Barbara Isgur talks to Ken Uston; an industry analyst speaks out. Ken Uston.
Barbara Isgur Talks To Ken Uston
Creative Computing: What are your overall impressions of the show?
Barbara Isgur: It's an interesting show, centered around two groups of things. In hardware, it is the IBM clones of various types; in software, it is the notion of integrated software and easier user interface--like mice, and so on.
In software things are going forward; in hardware, they are not. I think that the IBM standard is an inhibiting factor from the standpoint of user benefits. I find that somewhat discouraging, but it is a fact of life. IBM is not going to go away, and they are not going to be that innovative.
CC: Do you mean that were it not for the trend toward IBM PC compatibility, other manufacturers might be doing more innovative things?
BI: I think so; IBM is inhibiting innovation. And I would guess that is going to continue because IBM is dominant in the corporate marketplace.
CC: From the user's standpoint, how important is IBM compatibility? We hear two opinions. One is that there are only a few things that can be done with a computer, such as write, calculate, set up databases, and make graphics, and that as long as one has a really good program, it makes no difference if one's computer is IBM compatible. The other side, of course, is that people want all the new stuff that is coming out, and that if you are a hardware manufacturer without MS DOS, your machine will soon go the way of the buggy whip.
BI: I think that you can make a case for either side. Typically in this industry until about twelve months ago, users bought a computer because they had a need. As long as they found an application that satisfied that need, they weren't concerned with the latest model software. They had a business to run and they had to do accounts payable, accounts counts receivable, general ledger, or whatever. To the extent that the computer solved the problem, it receded into the background.
As the computer has become a fashion issue, the idea of having the latest software has become more important. So I think there are two ways of looking at it.
CC: On the windows issue, there also appear to be two sides. One school says windows are great: the user can have a desk top right on his screen. Others say, "Who can work with all those different little windows? They'll make sense when we have computer screens the size of a desk top.'
BI: One of the programs that I saw here at Comdex was the Ovation Software Program that will run on the IBM and the Tandy Model 2000. I liked the explanation that Ovation gave for creating it the way they had. They feel that windows can be obstructing rather than helpful if they require complex commands. Ovation has invisible interaction between functions, activated by 30 natural language commands that are the same for each function. Intuitively I, as a user, like that, because it makes my life easier.
On the other hand I think that there are instances in which the notion of windows, such as in Microsoft Windows, can be important in bringing together the best applications in each area. The user can operate the best spreadsheet with the best word processor with the best graphics package. This is because Windows is able to integrate packages from different manufacturers.
If you are really a serious computer user, Windows does offer you possibilities that don't exist in other essentially closed integrated systems which work only with their own applications, such as VisiOn or Ovation.
CC: With the PCjr, has IBM finally established a real need for a computer in the home, in contrast with the TI 99/4A, the Atari line, and the Commodore computers. Or will PCjrs eventually be sharing the dust in the closets with the other computers?
BI: I don't think IBM has established a need. But I don't think it is IBM's role to establish a need. I think the need is going to evolve over time. When the telephone was first invented, Western Union said that it would never go, that we have plenty of messengers in the world, so what did we need telephones for? And many original owners of telephones didn't use them much--there weren't many people to call. Gradually the telephone became an accepted and reasonably necessary appliance in every home and in most lives.
I think that the home computer is going to make a gradual transition into a taken-for-granted appliance.
The home computer doesn't have one compelling function, but rather a set of four or five functions that together make a pursuasive cause for having one. The uses might include doing banking at home, preparing income tax returns, providing educational assistance for children, and occasional word processing. No single use will be enough to make most of us say, "I've got to have a home computer.'
CC: Do you think that home computer needs will finally be satisfied through better software while the PCjr is current or will this happen after the PCjrs are in the closet and some other computer is in vogue?
BI: The IBM home computer will probably establish the standard operating system for the home market as it has in business. So even if the PCjrs have gone into the closet, I think that as the software continues to evolve and increase, they will be brought out. By the way, I don't think they will go into the closet. People who buy the IBM have made a pretty substantial investment.
I think that because it is expensive, perhaps only 10 to 15% of the home market will be interested in the PCjr. I see two categories of PCjr buyers. One category is the person who is using the PC in the office and wants some portability of the software to a home machine. The other is the trend setter who wants the status of the IBM name.
The trend setter is more likely to become a non-user after the initial interest wears off--at least until, as I said, these things really get to be treated as appliances. But I don't think PCjrs will languish or that their sales will fall off at the end of 1984.
I don't think we are talking about just one computer in the home market. I think there will be multiple providers. I dont't see anybody with the potential to dominate the home market the way IBM is dominating the corporate market-- with the possible exception of somebody like AT&T, who might make a computer/telephone link that would be very compelling as a leading product. It hasn't happened yet, but it may.
CC: What are your thoughts on the shakeout that so many observers say is coming? What is going to happen to these 300 hardware manufacturers?
BI: It is clear that there can't be 300 successful providers. I think that the keys to success--beyond IBM--are going to be marketing ability and price or value. I think people who don't buy an IBM are going to choose the computer that gives them the most value for their money.
So I think that companies must be able to penetrate the important distribution channels, which is a marketing and finance issue. It is expensive these days. Many of these companies are finding out that if you don't get shelf space in the significant distribution channels, life becomes very difficult. I would point to NEC, which has been in the U.S. market for a number of years and has managed to achieve only a 2% market share. Because it is a well financed Japanese company, it can continue to plod along.
But there are many small companies that have a single product. If they don't gain some measure of success within 12 to 24 months, they are going to run out of money. I think we will see a gradual weeding out over the next few years.
CC: Do you see a major Japanese invasion of the computer market in the offing?
BI: I have thought about it, and it puzzles me that they haven't been here earlier. Now that the IBM PC has become the corporate standard, they have a target to shoot at. If you look around this show, you see some evidence that some of them are aiming at that standard.
I have also heard that a number of Japanese manufacturers have decided not to fight the distribution battle in the U.S. and are allying themselves with U.S. companies to gain an entree. One of the large Japanese companies, for example, has an arrangement with RCA. This may be the way that others will choose to enter the U.S. market.
CC: You no doubt have heard of Andy Tobias, who has written iconoclastic books on Wall Street. In one statement, he says that a monkey shooting darts at a listing of stocks would do as well as most investment analysts. I wonder how you react to statements like that, if it's not impolite for me to ask.
BI: No, it's not impolite. As a professional investment person, I obviously take some issue with that. My days are spent attempting to provide fundamental analysis that will enable other professional investors to make decisions that will be more profitable than those they could choose if they threw darts at the stock charts.
On Wall Street, industries come into favor and go out of favor and there is much group activity in terms of what institutions will buy and what they sell. Earlier this year the technology stocks were very much in vogue, and their prices were high. At that point some of us were saying that, with the exception of the leaders in each industry sector, it was time to begin to be a bit cautious because it looked as though prices were getting inflated. Now I think we have gone the other way.
I feel I can add to my clients' thinking by pointing out to them who the leaders are in each sector of the industry. I can say, "If you want to invest in this sector, these are the likely survivors. Therefore, you should have a better chance of doing well.'
We outline the fundamentals of the company, and make an earnings projection; there is usually some relationship between earnings and stock price (the PE ratio). From that one ought to improve one's chances of doing well.
CC: Which hardware companies do you view as the best managed with the best products--the ones who are likely to be the survivors?
BI: Out of the 300, there are not that many that are public or that are investable entities for one reason or another. In the last year the home sector of the market has been the most explosive. In that sector, Commodore has done better than the others.
It is difficult to project beyond 12 to 24 months because the industry is changing so fast, and the likely survivors or dominant players change with each product cycle. For the next 12 months Commodore and Tandy appear to be very strong competitors. After the next 12 months I think Apple will either be a strong entity or on its way out of the business.
CC: Will Apple's fate depend on the Macintosh or are there other factors?
BI: Partly on the Macintosh, but not exclusively. They do have other products. I don't believe the Apple II is finished. There is life for 8-bit machines, and I think that if Apple markets it carefully, they can get a couple more years out of that product in the right markets.
CC: Do you see Coleco as a dominant factor in the home market with their Adam?
BI: No. I see them as a viable factor with a legitimate niche for 1984; it is difficult to predict beyond that. They have targeted a very special area: primarily home users who have students or teenage children who are writing term papers and who tend to be naive computer users. Coleco has tried to make the Adam easy to use and attractive to that group, consciously excluding other groups by the way that configured the machine.
CC: Do you think Atari will be able to regroup and come back in early '84 with their XL series?
BI: I don't know.
CC: They are not shipping much right now, I hear.
BI: No, apparently not. They are shipping the 600. The 800's were due this week, and I haven't heard whether they are arriving or not. I think there is some question as to where Atari is going. It is interesting because the Atari 800 is a sensational machine. We have three of them, and I recently did a report at the office. I generated the graphs for that report on the Atari 800. They were as good as our graphics department could have done, and it took literally 1/10 the time.
CC: What kind of software did you use?
BI: A program called B Graph. It is available only for the Atari 800 now. A Canadian company distributes it; it costs $100 and is a good program.
CC: Why didn't the Atari line of computers do better?
BI: I don't think that they marketed them as well as they could have. I think the Atari 800 could have been a very attractive small business machine. But Atari chose not to pursue that line.
CC: Do Wall Street computer industry analysts personally test out the computers of the companies they analyze?
BI: As a microcomputer analyst I do test the machines. We have an Adam in the office. In fact, we had 40 clients in today to have lunch with Adam; they all got to play with it. We have a Commodore 64, an Atari 800, and a Vic 20. I have a Tandy Model 100.
CC: When we were talking about survivors, you mentioned Tandy. To what do you attribute their success?
BI: Impressive product line, magnificent distribution capability, control of the whole process from manufacturing through distribution, and a reasonably nimble management that is willing to move with the product cycle. I think Tandy's unique structure will enable them to be a survivor.
CC: I recently talked with Wall Street analyst Joe Granville, who said that he thought the market was at a pinacle and due for an unbelievable crash. He mentioned that many of the indicators that typically precede a bear market are all at their highest level: the percent of small investors, the volume of short positions, the number of companies selling their own stock, and so on. I wonder if I could get your reaction to Granville's bearish predictions.
BI: Well, I think it is all based on technical analysis, which is quite distinct from what I do as an analyst of an industry. I spend more time on the fundamentals of my industry than on trying to determine what the market as a whole is going to do. Our economist makes those analyses as do our market strategists. I, of course, listen to what they say and try to factor in my analysis of the company within the framework that they provide for the market overall. I think that there is some current thinking that there will be a correction. But I haven't heard a doom and gloom prophesy from most people that I talk to.