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Chapter 9 The IBM Corporation 

9.1 ... Introduction 

Prior to the introduction of the PC computer, IBM 
was in a state of transition. The US Federal Government 
Department of Justice was ending a long period of 
litigation into IBM's monopolistic and anti-competitive 
practices. Although IBM would be successful in its 
defense of the governments charges, it had caused 
problems for the corporation. A moderation in marketing 
and product line expansion had occurred during this 
sensitive period of litigation. This resulted in a loss 
of market share for IBM. This was also the period during 
which Thomas J. Watson Jr., relinguished his role as the 
head of IBM. The end of a family dynasty. During this 
time various organizational changes were evaluated. One 
of the areas of concern was the size of the organization 
and the effects of the bureaucracy on new initiatives . 
Conseguently the concept of the Independent Business 
Units (IBU's) was conceived. Frank T. Cary, the IBM 
chairman and chief executive officer was guoted as 
saying that the IBU's "might even teach an elephant 
(IBM) how to tap dance." 

The Entry Level Systems (ELS) unit in Boca Raton, 
Florida had responsibility for the low cost end of IBM's 
computer business . It was this division that introduced 
the unsuccessful IBM 5100 portable computer in September 
1975. William C. Lowe was the manager of IBM's Entry 
Level Systems Unit and was promoted to overall 
laboratory director in 1978 . 

It was during the period of 1975 to 1979 that the 
microcomputer market exploded. It started with the 
release of the Altair 8800 in January 1975, Commodore 
Pet in 1976, the Apple II and Tandy Radio Shack TRS-80 
microcomputers in 1977. The microcomputers of the 1970 ' s 
were oriented to the hobbyist type of user. The 
"hackers" got satisfaction and were indeed fascinated by 
either the electronic or software complexity of building 
and operating their own computer. During the late 1970 ' s 
several microcomputer software releases were laying the 


9/2 Part III 1980's~ The IBM/Macintosh era 

foundation for the utilization of microcomputers by 
business. Those were the word processing program Word- 
Master in 1978, the Vulcan database in 1979 and of great 
significance, the financial spreadsheet program VisiCalc 
in 1979. However at this point in time the business 
market had not been penetrated to any extent. 

The dynamic growth of the microcomputer industry 
during the late 1970 ' s had not gone unnoticed at IBM. It 
was recognized by both corporate management and Lowe who 
initiated a detailed analysis. The leading producers of 
personal computers in 1979/80 were Apple Computer, 
Commodore and Tandy Radio Shack. However they had not 
released products that met the reguirements of either 
the small or corporate business market. This situation 
was prevalent in not only North America, but also in 
Europe and Asia. Lowe rationalized that the recognition 
of IBM as the major international computer manufacturer 
would be a key factor in the commercial acceptance of a 
personal computer by their company. 

In 1980, IBM released the Model 5120, a desktop 
version of the unsuccessful 5100 series of portable 
computers. However, this would not be successful either. 

During Lowe's analysis of IBM's possible entry 
into the personal computer market a number of concerns 
were identified. The majority of microcomputer 
developments had been by small entrepreneurial 
companies . Indeed a number of them such as Apple had 
been started in a garage. This of course was the 
opposite extreme from IBM with its extensive 
bureaucracy. The corporation also tended to engineer all 
of its components and software in house. This would 
result in higher than reguired guality levels that would 
escalate costs and delay development. Another 
significant factor was that IBM did not at that time 
have a microprocessor or the technology. Conseguently to 
compete in the personal computer market would reguire 
significant changes at IBM. An organization with greater 
entrepreneurial type of freedom for development, 
production and marketing was essential. 

The IBM Corporation 9/3 

Fig. 9.1: William C. Lowe. Fig. 9.2: Philip D. Estridge. 

Figure 9.3: IBM Personal Computer. 

Photographs are courtesy of International Business 
Machines Corporation. 

9/4 Part III 1980's~ The IBM/Macintosh era 
9.2 ... PC Approval and Development 

In 1980, John R. Opel was the president of IBM, 
and all major projects required the approval of the 
Corporate Management Committee (CMC) at headquarters in 
Armonk, New York. In July, William Lowe presented to the 
CMC a personal computer market analysis, his concerns 
for the product development internally at IBM and two 
proposals for CMC consideration. One proposal was for 
IBM to either buy a personal computer company or a 
personal computer design, such as that from Atari. The 
second proposal was for IBM to design and build a new 
personal computer, but to do it outside of the normal 
corporate structure. To complete this proposal, he 
requested authorization to assemble a small task force 
of hand-picked engineers . This group would produce a 
prototype within thirty days for demonstration to the 
CMC. Shortly after, the approval to proceed with the new 
computer proposal was given. Corporate management was 
anxious to enter the desktop market, the timing had been 
right . 

Funding was granted for twelve engineers to 
develop the prototype and the detailed commercial 
proposals . The first person Lowe recruited was Bill 
Sydnes as manager for the engineering design. Sydnes had 
been manager of the IBM 5120 desktop computer which had 
not been a commercial success, but had been developed 
and produced on time. Lewis Eggebrecht was a principal 
in the systems engineering design and Joe Bauman was 
selected to develop the business and manufacturing 
plans. The rest of the task force was quickly selected. 
Another member of the founding group was Jack Sams who 
was in charge of software development. Sydnes and Sams 
had both been involved in a recent System/23 DataMaster 
business computer project. This project was delayed by 
nearly a year due to internal development of the BASIC 
interpreter. This resulted in the decision to use 
existing software from outside suppliers. Sams was 
involved in the initial selection and discussions with 
Microsoft as a major supplier for software in late July. 

The IBM Corporation 9/5 

The thirty day period to develop and present a 
prototype to the CMC required that a number of critical 
decisions be made very quickly by the task force. Some 
of those were the concept of an open bus architecture, a 
16-bit microprocessor, components and peripherals from 
competitive sources, a software operating system from 
outside IBM and marketing separate from IBM's sales 
organization. Maximizing the capabilities of the new 
computer without affecting the market for IBM's other 
low end computers required consideration. 

In early August Lowe demonstrated the prototype 
and presented his recommendations for IBM to enter the 
personal computer market to the Corporate Management 
Committee. The presentation was a success and the CMC 
gave approval to form a Product Development Group for 
the new computer. This group would become one of IBM's 
Independent Business Units. To maintain confidentiality, 
code names were assigned to the group and computer. The 
new group would be known as project "Chess" and the 
computer as the "Acorn" . The timetable required an 
additional review by the CMC in mid October and the 
computer to be shipped within one year. The next 
critical selection for Lowe was a manager for the new 
group. Lowe had aspirations for higher corporate levels 
and selected Philip D. Estridge to be the manager of 
Project Chess in early September. 

Don Estridge quickly doubled the engineering 
staff to twenty six. The final design time frame was 
extremely short. All of the components had to be state- 
of-the-art, but be existing and proven in the market. 
This resulted in a design that was not leading edge, but 
a conservative product for commercial production and 
customer acceptance. Some features such as the bus 
architecture and the keyboard evolved from the IBM 
System 23 DataMaster computer. David J. Bradley, who had 
worked on the System/23 DataMaster project, was assigned 
to develop the control code for the Basic Input/Output 
System (BIOS) . Fully functional prototypes had to be 
assembled for internal development and outside suppliers 
of peripherals and software. 

By late August IBM was planning for Microsoft 
Corporation to provide the programming languages . 

9/6 Part III 1980's~ The IBM/Macintosh era 

However the task force was having a problem obtaining a 
16-bit version of the popular CP/M operating system from 
Digital Research, Inc. Then in late September Microsoft 
made a proposal to supply the operating system (see 
Section 12.2) and the programming languages. After CMC's 
final approval of the Chess computer project in October, 
IBM accepted the Microsoft proposals and a contract was 
signed in November. IBM also contracted with other 
software suppliers such as Personal Software to adapt 
VisiCalc for the new computer. 

Other IBM executives were selected to participate 
in the project and made significant contributions. H. L. 
Sparks headed marketing and sales, Joseph Sarubbi 
technical procurement, Dan Wilkie manufacturing and 
James D'Arezzo communications. D'Arezzo joined the 
project as manager of communications in January 1981. In 
March, William Lowe left Boca Raton and became a vice 
president of the Information Systems Division and 
general manager of the plant in Rochester, Minnesota. 
Then in June, Joe Bauman joined Lowe and was replaced by 
Dan Wilkie as the new director of manufacturing. 
D'Arezzo in conjunction with Lord, Geller, Federico and 
Einstein, a New York advertising agency used by IBM, 
created an advertising campaign based on the Charlie 
Chaplin tramp characture. The concept provided a 
friendly and uncomplicated user vision for the new 
computer introduction that was highly successful. During 
this time period the name IBM Personal Computer (IBM PC) 
was selected for the computer. The estimate of the 
market for the IBM PC was 250,000 units over a five year 
period. In late July the CMC gave its final approval for 
the introduction of the IBM PC. 

9.3... The Original PC 

The following are details of the IBM Personal 
Computer (IBM PC) that was introduced on August 12, 1981 
in New York. 

The microprocessor selected was the Intel 8088 
operating at 4.77 MHz. Internally the microprocessor 
used the 16-bit instruction set of the Intel 8086 with 

The IBM Corporation 9/7 

an 8-bit external data communication bus. An additional 
socket was provided for the later utilization of the 
Intel 8087 numeric coprocessor. The memory had 40K bytes 
of ROM and 16K bytes of RAM, expandable to 64K on the 
system board and to 25 6K by adding memory expansion 
cards. The ROM incorporated the 32K Microsoft Cassette 
BASIC interpreter and the 8K Basic Input/Output System 
(BIOS) . The BIOS chip provided control of information 
transfer between elements of the hardware system. 

The basic system unit had five 62 pin expansion 
slots for additional memory, display, printer, 
communication and game adapter cards. One parallel 
printer port, one RS-232C serial port and a built in 
speaker were standard. A separate 83 key adjustable tilt 
keyboard was connected to the computer by a six foot 
coiled cable via a serial port. The keyboard 
incorporated a numeric key pad, ten special function 
keys and indicator lights to display shift states . The 
basic system also had an audio cassette recorder 
connector for mass storage. With a freguency modulator 
an ordinary television set could be used as a monitor. 

Two additional types of display were offered. A 
monochrome display with a Monochrome Display Adapter 
(MDA) for business and a color display with a Color 
Graphics Adapter (CGA) for home use. 

The IBM Monochrome Display used an 11.5 inch 
green-phosphor tube. This monitor reguired the 
monochrome adapter card that had 4K bytes of on-board 
memory. The monitor could display 25 rows of 8 
characters. The MDA system provided for 256 characters 
to support major languages and other items such as 
business graphics. 

The color/graphics monitor adapter enabled 
connection to a RGB (red-green-blue) monitor, a color 
television or a black and white monitor. The adapter had 
16K bytes of on-board memory and could display two modes 
of text and three modes of graphics. The first mode of 
text was 25 rows of 40 characters for color televisions 
and composite monitors. The second text mode was 25 rows 
of 80 characters for RGB monitors. The low resolution 
graphics mode was 100 rows of 160 pixels with 16 colors, 
but was not supported by IBM. The medium resolution 

9/8 Part III 1980's~ The IBM/Macintosh era 

graphics was 200 rows of 320 pixels with 4 colors. The 
high resolution graphics mode was 200 rows of 640 pixels 
using a white-on-black image. 

The basic unit had provision for two 5.25 inch 
floppy disk drives manufactured by the Tandon 
Corporation, The disks were 160K byte single-sided, 
soft-sectored and double density. The disk operating 
system was IBM PC-DOS developed by Microsoft. 

The printer was an Epson MX-80 with an IBM label. 
The unit printed bi-directionally at 80 characters per 
second, with a 9 by 9 dot matrix and a choice of 12 type 
styles . 

Three forms of BASIC were developed by Microsoft 
and offered by IBM: Cassette BASIC (standard) , Disk 
BASIC and Advanced BASIC, also known as BASICA. Some of 
the other software available when the PC computer was 
released were: VisiCalc from Personal Software, three 
accounting programs from Peachtree Software, EasyWriter 
word processor from Information Unlimited Software and 
from Microsoft a Pascal compiler and a fantasy- 
simulation game called Adventure. IBM also indicated 
that they would offer Digital Research's CP/M-86 
operating system and SofTech Microsystems UCSD p-System 
which included UCSD Pascal. Communications software was 
also available to communicate with other computers and 
for connection to services such as the Dow Jones 
News/Retrieval Service and The Source. 

The basic system unit with 16K bytes of RAM and 
keyboard sold for $1,565. A system unit with 48K bytes 
of RAM, keyboard, single floppy disk drive and disk- 
drive adapter card was $2,235. A monochrome video 
display was $345 and the printer $755. The combination 
monochrome display adapter and printer adapter was $335. 
The 16K, 32K and 64K byte memory expansion cards were 
$90, $325 and $540 respectively. 

A significant marketing decision for IBM was the 
use of mass merchandising by major retailers such as 
ComputerLand and Sears, Roebuck and Company to sell the 
computer. The company also set up a chain of IBM Product 
Centers in major cities as retail outlets. Large 
corporate accounts were handled by the Data Processing 
Division sales force. Another significant decision was 

The IBM Corporation 9/9 

the publishing of a Technical Reference manual for the 
IBM PC that provided details of all the system 
specifications. This was done to facilitate the 
development of adapter cards and programs by outside 
suppliers . 

The IBM PC was an outstanding success. IBM had 
orders for 30,000 systems from their own US employees on 
the announcement day. The only limiting factor on 
initial sales was the production capacity. Estridge had 
taken a group of 12 people in 1980 to a work force of 
9,500 in 1984. Estridge was named division director of 
the entry systems business unit in January 1982, and 
became a vice president of the new Systems Products 
Division and general manager of entry systems in January 
1983. By the end of 1983 IBM had sold 750,000 personal 
computers . 

9/10 Part III 1980's~ The IBM/Macintosh era 

Figure 9.4: IBM PC/XT Computer. 


Figure 9.5: IBM PC AT Computer. 

Photographs are courtesy of International Business 
Machines Corporation. 

The IBM Corporation 9/11 

9.4 ... The Following Models 

IBM 9000 

The IBM 9000 Instruments System Computer was 
announced in May 1982 and displayed at the June 1982 
COMDEX show in Atlantic City. It was developed by a 
wholly owned subsidiary IBM Instruments Inc. and 
marketed as a laboratory instrumentation computer. 

The computer used a Motorola MC68000 
microprocessor operating at 8 MHz. The memory had 128K 
bytes of ROM and 12 8K bytes of RAM expandable to 5.2 
megabytes. The unit used a 32-bit Versabus bus standard 
developed by Motorola. An optional expansion board could 
accommodate up to five Versabus cards. 

The storage system could have up to 4 drives in 
any combination of 5.25 or 8-inch sizes. The monitor had 
a 12-inch green-on-black screen capable of displaying 30 
lines of 80 characters with a 480 by 768 pixel 
resolution. The unit had a separate 83-key keyboard, a 
57-key user-definable keypad on the main chassis and an 
optional 2 00 characters per second in draft mode, four- 
color dot-matrix printer. IBM developed the real time, 
multitasking Computer System Operating System (CSOS) . 
The price varied from $5,695 to over $10,000 depending 
on the configuration. 

The PC Series 

In February 1982, three projects were initiated 
that would become the PC AT, PC Junior (PCjr) and the 
PC/XT. The PCjr was targeted at the low end of the 
market for home consumers. The PC/XT, with the XT 
representing extended technology, had a hard disk and 
was targeted at the professional business market above 
the PC. The PC AT, with the AT representing Advanced 
Technology would feature the new Intel 8028 6 
microprocessor. IBM assigned the code name of Circus to 
the PC AT project. 

The Corporate Management Committee (CMC) in 
Armonk approved all three projects. Product managers for 
each of the projects were selected to administer the 
development of the products . 

9/12 Part III 1980's~ The IBM/Macintosh era 

Personal Computer XT (PC/XT) 

The product manager selected to develop the PC/XT 
was Joseph Sarubbi. The PC/XT would be the only project 
of the three approved in February 1982 to stay on 
schedule and be released on time. 

IBM introduced the PC/XT model in March 1983 in 
New York City. It included hard disk drive technology 
but utilized the same microprocessor as the PC. This new 
model was evolutionary. There had been expectations that 
IBM would utilize either the Intel 8086 or 80186 
microprocessors. However once again IBM had taken a 
conservative approach to implementation of new 

The following are some details of the model. The 
microprocessor was the Intel 8088, the same as the IBM 
PC computer. Standard memory was 12 8K, expandable to 
256K on the mother board and to 640K by adding expansion 
cards. The 40K of ROM contained the Microsoft Basic 
interpreter and Basic Input Output System (BIOS) 
software . 

A 10 megabyte Winchester hard-disk drive 
manufactured by Seagate was the significant feature of 
the standard unit. Also included was a single 5 1/4 inch 
floppy disk drive, utilizing 360K byte double-sided, 
double-density disks. An asynchronous communications 
adapter was standard. The motherboard had eight 
expansion slots, as compared to five on the PC computer. 
However three slots were used by the communications 
adapter, floppy disk drive and hard disk drive adapters. 
The audio cassette recorder connector that had been on 
the PC was deleted. IBM also released its first RGB 
color monitor for both the PC and XT computers. 

The cost of the standard unit with 128K of RAM, 
keyboard, 10 megabyte hard disk drive, 360K floppy disk 
drive and a asynchronous communications adapter card was 
$4,995. A monochrome adapter and display was $680. A 
color graphics adapter and color display monitor was 
$924. The PC XT model was a huge success and became a 
workhorse of the business world. 

Microsoft made improvements to the operating 
system software for the PC/XT release. In addition to 

The IBM Corporation 9/13 

support for the Winchester hard disk, new features such 
as a hierarchical file system with sub directories were 
incorporated into version 2.00 of the operating system. 
An updated version 2.00 of BASIC was also released that 
provided advanced support for communications, graphics 
and music. The generic name of this BASIC interpreter 
was GWBASIC (Gee Whiz BASIC). The PC-DOS 2.00 operating 
system and BASIC 2.00 interpreter cost $60 each. 

PC Junior (PCjr) 

The product manager selected to develop the PC 
Junior in February 1982 was Bill Sydnes . Sydnes wanted 
to develop a product for the consumer market that would 
be sold by mass merchandisers to compete with the Apple 
II computer at a lower price. Although it would have a 
somewhat limited capability compared to the PC, its 
performance capabilities could be improved by the 
purchase of upgrade features. The code name "Peanut" 
became associated with the new product. IBM contracted 
the manufacture of the computer to Teledyne Inc., in 
Tennessee, a company founded by Arthur Rock and Henry 
Singleton . 

In the summer of 1983, Sydnes resigned from IBM 
due to differences of opinion with Don Estridge on 
marketing and other aspects of the PC Junior 
development. He then joined the Franklin Computer 
Corporation as vice president for product development. 
The new manager would be Dave O'Connor. However, 
O'Connor had inherited design and production problems 
that delayed the release date from that initially 

The PC Junior (PCjr) was introduced in November 
1983 with high expectations as a low-priced home 
computer. However customer deliveries of the computer 
did not occur until early 1984. The PCjr had three 
separate pieces of hardware: the system unit, power 
transformer and cordless keyboard. Two configurations of 
the PCjr were released, a standard model and an enhanced 
model. Both models used the Intel 8088 microprocessor 
operating at 4.77 MHz with 64K bytes of ROM. The system 
unit had three expansion slots for 64K bytes of 
additional memory, a floppy disk drive and a 300-bps 

9/14 Part III 1980's- The IBM/Macintosh era 

(bits per second) internal modem. An expansion bus 
connector was also provided that could be used to 
connect a parallel printer. The detached keyboard had 62 
keys and used an optical infrared light transmission 
technology to link between the keyboard and the system 
unit. The keyboard did not have a numeric key pad or any 
function keys . 

The standard model had 64K bytes of RAM, 
expandable to 128K and a base price of $669. The 
enhanced model had 12 8K bytes of RAM, a capacity to 
display 80 columns of text and a half-height 5.25-inch, 
360K byte double-sided floppy disk drive manufactured by 
Qume . The enhanced model had a price of $1,269. An IBM 
Color Display monitor was available at a price of $680. 

A new version 2.1 of PC-DOS with a cost of $65 
was released for the PCjr. However the memory 
requirements of the operating system limited the number 
of application programs that would run on the computer. 
The system was compatible with the IBM Personal Computer 
(IBM PC) . No other operating systems were offered for 
the PCjr. The standard model had Cassette BASIC in ROM 
and an enhanced Cartridge BASIC was available for $75. 

In early 1984 sales for the PC Junior were in 
trouble and production was stopped in June to reduce 
inventory. The high price, spongy-to-touch "chiclet" 
style keyboard, limited memory and storage capabilities 
had resulted in poor customer acceptance. 

An advanced version of the PC Junior was 
introduced in July 198 4. Various improvements to enhance 
the performance were made, such as increased memory and 
a new typewriter-style keyboard. Then an intensive 
promotional campaign was launched in the late fall of 
1984 to increase lagging sales. However after the 
holiday season and the end of the promotional campaign 
sales fell off again. It had been a market failure that 
resulted in the computer being discontinued in March 

The IBM Corporation 9/15 

PC/XT 370 and 32 70 PC 

The Information Systems Division that produced 
mainframe computers, introduced the PC/XT 370 and 3270 
PC computers in October 1983. These products were 
designed to be a link to IBM mainframe computer systems. 

The PC/XT 370 also had a designation of 5160 
Model 588. This computer was an enhancement of the PC/XT 
computer, with three additional boards to emulate IBM 
System/370 mainframe computers and to function as an IBM 
3277 display terminal. In addition to the standard PC/XT 
Intel 8088 microprocessor, one of the additional boards 
had three microprocessors. One of the three 
microprocessors was an Intel 8087 for floating-point 
arithmetic functions and the other two microprocessors 
were based on the Motorola MC68000 for emulation of 
System/370 instructions. The second additional board 
extended memory by 512K to 768K bytes. The third board 
provided emulation of the IBM 32 77 display terminal. The 
computer also had one 3 60K byte floppy disk drive and 
either a 10 or 20 megabyte hard disk drive. The PC/XT 
370 cost $8,995 with a 10 MB hard disk and $11,690 with 
a 2 MB hard disk. A software package named VM/PC 
(Virtual Machine/Personal Computer) was reguired at a 
cost of $1,000 to interface with a System/370. 

The IBM 3270 Personal Computer also had a 
designation of 5371 with Models 12, 14 and 16 depending 
on the configuration. The computer combined a standard 
IBM Personal Computer with an IBM 3270 display terminal. 
The base computer had 256K bytes of memory, expandable 
to 640K and a 122-key keyboard with all the keys of a 
standard PC and a 3270 terminal. A 3270 PC Control 
Program enabled the computer to concurrently access up 
to four programs on a host computer, two "notebook" 
data-storage transfer areas and a PC-DOS application 
program. The Control Program also allowed a user to 
define up to seven windows to monitor the programs being 
accessed. The user could select the color, position and 
size of any window. A base 3270 Personal Computer with 
256K bytes of memory cost $4,130 and the 3270 PC Control 
Program $300. 

9/16 Part III 1980's- The IBM/Macintosh era 

Portable PC 

The Portable Personal Computer (PC) was 
introduced in February 198 4. The unit measured 8 by 2 
by 17 inches and weighed 30 pounds. With this weight, it 
would become known as a "luggable." The portable used an 
Intel 8088 microprocessor operating at 4.77 MHz, 40K 
bytes of ROM and 256K bytes of RAM, expandable to 640K. 
The unit had one 5.25 inch half-height 360K floppy disk 
drive with provision for a second drive. A 9 inch amber 
monitor was built into the unit, seven expansion slots 
were provided (two used by the floppy disk drive and 
monitor adapter) and the cost was $2,595. However Compag 
had an earlier and better portable which sold at 
virtually the same price which adversely affected IBM 
sales and market acceptance. 

Personal Computer A T (PC A T) 

Two models of the PC AT (Advanced Technology) 
were introduced in August 198 4. This was a significant 
delay from the release date targeted in February 1982 . 
The variations were a Base model with less memory and no 
hard disk drive and an Enhanced model. 

The microprocessor was the more powerful 16/24- 
bit Intel 8 0286 operating at 6 MHz with an optional 
Intel 80287 Math coprocessor. The permanent memory (ROM) 
was 64K. The user memory (RAM) was 256K bytes on the 
Base model and 512K bytes on the Enhanced model. With 
additional expansion cards, the memory could be expanded 
to three megabytes on both models . 

Both models had one half-height 1.2 megabyte 
floppy disk drive with provision for a second drive. The 
Enhanced model had a 20 megabyte hard disk drive. Hard 
disk drives with up to 40 megabytes capacity could be 
installed in both models. The models contained eight 
expansion slots for additional adapter cards . The 
keyboard was an enhanced version of the PC keyboard. 
Microsoft released Version 3.00 of PC-DOS and XENIX 28 6 
operating systems for the new models. 

The Base model cost $3,995 and the Enhanced model 
$5,795. The computers were intended as replacements for 
the XT computer. IBM stated that the computer was 
designed to be a multitask, multi-user computer. 

The IBM Corporation 9/17 

Problems with the hard disk drive resulted in delayed 
deliveries of the computer. However the AT computer had 
good reviews and became a up-market replacement for the 
XT. The operating speed of the PC AT microprocessor was 
increased to 8 MHz in 198 6. 


IBM approved development of a workstation 
computer using the RISC (Reduced Instruction Set 
Computing) ROMP (Research Office products 
Microprocessor) processor in 1983. G. Glenn Henry was 
the manager of hardware and software system development. 
The project had the code name of Olympiad and became the 
PC RT computer. 

The PC RT workstation was introduced for work 
such as CAD (Computer Assisted Design) in January 198 6. 
It utilized a high performance (approximately 2 million 
instructions per second) IBM ROMP 32-bit RISC processor. 
An Intel 80286 microprocessor was used as a coprocessor 
to facilitate program and user interface with the PC 
family of computers . A Memory Management Unit (MMU) 
extended the 32 bit processor address to a 40 bit 
virtual address to provide advanced virtual storage 
capabilities. The computer had one megabyte of memory, a 
1.2 megabyte floppy disk drive and a 40 megabyte hard 
disk drive. It utilized an AIX (Advanced Interactive 
Executive) operating system based on AT&T's UNIX System 
V operating system. The PC RT workstation cost $11,700. 

The workstation was not received well due to poor 
performance as compared to competitive products from 
Apollo and Sun Microsystems . This resulted in a new 
project with the code name of RIOS being started in 1986 
to develop a new more powerful workstation that would 
become the RISC System/6000. 

PC Convertible 

IBM introduced the 5140 PC Convertible (code- 
named Clamshell) laptop computer in April 198 6. The 
computer name was selected because it could be used as a 
portable or as a desktop with an expansion box and a 
larger monitor. The unit weighed 12 pounds and featured 
an Intel 8088 microprocessor, 256K bytes of memory, two 

9/18 Part III 1980's~ The IBM/Macintosh era 

3.5 inch 720K byte floppy disk drives and a 25-line 
liquid crystal display (LCD) monitor. The computer cost 
$2,995. However, the product was not successful due to 
the use of an older processor, problems with the LCD 
display and the early use of 3.5 inch floppy disk 
drives . 

PC/XT Model 286 

The PC/XT Model 286 was introduced in September 
1986. It featured the Intel 80286 microprocessor, 640K 
bytes of memory, one 1.2 MB floppy disk drive, a 2 
megabyte hard disk drive and cost $3,995. However the 
late introduction and pricing relative to other 
competitive products resulted in poor sales. 

PS/2 Series 

The Personal System/2 (PS/2) family of personal 
computers was introduced in April 1987 (except the Model 
25) . The "2" in the PS/2 product name, denoted a second 
generation of personal systems. The Models 50, 60 and 80 
had a new architecture with a proprietary Micro Channel 
Architecture (MCA) bus. MCA was a 32-bit multitasking 
bus that did not support the previous expansion cards 
for the PC computer. IBM's intent was to regain control 
of the open architecture and force clone manufacturers 
to obtain a MCA license. The preceding models also 
utilized a new video standard called VGA (Video Graphics 
Array) that had improved screen resolution. The new OS/2 
operating system developed by IBM and Microsoft was also 
announced for use with the computers. 

The following are some details of the various 
PS/2 models introduced in April. The Model 30 was 
available in two configurations and featured an Intel 
8086 microprocessor operating at 8 MHz, 640K bytes of 
memory and the PC XT bus. The Model 30-002 had two 720K 
byte floppy disk drives and cost $1,695. The Model 30- 
021 had one 720K byte floppy disk drive, a 20 megabyte 
hard disk and cost $2,295. The Model 50 had an Intel 
80286 microprocessor, one megabyte of memory, 1.44 
megabyte floppy disk drive, 20 megabyte hard disk drive 
and cost $3,595. The Model 60 featured an Intel 80286 
microprocessor, one megabyte of memory, 1.44 megabyte 

The IBM Corporation 9/19 

floppy disk drive, 44 megabyte hard disk drive and cost 
$5,295. The Model 80 was available in three 
configurations using the Intel 8038 6 microprocessor and 
a 1.44 megabyte floppy disk drive. The Model 80-041 had 
one megabyte of memory, a 44 megabyte hard disk drive 
and cost $6,995. The Model 80-071 had two megabytes of 
memory, a 70 megabyte hard disk drive and cost $8,495. 
The Model 80-111 had two megabytes of memory, a 115 
megabyte hard disk drive and cost $10,995. 

The Model 25 was a low cost computer, introduced 
for business and educational users in August 1987. It 
featured the Intel 8086 microprocessor, 640K bytes of 
memory, a 720K byte floppy disk drive and cost $1,395. 

A portable version of the PS/2 series, the PS/2 
P70 was announced in May 1989. At a weight of 20.8 
pounds it would now be called a "luggable." It used an 
Intel 80386 processor, had 4 MB of RAM (expandable to 8 
MB) , 120 MB of disk storage, MCA bus and a high- 
resolution plasma display. The PS/2 P70 received good 
reviews and had good sales. 

The PS/2 series of computers were not well 
received in the marketplace. IBM had focused on the 
older Intel 80286 microprocessor rather than the latest 
80386 chip. Also the incompatibility of the new MCA bus 
with old add-on cards, the late release of the new 
version and general poor acceptance of the OS/2 
operating system, all contributed to sales below 
expectations. The MCA bus was not supported by the 
industry and became a strategic mistake for IBM. 

9.5 ... Software 

OS/2 and Microsoft 

By the end of 198 4, Bob Markell who was a vice 
president of software and communication products at IBM, 
had created a task force to determine a suitable 
operating system for future products. IBM had been 
working on its own operating system called CP-DOS that 
would be used for the 286 microprocessor initially and 
the 386 microprocessor later. IBM also wanted a system 
that incorporated multitasking, so a user could run more 

9/20 Part III 1980's~ The IBM/Macintosh era 

than one application at the same time. Company 
management had mixed aspirations to develop the new 
operating system internally independent of Microsoft. 
However, discussions were held with Microsoft regarding 
the new system that culminated in the signing of a joint 
development agreement in June 1985. 

The joint development efforts following the 
agreement led to numerous difficulties between the two 
different types of corporate styles . IBM was attempting 
to satisfy many different corporate demands and were 
adding an increasing number of personnel to the project 
to maintain the completion schedule. Microsoft was 
accustomed to software development with a small group of 
talented programmers. However, Microsoft had conceded 
final responsibility for the software design to IBM. 

Another significant decision that would create 
subseguent difficulties was the use of assembler 
language to program the new operating system. This 
choice and a focus on the Intel 8028 6 microprocessor for 
the PS/2 series of computers would add to the complexity 
and portability of the new system. 

In mid 198 6 a new concept called Systems 
Application Architecture (SAA) was approved for 
implementation. This system provided a common software 
development environment between the different IBM 
hardware levels, from personal computers to mainframes. 
However it also resulted in additional complexity to the 
software. Also, a new graphical user interface that 
would be called Presentation Manager, would be developed 
by the graphics software group in Hursley, England. 

The company was also now working on an Extended 
Edition of the new operating system that Microsoft was 
excluded from participating in. The Extended Edition 
included communications and database services. IBM also 
planned to introduce a set of office applications that 
would be called OfficeVision for the Extended Edition. 

During this period new personal computer hardware 
was also being developed. The new hardware would have a 
different bus concept called Micro Channel Architecture 
(MCA) and an Advanced Basic Input/Output System (ABIOS) . 
With strong enforcement of applicable patents this was 
going to be IBM' s strategy to combat the clones . 

The IBM Corporation 9/21 

IBM announced the new operating system called 
OS/2 with the Personal System/2 computers in April 1987. 
A Standard and Extended Version 1.0 were released in 
November. However it did not include the Presentation 
Manager software that was now promised for October 1988. 
Only a few application programs were available. The 
program cost $325 (twice as much as DOS), reguired 
additional memory and storage as compared to DOS, and 
was not well received. 

In May 1988, IBM joined the Open Software 
Foundation (OSF) that was established to develop a 
unified UNIX operating system for different platforms . 
Then IBM purchased a license for the NeXTSTEP operating 
system from NeXT Computer, Inc. IBM was intent on 
establishing optional operating systems to OS/2 and PC- 
DOS . 

IBM released Presentation Manager as part of OS/2 
Version 1.1 in October 1988. The graphical user 
interface had been developed by IBM in Boca Raton, 
Florida, IBM laboratories in Hursley, England and by 
Microsoft. The graphics were well received. However, the 
lack of application programs and device drivers, the 
reguirement for additional memory and the pricing 
adversely affected sales. 

During 1989, James A. Cannavino, the new head of 
the Entry Systems Division began to guestion the 
viability of OS/2 and the relationship between IBM and 
Microsoft. His concerns related to the low acceptance of 
OS/2, the income Microsoft derived from the PC disk 
operating system software and the potential impact of a 
new version of Windows being developed by Microsoft. 
Software vendors were also expressing concerns regarding 
the future market share of OS/2 and their significant 
investments in application programs for the new 
operating system. Cannavino had even recommended that 
IBM drop OS/2 in March. However, corporate management 
rejected his recommendation and instructed him to "build 
a world class operating system. " Cannavino had 
discussions with Bill Gates and a tenuous agreement was 
announced at the fall COMDEX show that appeared to 
support each companies system. However Cannavino had 
been committed to OS/2, not Microsoft Windows. In late 

9/22 Part III 1980's~ The IBM/Macintosh era 

1989, Version 1.2 of OS/2 was released, however sales of 
the OS/2 operating system were still well below 
expectations . 

Other Software 

Displaywrite was a word processor developed by 
IBM for the DisplayWriter workstation in 1980. It was 
one of the few relatively successful application 
programs written by IBM. 

TopView was an IBM character-based user interface 
that was announced in August 1984. It incorporated 
windows and multitasking that enabled the running of 
multiple programs with the ability to switch between 
them. It was not released until January 1985 and cost 
$149. However, it was slow, reguired a lot of memory and 
did not have a graphical interface. Due to poor 
acceptance it was withdrawn from the market in June 

IBM released PC Network in conjunction with 
Microsoft PC-DOS Version 3.1 in March 1985. It was 
designed to connect the PC-family of computers in a 
local-area network (LAN) . 

A software group was formed by Joseph M. 
Guglielmi in 1987 to develop an office system that would 
facilitate the communication and sharing of information 
and software such as databases, desktop publishing, 
electronic mail, spreadsheets and word processors. The 
application software used the name OfficeVision for its 
products. David Liddle who had worked at Xerox PARC, was 
a principal in the development of the OfficeVision suite 
of software released in June 1989. However, it was not 
graphically oriented, priced too high and was not 
successful. IBM essentially disbanded the software group 
around 1992. 

IBM created a Desktop Software division in 1988. 
It was established to market personal computer software 
by IBM and other companies using the IBM logo. However 
it was not successful either and was terminated around 

The IBM Corporation 9/23 
9.6 ... Corporate Activities 

1980 and 1981 are significant years due to the 
approval and release of the IBM Personal Computer (see 
Sections 9.2 and 9.3) . John Opel became the chief 
executive officer of IBM in January 1981. 

In January 1982, the Department of Justice 
withdrew its antitrust suit against IBM. In late 1982, 
an executive search firm for Apple Computer contacted 
Don Estridge as a potential candidate for the position 
of president. However Estridge declined the offer. 

Then in December 1982 IBM acguired 12 percent of 
Intel Corporation stock for $250 million. Intel was 
having financial problems due in part to Japanese 
competition in memory chips. IBM made the stock purchase 
to provide a secure source for its microprocessors and 
to maintain the viability of domestic chip manufacturing 
eguipment suppliers. This also resulted in Intel 
licensing the manufacture of the chip to others. IBM now 
had a second source for its microprocessors. IBM also 
built a new highly automated factory to mass produce the 
PC computers. 

John Opel became chairman of the board and John 
F. Akers president of IBM in February 1983. In August, 
the Personal Computer unit at Boca Raton, Florida became 
part of a new Entry Systems Division (ESD) and Don 
Estridge was appointed president of the division. The 
new divisional organization consolidated major 
facilities at Boca Raton and Austin, Texas . It also had 
worldwide responsibilities for product development and 
management including plants in Greenock, Scotland and 
Wangaratta, Australia. Joe Bauman became vice president 
for manufacturing, Joseph Sarubbi director of 
technologies and Dan Wilkie director of guality 
assurance and technology for the new division. 

Starting in 1983, the company began implementing 
the traditional bureaucracy at the Entry Systems 
Division. The freedom enjoyed by the original IBM PC 
group was coming to an end. H. L. Sparks and James 
D'Arezzo left IBM and joined Compag Computer Corporation 
in 1983. Then in January 1984, Estridge was made a vice 
president of IBM. 

9/24 Part III 1980's- The IBM/Macintosh era 

Responsibility for retail dealer sales of all PC 
products was moved from the Entry Systems Division to 
the corporate national sales organization in January 
1985. John Akers became the chief executive officer in 
February. In March, Estridge was promoted to vice 
president of worldwide manufacturing for IBM and William 
Lowe became president of the Entry Systems Division. 
Then in a tragic plane crash, Don Estridge was killed at 
the Dallas-Fort Worth, Texas airport in August. In late 
1985, Dan Wilkie resigned from IBM to become president 
of another company. 

Joe Sarubbi retired from IBM and joined the 
Tandon Corporation as a senior vice president of 
manufacturing in February 198 6. In the spring of 198 6, 
the number of IBM employees peaked at 407,000. During 
198 6, IBM concluded a technological exchange agreement 
with the Intel Corporation (See Section 8.4) . In June 
John Akers became chairman of the board, a year that saw 
significant reductions in IBM's financial performance. 

In 1987, it appeared that the financial 
difficulties encountered in 198 6 would continue. Akers 
initiated the formation of task forces to evaluate the 
problem. This resulted in the closure of a parts 
distribution facility and a reduction of 10,000 
employees by early retirement and severance package 
options. IBM also sold the remaining shares of Intel 
Corporation stock that the company purchased in 1982. 

Akers announced a further reorganization to 
delegate more decision making down to lower levels in 
the company organization in January 1988. Then in 
December William Lowe left IBM and joined the Xerox 
Corporation. He was replaced by James Cannavino who 
inherited an extremely difficult business situation in 
the Personal Computer group. The group had lost 1.4 
billion dollars in 1998, the PS/2 computer was not 
selling, the MCA bus and the OS/2 operating system were 
not accepted by either customers or the industry. 

In March 1989, Cannavino made a number of 
recommendations to the IBM Board to correct the business 
situation of the PC group. Some of these recommendations 
were: to significantly reduce the company's focus on the 
desktop business, increase their participation in the 

The IBM Corporation 9/25 

portable and server segment of the business and drop the 
OS/2 operating system. However, the Board wanted to keep 
IBM in the PC business, retain the OS/2 operating system 
and review the relationship with Microsoft. Cannavino 
was also concerned about reducing IBM' s dealer and sales 
organization costs, and competition from direct sellers 
such as Dell and Gateway. 

In May, Jack D. Kuehler became the president of 
IBM and Cannavino was promoted to general manager of the 
Personal Computer group in mid 1989. Around this time 
Cannavino selected Bob Lawten to analyze IBM' s efforts 
in the portable computer segment of the market. After 
discussions and agreement with Bill Gates at Microsoft, 
Cannavino made a recommendation that IBM purchase forty 
percent of Microsoft. This would motivate both companies 
to make the relationship work. However, this proposal 
was rejected by the IBM Board. The reorganization and 
changes implemented by Cannavino during 1989, resulted 
in a change from a loss of 1.4 billion dollars in 1988 
to a profit of 1.2 billion dollars in 1989. 

Figure 9.6: James A. Cannavino. 
Photograph is courtesy of IBM Corporation. 

9/26 Part III 1980's~ The IBM/Macintosh era 

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