Industry Profiles: Computers and Office Equipment

Overview

The realm of office equipment has been transformed by computers, first as high-end mainframe systems in the 1960s and 1970s and then as desktop workstations and personal computers in the 1980s, 1990s, and 2000s. Computers became essential office tools as they became more affordable and powerful. Equally important to the ascent of computers has been the development of powerful productivity software that simplified and automated common tasks.

While computers have had the highest profile among office equipment, the industry still produces numerous other devices that are required in modern office settings. These range from relatively low-tech tools like postage meters to letter-handling machinery, fax machines, and adding machines. However, one significant type of office machine, the photocopier, is normally considered part of the photographic equipment industry and is thus excluded from this discussion (see the separate entry entitled "Photographic Equipment and Supplies").

In 2000, computers and peripherals accounted for about 95 percent of the U.S. industry's $131 billion in annual sales. Important accessories and peripheral devices include displays, printers, removable storage drives, and multimedia accessories.

History of the Industry

The business machine industry emerged from the Industrial Revolution in the latter part of the nineteenth century. As the need to record and manage business information grew, several products, including the typewriter, were developed to meet demands. Although the typewriter was invented in 1714 by London engineer Henry Mill, the most famous devices were developed in the late nineteenth century. The Remington typewriter, first offered to the public in 1874, was one of the more popular early machines.

The first electromechanical typewriter was invented by Thomas Edison in 1872, although practical application of this device did not occur until the twentieth century. One of the first electric models, the Electromatic, was purchased by International Business Machines in 1933; after World War II, several other companies introduced electric typewriters. During the postwar era, the business machine industry flourished. A booming economy and new technology soon prompted the development of a plethora of labor-saving devices.

Although an early version of the facsimile machine was introduced in 1843 by Scottish inventor Alexander Bain, this device did not have any practical application in the United States until 1925. That year, the American Telephone & Telegraph Company introduced a wire-photo service. The following year, RCA opened the first transatlantic radiophoto circuit for commercial use, which used fax technology. Advances in production technology, which drastically reduced the price of fax machines, made them available to the general public during the late 1970s and 1980s.

While dictation machines also gained widespread public acceptance during the mid-twentieth century, the invention of the integrated circuit in the 1960s brought hand-held recording devices into the professional mainstream. Dictaphones remained the primary means of recording information for doctors, lawyers, and business executives throughout the 1970s and much of the 1980s. The advent of personal computers, notebook computers, and cellular telephone technology adversely affected sales of dictation equipment in the 1980s, and by the early 1990s, dictation machines were largely being replaced with machines featuring alternative technologies.

As increasingly inexpensive computer and cellular technology was rendering dictaphones and typewriters obsolete, many business machine companies struggled to adapt to evolving market demands. Nevertheless, technological advances were opening new markets for other miscellaneous business machines—particularly postal equipment, in demand due to increased postal volume and new postal requirements for addresses.

Meanwhile, computers had first become commercially viable in the early 1950s. The UNIVAC system, developed for the U.S. Bureau of the Census, and a similar system used by the General Electric Company, were two of the first commercially viable computers put into use. By the end of the 1950s, business, government, and scientific communities began to view the computer as a dependable and potentially effective tool for an enormous variety of tasks.

Timesharing systems, pioneered at the Massachusetts Institute of Technology, allowed public and private entities to gain extensive access to large, expensive mainframe computer systems in the 1960s. Timesharing allowed several users at remote locations to simultaneously use a single machine. Users were charged for the amount of time that they were actually connected to the computer by cables or telephone lines. Although timeshare technology was first used primarily for scientific and technical endeavors, business and industry participants soon learned that they, too, could benefit from access to centralized processors.

By the end of the 1960s, the computer industry was poised for rapid growth. Computers in the 1960s were already up to 100 times faster than their counterparts of the 1950s, and computer memory and speed continued to rise quickly. Furthermore, the first minicomputer was installed in 1965, breaking ground for an entirely new segment of the industry. The number of digital computers increased from less than 15 in 1950 to over 40,000 by the late 1960s. Going into the 1970s, though, all sectors of society were beginning to seek the computational power offered by supercomputers and mainframes to handle labor-intensive tasks. In addition, industry leaders were continually striving to expand their market by increasing computer access to end-users, rather than only trained computer professionals.

Development of the microprocessor in 1971 allowed the entire central processor of a computer to be placed on a single silicon chip. This development led to subsequent rapid expansion and transformation of the industry. In addition to the proliferation of supercomputers, mainframes, and midrange systems that took advantage of new chip technology, workstations and PC devices began to emerge. By the early 1980s, over 500,000 general-purpose computers had been installed in North America. Furthermore, the market was growing at an annual rate of about 20 percent.

In the early 1980s, the computer industry consisted of several niches, each dominated by one or two manufacturers that had been the first to successfully exploit an opening in the market. IBM, Sperry, Wang, Unisys, and Digital Equipment Corporation (DEC) were among the many companies that generated immense revenues during the decade. For the most part, these companies succeeded by developing proprietary hardware and operating systems that effectively prohibited customers from switching to a competitor's product.

Manufacturers often enjoyed profit margins of 70 to 90 percent on sales of various mainframe and minicomputer installations. Demand ballooned throughout the decade as business, industry, and the public sector invested billions of dollars to computerize and automate information management, manufacturing, computationally intensive research, and other activities. As many mainframe companies settled into their respective niches, however, the rapid advancement of microprocessor technology caused a market shift that took many industry leaders by surprise.

Many industry participants failed to foresee the dominance of PCs, workstations, and some midrange systems. Within a period of a few years, in fact, technological innovations turned the slow and limited microcomputer of the early 1980s into a relatively low-cost, powerful, and speedy contender. Furthermore, by networking these smaller devices, users were able to develop cost-effective systems that could handle tasks that were previously performed only by mainframes and powerful minicomputers.

Significant Events Affecting the Industry

A development central to the proliferation of PCs was the move away from proprietary technologies and toward open standards. IBM's PC became the leading standard during the 1980s, and many companies began to emulate its standard. This was also made possible by the development of independent software, which ensured that applications and data files were compatible across different PCs.

Major advances and refinements in PC hardware manufacturing from the late 1980s through the early 2000s transformed the average PC from a relatively slow device with limited built-in storage capacity to an extremely powerful tool rivaling the performance formerly only available on larger and much more expensive systems. For example, a typical consumer PC sold in the early 1990s came with 4 megabytes (MB) of RAM, a 50-100 MB hard drive, and had a clock speed of 33 megahertz (MHz). By 1996 an average system likely had 16 or 32 MB of RAM, a 1-2 gigabyte (GB) hard drive, and a clock speed over 100 MHz. By 2002, the respective figures were more typically 256-512 MB, 60-80 GB, and 1.6-1.8 GHz.

As PCs grew faster and more versatile, the market for typewriters and stand-alone word-processing systems quickly eroded. The value of product shipments in the non-computer segment of the office machines industry has steadily declined from $9.9 billion in 1997 to $6.5 billion in 2000. Demand for word-processing machines, in particular, was decimated. From being nearly a $500 million business in the early 1990s, by 1996 sales had fallen to just $175 million, and this trend was expected to continue into the 2000s.

Key Competitors

Dell Computer Corporation was the PC industry's world market leader in 2001, when it posted revenues of $31.2 billion. Dell employs a direct sales model, whereby computers are made to order based on customer specifications. Approximately half of the company's sales are made via the Internet, making it the world leader in that category. In 2002 Dell employed 34,600 workers at: its headquarters in Austin, Texas; its regional headquarters in Europe, Singapore, and Japan; and its manufacturing facilities in Texas, Tennessee, Brazil, Ireland, Malaysia, and China. Although PCs account for about half of Dell's annual sales, approximately 20 percent are attributed to Internet server and storage systems, with the remainder coming from portable computer sales. According to the Gartner Group, in 2001 Dell surpassed Compaq as the leader in domestic server sales, with a 23.3 percent market share. Dell's name is widely known to consumers, but a large percentage of the company's sales are made to business clients.

In terms of world market share, Compaq Computer Corporation is second behind Dell. The company, which had 2001 revenues of $33.6 billion, introduced its first product, an IBM-compatible PC, as did many other new PC clone manufacturers, in 1982. In time, Compaq, based in Houston, Texas, became the fastest growing publicly held company ever. Compaq has traditionally focused sales through dealers and distributors, but in the face of rising competition from Dell, in 1997 Compaq began expanding its direct sales efforts for the first time.

Compaq produces microcomputers in the desktop, notebook, handheld, and server categories. It expanded its presence in the high-end computer market through its 1998 acquisition of Digital Equipment Corporation (DEC), which was the industry's largest merger to date. In 2002 Compaq was acquired by Hewlett-Packard Company in a deal worth about $20 billion. The merger created a new industry heavyweight with annual revenues exceeding $85 billion.

International Business Machines Corporation (IBM) is no longer the largest maker of PCs, but it still is the world's largest computer company. In 2001 IBM achieved $85.9 billion in sales through a diverse product and service line of PCs, business systems, and service/consulting contracts with other businesses. More than 40 percent of IBM's revenues that year came from its leading Global Services unit, followed by hardware (38.9 percent), and software (15.1 percent). The company, founded in 1910 under the name of Calculating-Tabulating-Recording (CTR), got its start by producing punch-card tabulating machines. IBM grew quickly by stressing large-scale, custom-built systems, and by leasing, rather than selling, its products to most of its customers. Government contracts were largely responsible for the company's rapid growth during the 1940s. It was during this period that IBM developed the Mark I, the first computer capable of retaining a set of rules that could be applied to information that was input at a later time.

By the mid-1960s, IBM owned 65 percent of the U.S. computer market. IBM's mainframe models, the 360 and 370, generated massive profits for the company during the 1970s. Although IBM continued to grow through the mid-1980s, the company began to lose focus, and its hesitation in taking the PC market seriously was only belatedly realized as a miscalculation. Between 1985 and 1992, IBM dismissed 100,000 employees and restructured its operations several times, and by the late 1990s had regained relative stability.

The computer mammoth Hewlett-Packard Company is a major producer of PCs, servers, and printers, as well as a leading computer services firm. The company, which garnered $45.2 billion in revenues during 2001, runs the world's second-largest computer business behind IBM. The vast majority of HP's revenues come from computer-related operations. In late 2001 the company employed 88,000 people in more than 120 different countries. HP was in the process of acquiring Compaq in early 2002, which would dramatically increase the organization's size. However, there was some opposition to the merger, especially among members of the Hewlett family. In early 2002, board member Walter Hewlett filed a lawsuit to prevent the companies from joining.

Pitney Bowes, Inc., headquartered in Stamford, Connecticut, is one of the largest non-computer office machine manufacturers. The company makes mailing systems such as postage meters and letter scales, and also offers a variety of financial and other business services. In 2001, Pitney Bowes recorded $4.1 billion in sales. In December 2001, the company announced that it had spun off its office systems arm, which produced fax and copy machines, as a separate company called Imagistics.

Industry Projections

The market for computers and related equipment will continue to grow at a healthy rate into the 2000s, while demand for general office equipment will continue to stagnate as certain devices from that category increasingly fall into disuse. According to IDC, global sales of PCs fell by about five percent in 2001, but were expected to grow by three percent in 2002 and almost 11 percent in 2003, reaching approximately 139.2 million units. Within the United States, the trend toward low-priced computers, though some manufacturers frown on it because it's not as profitable, is likely to continue. Strong market response in the late 1990s and early 2000s to computers in the $1,000-and-under range is expected to couple with the ongoing improvements in performance to create a continuing supply of affordably priced computers with less-than-cutting-edge features and performance for general users. Also likely to fuel demand for new PCs is Microsoft's new Windows XP operating system, which has higher system requirements than its predecessors.

Global Presence

U.S. companies are significant suppliers of office technology around the world. Giants like IBM and Hewlett-Packard obtain a significant share of their revenues from abroad, where sales are often growing faster. The main competitors to U.S. manufacturers are based in Japan and include formidable diversified industrial companies such as Hitachi, Ltd., Fujitsu, Ltd., and NEC Corporation. The strength of such companies has meant that the United States has a massive trade deficit in computer equipment. Reaching almost $23 billion in 1998, this deficit was projected to exceed $27 billion by 2000. However, these figures don't reflect indirect exports such as when U.S. companies produce computer equipment in other countries, a practice known as foreign direct investment. When this kind of investment is included in the equation, the U.S. trade deficit appears much smaller.

In the other office machine categories, the international market is much smaller; but surprisingly, demand for some office technologies considered obsolete in the United States, like typewriters, is stronger in other countries. Still, U.S. office machine companies face substantial competition from foreign-based firms for sales abroad.

Employment in the Industry

After a labor shortage during 1999 and 2000, the computer segment of the computer and office equipment industry experienced layoffs in the early 2000s as consumer confidence and overall economic conditions weakened. Analysts expected industry conditions to improve with the economy and as demand for newer equipment increased. Manufacturers employed 361,400 people in 2000, a decrease from 1997 levels of 374,600. Between 1988 and 1997, the industry shed 85,000 workers. Hourly wages in the computer and office equipment industry averaged $25.66 in 2000. Opportunities and pay are greatest for workers with advanced training, such as a computer science background.

Sources for Further Study

"computer equipment." u.s. industry and trade outlook 2000. new york: mcgraw-hill and u.s. department of commerce, 2000.

"computers and office and accounting machines." current industrial reports. washington, dc: u.s. department of commerce, economics and statistics administration, u.s. census bureau, september 2001.

"computers: hardware." standard & poor's industry surveys, december 2001.

howard, bill. "looking forward: technology on the way." pc magazine, 25 march 1997.

"idc raises pc market growth forecast based on strength in consumer segment." idc, 13 march 2002. available at http://www.idc.com.

kirkpatrick, david. "why compaq envies dell: the leading maker alters course." fortune, 17 february 1997.

liebmann, lenny. "the fax of life." communications news, march 2002.

"occupational employment statistics." bureau of labor statistics, u.s. department of labor, 6 april 2002. available at http://www.bls.gov.