
e.g., J. Jones, Tr. 78771-72;

I

12.1

OX 3753

(Tr. 80193.).)

Generally, the

costs of such conversions are "relatively minor" where the programming

13 ;,

has been done in higher level languages such as COBOL.

::1
15

( See·,

(Macdonald,

Tr. 6914; J. Jones, Tr. 79689-90; see a-lso J. Jones, Tr. 78868-69,
78877-78; OX 3753 (Tr. 80192-93.).)

In any event, customers made

;1

such changes because the conversion costs were less than the resulting.
11 [I
lS

benefits.

:r
:1

19 :1
""0 :1

.,r

"

-1

,I

'1

~I!

,.,-.,.;.,
'.j

As

Hart informed his colleagues at GM:

"While [a user who disliked having to convert] was
groaning, his roommate was cheering because he could now
solve his problem faster, cheaper--or at all! And many
new users were attracted by new capabilities . . . . The
overall benefits (to the computing community) from each
change have overshadowed the conversibn costs required."
( OX 3 7 5 3, ( Tr . 8 0 19 2 . ) . )

J
Z3 'j

Z'"

:i

ZS

.1

~,

iI

·1

'\

-943-

I
I

r

~

57.

;

:1

Conclusion.

As we have just discussed, continuous

t

innovation in compute'r techniques and technology during th.e 1960s led

rf

to dramatic imp'rovements in the price/pe-rfo'rmance, function and

I'

I

usability of computer systems'.

$.;
I

Users, cO\lld do their compu,ting fas,ter"

,
,

,

chea:p8'r and easier, and' also do 'a, whole. host of new applications, that
could' not previously have bee·n done' cost effectively or" perhaps, at
all.,

The new wave of applications that emerged--particularly real

time, on-line, interactive types of applications--permitted users to

g.:

make, computers an integral part of their businesses, rather than

a\

me~ely

fast ac'counting machines to do a f>ayroll or perform statistical

! calculations.

~i

The resultant potential for increased business produc-

; tivity through the use of computers attracted new users and provided
Zi
Z :,:,1' existing users wi th incentives to expand their computing installations

and apply their computer systems to ever more sophisticated applica~. ;

tions.

!

=~

-;

The histories of individual companies and types of competitors
set out above reveal that EDP suppliers perceived--although always
underestimated--the extraordinarily rapid growth in the number of
computer users and uses and the insatiable demand for computing power
and capacity and attempted to satisfy the demand by offering the types
of hardware and software that users wanted.

Such attempts led to a

s'tretching of the technology and still further performance and cost
Z2 ';

;i breakthroughs.

,_

~

I were

Z! ,!

~=

As that cycle repeated itself, hosts of opportunities

I

created for companies to grab a new or a bigger slice of the

i action.

...

j

!
Existing suppliers were able to and did expand their operations;
i

and grow rapidly, and a variety of emerging new suppliers were able to
-944-

I

i
i

.\

I

1. ( achieve startling success in a. relatively short period of time.
As

the technology and the applications changed, so too did

3 r. ways in which users acquired and changed their computer systems..
,;

4-1
=-

In

the 1950s and early 19'60'5, customers installing their first systems
typically acquired a complete system from a single system supplier.

1-I

(See O'Neill, Tr. 76243; PX 4.829, p. 34; OX 56-54, Webster, pp. 251-52.)

a II

Because of the limited number of options and limited configuration

7 :J

a 'I

possibilities of those systems, users who wanted to upgrade or signi-

~l

ficantly expand their computing capability also, typically, acquired

~

complete, new' systems.

10;

l 56170-71.)

ll~
I

T., I
-ll

13,

During that time period, however, "competitive necessity"

was ringing in a new order, and manufacturers were being forced to

a make their systems more and more modular:
If

!i

!.~ :1
1S ;1
16 '(
17

(See J. Jones, Tr. 78714; Withington,- Tr.

;t

"As users' demands for • • . breadth of hardware
functionality grew, the manufacturers attempting to compete
were forced to maintain continuous developm~nts of different
modular types of equipment that could be configured together
into models offered to the user. • • • This occurred in the
late 1950s • • • perhaps 1958 through 1962." (Withington,
Tr. 56174.)

'I

'.tcustomers were interested, for example, in having the option of moving

15 I

:;to a larger central processing unit without reprogramming and without

19 .

lreplacinq all the other parts of their system:

2.0 i
'iI
-'T

~-

Z2
z:3

.,--..

--

..-;-

:1

l

"Through this process [of replacing and adding individual
boxes without a single conversion,] it would have evolved to a
point where the computer system, both in terms of the individual
machine model as entirely replaced, and the modes of use as
changed, and the systems programs beting replaced in a modular
fash~on along the way as well, has become entirely different.
Thus, the beginning and the end point of the process are totally
distinct, and yet at no one point in time would there have been
a moment at which one could say: At this point the entire system
changed from one to another." (~vi thington, Tr. 58270-71.)
-945-

Whether or not a sys-tem offered that flexibility was one factor users

.~:

took into account in making procurement decisions.

t!

Tr. 78-98-0-8:3 (Southern Railways selection of IBM 7040/44) i Plaintiff ,- s

(See J. Jones,

-

$a

i

Adm~ssions,

Set IV,

1(',-

66 .. Q-.-2 (Knolls and Bettis selection of Philco

2000 Models 211/212) •. )

As we have seen (s-ee pp. 29-6-304, 332-40 above), IB,M, respende
7-;l first a'nd mOst;.-- for-cafully to this

compe~ti tive

a~

But, as IBM and other systems supplier

gr&atest benefits frellt dining so'.

inrpetus and reaped- t.he

accommodated users by making their product lines more modular (see,

~~

a~

e.g., Withington, Tr. 56174-75, 58229-3,0), they also created opportuni-

!

ties for new compet-i tors to begin marketing boxes directly agains-t the

!

individual boxes in those new computer systems (see, e.g., DX 2583),

1:
Z,i

If_

:3 If

which now could be reconfigured at will.

Moreover, entry of such box

! suppliers was facilitated by their ability to tap the software support
.4. :

-

: of the systems suppliers and copy the designs of their products.

::'
:

, as O'Neill of American Airlines testified:
.5 :t
"(In] the latter part of the Sixties and into the
:t
early
part of the Seventies, and I will say from about
.7 ;,
1966 through about 1973-74, manufacturers, other manufacturers other than IBM, started to develop and sell compatible
.S :t;1
tape drives, disk drives, printers that would operate with
'Q :t
little conversion, although some conversion was involved,
.. - "r
with little conversion on the IBM processors.
·0 :t
~I

"That doesn't mean to say that the Honeywells and the
Burroughs and the NCRs and the CDCs were not there, because
they were also putting in their systems. But what happened
was more choices became available.
"Ampex was selling memory, for instance; Calcomp was
selling disk drives; Potter was selling tape drives.

-946-

'.!I

Thus,

"There were a number of alternatives that one could
evaluate, which meant that they did not have to buy all
their equipment from one manufacturer .. • . •

1
2-

"Wba.t that me'ans is that we can qet our data
done. at a lower cost." (Tr. 7624'4-45, 76,242..)

1.

p~ocessinq.

4..

O'Neill continued:
5'

l-

"We [American Airlines] tend to buy boxes [rather
than sy·s terns J •

,i
I

.-.'

c: it
7 il

"

If

. . ... .

"We can put together the pieces and pick and choose
the bes·t boxes at the lowest cost from the various
manufacturers that are offering those boxes." (Tr. 76249;
see also J. Jo,nes, Tr. 79036-39, 79044-49, 79622-24,. 79880.)

s:

i

10 "

As

II

these new suppliers entered into competition against IBM

and others, users were increasingly willing and able to replace their
f

l2.iI systems--box by box.

:,i,

(See, e.g., Withington, Tr. 56026-27.)

The

13 ;[ Federal government and others turned to PCMs for replacement boxes.
!l

1+1 (See ox 5212, pp. 1-2;

DX 7568; OX 5654, Webster, pp. 248-52; OX 6257,

I

15

i Gold,

p. 119.)

I

16 :1

By 1970 "many acquisitions decisions were already being made

l7 :1 in a modular fashion" and customers were increasingly "adding computer

1S :1 products" in lieu of replacing whole systems.
19 :190; Akers, Tr. 96667-70.)

za

I
.!

2! :\

J

22. '\
..._ 'J
~

'\

24.

·1

I

2.5/

V. O. Wright explained:

"During the time even when I was in IBM, in the late
1960's, placing that in the time frame of '68- 1 69, there
was developing at that time a change l.n the manner of
marketing and in the manner of buying data processing
equi pmen t •
"Many new manufacturers had come into existence,
particularly those that were manufacturing plug compatible
equipment that plugged into, was compatible with, IBM
systems, and the federal government took the leadership
in trying to increase the use of such equipment in the

j

:i
'r

i

'j

I

q
[

(Withington, Tr. 56189-

-947-

federal government because they viewed it from the stand.point of its saving the Government money by buying a large
numbe-r of ma.gne-tic tape units, a large number of disks at
a quantity price,' in which they were able to get· further
dis·counts.· anG1 attaching' those 'uni ts to IBM systems.
I

"~SO: sp'eeifica:l~y- in. answe·r to your question, in- the
late ~960' s :the're· was a· new movement underway whi.ch did
focus much mo·re on' boxes than it did on systems, particularly'
afte-ra sys'tem was first installed and the advantages might
be realized· by reducing the cost of those systems by replacing certain 0·£ the boxes in those systems.

i·

,I

:1
;J

l

"Q .. D·id. that continue,. sir, during the period of
time,. that meveme-nt toward boxes, that you were at the RCA
Corporation,. that is, from the beginning of 1970 until the
be9inn~ng of 1972?

:1

"A
Yes, it did. And also while I was in Amdahl and
also while I was in Xerox that same movement continued to
build, and it enlarged and became a more significant factor
in the computer business."
(Wright, Tr. 13540-41.)

,
I

Nor did the box competitors limit their focus to IBM.

'1

il

• ,!According to Wright, who was Chairman of RCA's Peripheral Task Force
.. i in 1970, RCA performed a market survey and was both "surprised" at the

r : amount of non-RCA equipment attached to their systems and "quite
~

,f

r :!

shocked" at the number of users who expressed an intention to attach

· .I non-RCA peripherals to RCA systems in the future (Wright, Tr. 13554-57;
.r
) ;1

t .j
.f

:I

l!

.

:1
t

T :1

,

~

~

ox

862) :

"This was clearly a continuation of that trend, . . . where
many users who used to be really dependent upon one manufacturer
for all of the boxes comprising a system, had learned that it was
possible for them to achieve certain benefits by procuring and
mixing boxes from different manufacturers in the same system. It
was a continuation of that trend."
(Wright, Tr. 13557.)

.~

- ·t
The increasing trend toward modular replacement permeated the
3 'i
: area of systems software as well. That trend coupled with users'

! :\

- !unslakeable thirst for applications programming,

.....

-948-

triggered an explosion

I

l.

in the number of software suppliers during the latter half of the 1960s.1

Z

(See above, pp. eS3-5S, 8'38-39 .. )

1

s,ervice bure·aus were also burgeoning and providin.g a host of new alter-

t

4..

In the meantime, leasinq: c-ompaniQs' and

natives for users and increa-sinq- competi ti ve pressure on hardware

j

=- ~- manufacturers.

(See- above, pp-. 807-14-, 8·26-46.)

i

6

For all of 360' s spectacula·r success, IBM could not match the

1

7:1 growth of all
a 11 the

-

~ I

these competitors.

The expansion of EDP companies during

1960s, both in number and size, was astounding.

We have seen

already (p.p. 923-26·, abov.e) that the joint depos-ition :oroqra1Tt o-f

:

10 ! various EDP companie.s (Census II) revealed an exponential growth in the
• 'T

! number of companies reporting U. S • EDP revenue s over the years 1952

.1._ ;

through 1972 and a similar growth in the total

ttl
r-

! those

u.s.

EDP revenues of

(Dubrowski, Tr. 84209-10; DX 8224.)

companies.

From 1961 through

I

~~

1970, the number of companies reporting

I

!-4- ,'

from 98 to 582.

15:

(DX 8224.)

u.s.

EDP revenues increased

Moreover, from 1961 through 1970, the

u.s.

~ EDP revenues of those companies, as reported in Census II, exclud~ng

•f6 J~I.

~

JIBM,

grew from $796,386,000 to $6,820,225,000 or an amazing compound

J.7 :i

:tgrowth rate of 27.1% per year.

rS

During those same years, IBM's U.S. EDP

~

-

Jrevenues grew at an impressive but lagging compound growth rate of

19

.i

za

.,r

:~ 1 7 • 6 % per year.

'1
'1

( OX 3 811. )

The implications are perfectly clear.

Hundreds of new

:1

-- jcompetitors entered the industry.

In the.aggregate, the U.S. EDP

22·;\revenues of those companies grew some 55% faster per year than IBM over
ZS!the entire period.
.I

Z;1j

.Ifell:

As a result,

IBM's share of total U.s. EDP revenues

from 1961 to 1970, IBM's share of the reported

u.s.

I

.,c: '

-- ·Idropped dramatically from 51% to 34%.
I
:j

i

:!.,

-I

:

:i
j

-949-

(DX 3811; OX 8224.)

EDP revenues

Similar trends were evident in the Federal government.

L

In

2.

1967 the GSA Inventory of gen.eral purpose ADP equipment included hard-

1

ware s·upplied by' 1Q-4· different companies.,

4. i·:

number 'had risen. to

~ ~

IBM's

.

I

3·4~O.

CD.X;· 4'5'84 •. )

(DX

4,579.)

By- 19'72., that

Moreover, between 1960 and 197-2'"

share of the number of computers installed in the GSA inventory

\

e

I

•

fell from· 54.8% to 21.2%.

t

(DX 4 593, p. 7.)

i

"One of the key aspects of technology in the computer
field is its high rate of obsolescence. Never in the
history of technology has the pressure of competition
and the lure of highly rewarding markets created such
a dynamic evolution." (PX 353, p. 23.)

I

i

CZ
lZ

II
~J
"

~~
~

1iIn short, one of the results of competition in the computer business was
:)
j

that companies in the industry were constantly forced to come out with
r.5:,
: new and better products in order to keep the customers that they have
l

La

L7

if

It and
:1

in order to get additional customers.

:tR. Bloch, Tr.

776l-62~

(Hindle, Tr. 744 S -49 i s~e

alSi'

R. Jones, Tr. 8865-67; McCollister, Tr. S697;

LS ;1

Hangen, Tr. 10423-24; Withington, Tr. 56556-58.)

it

19

i

:i

I

:r

The competitors in the industry have attested to the increase I

za J

:lin competition during the 1960s.

Z1. ,!

McCollister of RCA described the

I
1

i

'

Jappearance of "more prominent and vigorous competition [more sources of \

2.2.;

~_

1new

product introduction] in the last ten or fifteen years [1960-75]

~I

Z~

tthan there was at an earlier time • .
" (McCollister, Tr. 9313.)
:\
(OX
.j Terry of Hewlett-Packard described the "explosion of competitors".

2:

'!

i

\4113:
Terry, Tr.
t

(Telex) 3316-17.)

i

'I\

!
1

.1

t

I

:1

-950-

i

Hindle of DEC described the industry:

I.

as Ita tough competitive marketplace."

Z

R. Jones, Tr. 88·65-67; Hangen, Tr. 10415; Butters, Tr. 46654;
Oelman., Tr,!, 612:9=-30; p·x 1077; DX 1406;
i·

(Hindle, Tr. 7448; see also

OX 4806; OX 193, pp. 2:.-3.)

Th.• result of this competition. for the user has been a·

4. \-:

veritable bonanz·a.

Use-rs. have been· rewarded with

cons·tant~y

be·tter

products at increasingly lower prices, as the technological advances
have been pass·ad on to users through the competi ti ve pres-sures of the
market.

(S'ee Withinqton,.· Tr. 56580; Hangen, Tr. 10423-24; R. Bloch,

Tr. 1761-62; McCollis.ter, Tr .. 9697; PX 376, p. 19 i OX 7523, Farrar,
pp. 56-57; OX 4321; PX 4·830, p. 29; OX· 9067, Higgins, pp. 104-05;
OX 7527, Slaughter, 'pp .. 109-110; OX 7528, Mahoney, pp. 17-18.)
ttl

.u .
1- ';I

Comment

inq on PCM competition in particular, the International Data Corporation reported in 1972:"As the independent peripheral manufactuers strive to fill
their potential and the mainframe companies react to hold onto
their own business, prices will come down as product performance
and variety improve. And that's a bonanza from the user's point
of view, since he wins in both cases." (OX 3132, p. 4.)

t4- !
I

Competitors have been forced to march to the customers'
As

I
tune, I
I

I
Withington testified, "'the user controls this industry in the end' " .1

If a user "is offered unsatisfactory products, he will not buy them,
meaning that if a product is not perceived by the user as meeting his
basic requirements for data processinq, or if its price/performance

II
I

I
!
i

I

are (sic] in. any way unsatisfactory to him, he will cause the product
to fail by refusing to accept

it.~

I
I

(Withington, Tr. 58571-72.)

In 1972, Harold S. Trimmer, Jr., Acting Commissioner, Automated Data and Telecommunications Service of the General Services
Administration, wrote, and Elliott Gold, Director of the ADP procurernentj
-951-

I
Ii

"

II

Division of the GSA, concurred.:
" 'The e·ssential point tha.t we wish to convey is that
the curren-t ADP market is: dynamic and extremely competitive.
The emergence of new sources of supply offers considerable
oppo,rt.uni.ty. to. pr'cduce significant economies in the procurement c·f AE}!p. equi·pment .. ' ,. (D:X. 6257: Gold, pp .• 9'6-97 e)

i
..

I
I

•

~

,. Fo·r the users of 'EDP equipme'nt, thi.ng·s have only gotten better

e-

I

I

~
~

!

;,
;1

\,

l ;1

I

I

:=
••

!
I

I
~

!

.,,
I

-952-



File Type                       : PDF
File Type Extension             : pdf
MIME Type                       : application/pdf
PDF Version                     : 1.3
Linearized                      : No
XMP Toolkit                     : Adobe XMP Core 4.2.1-c043 52.372728, 2009/01/18-15:56:37
Create Date                     : 2010:06:23 14:12:34-08:00
Modify Date                     : 2010:06:23 16:27:21-07:00
Metadata Date                   : 2010:06:23 16:27:21-07:00
Producer                        : Adobe Acrobat 9.32 Paper Capture Plug-in
Format                          : application/pdf
Document ID                     : uuid:3e0a9809-69b3-4481-9fbd-fa1219955bb5
Instance ID                     : uuid:4ec8562e-6001-44f8-b57e-f03f0ba23cce
Page Layout                     : SinglePage
Page Mode                       : UseOutlines
Page Count                      : 713