Ibm's Unruly Kids

How quickly things change in the technology business. A decade ago, IBM was the awesome and undisputed king of the computer trade, universally feared and | respected. A decade ago, two little companies called Intel and Microsoft were mere blips on the radar screen of the industry, upstart start-ups that had signed on to make the chips and software for IBM's new line of personal computers. Though their products soon became industry standards, the two companies remained protected children of the market leader.

What has happened since is a startling reversal of fortune. IBM is being ravaged by the worst crisis in the company's 79-year history. It is undergoing its fifth restructuring in the past seven years as well as seemingly endless rounds of job cuts and firings that have eliminated 100,000 jobs since 1985. Last week IBM announced to its shell-shocked investors that it lost $4.97 billion last year -- the biggest loss in American corporate history.

And just when IBM is losing ground in one market after another, Intel and Microsoft have emerged as the computer industry's most fearsome pair of competitors. The numbers on Wall Street tell a stunning story. Ten years ago, the market value of the stock of Intel and Microsoft combined amounted to about a tenth of IBM's. Last week, with IBM's stock at an 11-year low, Microsoft's value surpassed its old mentor's for the first time ever -- $26.76 billion to $26.48 billion -- and Intel ($24.3 billion) is not far behind. While IBM is posting losses, Intel's profits jumped 30%, and Microsoft's rose 44%.

Both Intel, the world's largest supplier of computer chips, and Microsoft, the world's largest supplier of computer software, have assumed the role long played by Big Blue as the industry's pacesetters. What is taking place is a generational shift unprecedented in the information age -- one that recalls a transition in the U.S. auto industry 70 years ago, when Alfred Sloan's upstart General Motors surpassed Ford Motor as the nation's No. 1 carmaker. The transition also reflects the decline of computer manufacturers such as IBM, Wang and Unisys, and the rise of companies like Microsoft, Intel and AT&T that create the chips and software to make the computers work. "Just like Dr. Frankenstein, IBM created these two monster competitors," says Richard Shaffer, publisher of the Computer Letter. "Now even IBM is in danger of being trampled by the creations it unleashed."