What’s Behind the Slump in Computer Sales

There’s a cloud hanging over the economy. It’s that companies are not buying computer equipment the way they used to, and the computer industry, which taken all in all with suppliers and service companies involves close to $200 billion in revenue, remains in a slump.

Why is that worrisome for the broader economy? Because computers are the kind of product that companies buy to make their own business better and more efficient. Lack of computer orders could mean that U.S. business sees no great opportunities out there and has decided it’s time to cut all spending and draw the wagons in a circle.

Or, it could mean that the computer industry has nothing new or significant to offer; that innovation and progress in this, the world’s most advanced industry, has stopped, or stalled.

So which is it? Good news. The truth is that U.S. companies see more opportunities for improving their business through the use of computers--more broadly and accurately, information processing--than the computer business can keep up with. The customers are demanding new advances in technology, and the inventors are huffing and puffing to provide them.

Auto Industry in 1913

That’s a very healthy situation. If you want a historical analogy, it’s comparable to the automobile industry at the dawn of its greatness, struggling to come up with technical standardization in 1913. It is in no way comparable to the automobile industry in, say, the 1950s, when technological progress was at an ebb.

We like to talk about cars; most of us don’t even know how to talk about computers. When the automobile was changing our society in the 1920s, people could see the progress--the roads that knit one town with another, the devices such as electric starters that made the cars easier to operate.

But we see the computer’s progress only in its effect--and even then we are not fully aware that we are seeing the computer’s effect. Have you thought lately about the way you bank? What made daily interest on your savings or the abstract reality of your money-market fund possible? The way you shop? Is there no limit to the size of supermarkets these days, or the variety of their goods? Why have those gigantic warehouse stores sprung up everywhere, moving VCRs and furniture and all sorts of merchandise at attractive prices? Because of the computer. They couldn’t receive their shipments, much less control their inventory, without it.

Mixed Blessings

The computer has brought blessings both mixed and plain, from the breakup of the phone company to deregulation of the airlines. It has coined the word software, given new meaning to memory and built in less than 40 years a business that bids to become this country’s largest.

Why has that business paused since 1984, when for three decades before that it grew 20% and more each year? Because the customers needed a handle on what they were buying. The first computers paid their way: They put power behind the elbows of the folks in payroll and accounting and produced more output per unit of work.

But more and bigger machines did not bring similar gains. The office of the future remained in the future. Employment grew as people found new things to do with the computers, but productivity didn’t. The personal computer made its appearance in 1980-81, and things ran wild--every department in the company became a data-processing center.

Two years ago, company managements, as if on cue, called a halt to further purchases. What do we have, and what do we want to have, became the question.

OK, now they know what they want. They want programs, or software, which allow them to create computer applications suited particularly to their business. They want to pass information freely among all of their computers--something they cannot do now.

“The customers don’t want bigger machines,” says President Thomas Crotty of the Gartner Group research firm, “they want software to make the machines do the job.”

Just so, customers right now are buying any suitable programs available. Software sales to business are running 31% ahead of last year. Meanwhile, the industry--IBM, Digital Equipment, NCR, Hewlett-Packard and the rest--are trying to rush product to market to meet urgent demand.

Why are customers in a hurry? Because, with inflation low and prices coming down, the marketplace will not be kind to companies doing business in the same old way.

Think for a moment what the computer is doing to that stock American character, the traveling salesperson. It’s putting briefcases with portable, or lap-top, computers and modems in their hands so that when they are sitting with prospects, they can instantly calculate prices or rates, check home office inventory and enter sales. Time is money, as they say, and the briefcase computer helps save both.

The good news is that the information processing industry, and perhaps the whole economy along with it, is about to take off--again.