Amdahl Corporation
Address:
1250 East Arques Avenue
Sunnyvale, California 94088-3470
U.S.A.
Telephone: (408) 746-6000
Fax: (408) 738-1051
Statistics:
Public Company
Incorporated: 1970
Employees: 7,400
Sales: $2.05 billion
Stock Exchanges: New York
SICs: 3571 Electronic Computers; 3572 Computer Storage Devices; 7372 Prepackaged Software
Company History:
Amdahl Corporation is a leading manufacturer of large-scale data-processing systems. In addition, it produces data-storage subsystems, data-communications products, and software, and has an extensive educational service. Competing with International Business Machines (IBM), the world's leading manufacturer of large-scale computers, Amdahl has carved out its own niche with a focus on enterprise data servers, customer service, and consulting. Amdahl's customers include private and public corporations, financial institutions, governmental bodies, universities, and research foundations throughout the world.
Amdahl Corporation was founded on October 19, 1970, in Sunnyvale, California, by Gene M. Amdahl. Born in 1922 in South Dakota, Amdahl left his home state to pursue a doctoral degree in theoretical physics. With a knowledge of electronics gained in the Navy and a familiarity with computer programming garnered from a brief course, Amdahl designed and helped construct an early computer known as the WISC (Wisconsin Integrally Synchronized Computer).
In 1952 Amdahl joined IBM and became chief designer of the IBM 704 computer, which was released in 1954. In 1955 Amdahl and other systems designers began conceptualizing a new computer for IBM, which they christened the Datatron. IBM's Stretch, also known as the IBM 7030, was an outgrowth of the Datatron, a computer using new transistor technology. The name Stretch was not an acronym, but rather stood for "stretching the limits of computer technology development." Although Stretch was a financial failure for IBM, it was valuable as the precursor to the successful IBM System 360. In 1956 Amdahl left IBM; he worked at two other high-technology firms before returning to IBM four years later. Amdahl later became the principal architect for the phenomenally successful System 360, which was introduced in 1964.
Amdahl was appointed an IBM fellow, and was thus free to pursue his own research projects. In early 1969, while director of IBM's Advanced Computing Systems Laboratory in Menlo Park, California, he began to investigate the company's cost-pricing cycle as it applied to a large computer they were developing. His team concluded that to make the computer pay for itself, IBM would also have to market two scaled-down versions of the advanced technology. IBM management insisted that Amdahl stay with the original plan to create only one large processor, while Amdahl recommended that they shut down the laboratory. The laboratory was closed in the spring of 1969.
Over the following few months, Amdahl reviewed the policies that prevented IBM from aiming at the high end of computer development and presented his analysis to IBM's top three executives. Although the officers agreed with his analysis, they maintained that it would not be in IBM's best interest to change direction. Amdahl decided to strike out on his own.
Amdahl submitted his resignation to IBM for the second time in September 1970 and founded Amdahl Corporation just a few weeks later. Amdahl took none of IBM's technical personnel with him when he left; he was joined only by young financial specialist Ray Williams and two secretaries. Amdahl and Williams determined that they would need between $33 million and $44 million to see a product to completion (in fact, it took $47.5 million). They had chosen a difficult year for raising money, as new capital-gains taxes and an advancing recession made venture capital scarce. Amdahl and Williams first took their business plan to investment bankers, who rejected their proposal because they felt that Amdahl Corporation could not effectively challenge IBM. The pair eventually received $2 million from Heizer Corporation, venture capitalists in Chicago, the day after spending the last of their own investment.
At the same time, three other young California computer companies--MASCOR (Multiple Access Systems Corporation, which was started by staff members who left IBM after the closing of the Advanced Computing Systems Laboratory), Berkeley Computers, and Gemini Computers--had gone bankrupt. Many of their employees joined Amdahl Corporation, forming an impressive technical team.
During Amdahl Corporation's first eight months, it continued the search for more capital. The needed funds came from Fujitsu, a leading Japanese computer manufacturer, which suggested a joint development program and licensing under Amdahl's patents. This 1971 agreement was accompanied by the $5 million investment that Amdahl needed to complete its second phase of development.
In 1972 Nixdorf Computers, a leading German computer manufacturer, agreed to invest $6 million if Nixdorf could represent Amdahl in Europe. Fujitsu also increased its investment, and U.S. investors began to appear. Amdahl amassed a total of $20 million to build a prototype computer and a production facility.
Also in 1972, IBM announced the debut of the 370, its first computer with virtual memory, a flexible, advanced memory technology. Amdahl had been developing a computer like the IBM 370, but without virtual memory, and IBM's introduction forced Amdahl to scrap its initial design.
Amdahl Corporation decided to offer stock publicly in early 1973, but could not find an underwriter. The company then experienced delays with the Securities and Exchange Commission until 1974, by which time the stock market had declined, so Amdahl returned to the private market.
In August 1974 Eugene R. White, a vice-president at Fairchild Camera and Instrument Corporation, was appointed president of Amdahl Corporation. Effecting changes that helped save the company, White laid off almost half the employees and concentrated on marketing efforts and field support services. He was also instrumental in negotiations with Fujitsu and Heizer to get the funding necessary to complete the company's first product.
In June 1975 Amdahl shipped its first computer, the Amdahl 470 V/6, to NASA's Goddard Spaceflight Center in New York. The computer competed directly with IBM's System 370 Model 168. The initial sale was followed by sales to the University of Michigan, Texas A & M University, and the University of Alberta. Massachusetts Mutual Life, Amdahl's first commercial customer, chose Amdahl's 470 V/6 over the IBM 370 when IBM raised its prices and delayed delivery. Other customers followed, including AT&T.
Determined to best IBM, Amdahl was the first truly plug-compatible manufacturer, or manufacturer whose products are compatible with both IBM hardware and software. Critics maintained that the Amdahl machines provided better performance for less money. IBM's machines were water-cooled, while Amdahl's were air-cooled, which decreased installation costs by $50,000 to $250,000. The use of LSI (large-scale-integration), many integrated circuits on each chip, meant the Amdahl 470 V/6 was one-third the size of IBM's 360/168; the V/6 also performed more than twice as fast and sold for about 10 percent less. Machine sales remained slow due to concerns over the company's survival, but by the spring of 1977 Amdahl had 50 units in place, seriously challenging IBM in large-scale computer placements. To improve its cash position, Amdahl decided to sell rather than lease its equipment. IBM responded by slashing prices, forcing Amdahl to follow suit.
In 1976 Amdahl successfully went public with its stock. With the new funds, the company converted its debt to equity, created substantial cash reserves, and found itself operating at a profit. Revenues climbed from less than $14 million in 1975 to $321 million in 1977, with net income of $48.2 million.
In response to the challenge from Amdahl, IBM announced several machine enhancements. Not until the announcement of its 3033 in 1977, however, did IBM come up with a competitor for the price/performance ratio of Amdahl's 470 V/6. Amdahl responded by announcing a new computer: the 470 V/7. About one-and-a-half times faster than IBM's 3033, it would cost only three percent more. A year later Amdahl had installed 100 of the machines.
Amdahl's loosely organized corporate structure was very unusual for such a high-revenue organization. Even after two years of full operation, Gene Amdahl and Gene White still spent much of their time in high-level sales--in fact, many customers insisted on meeting Amdahl personally before closing the deal. Any mention of a chief executive officer was intentionally omitted from the corporate bylaws, but in 1977 Amdahl did hire John C. Lewis as president. Lewis had previously served as president of the business systems and data systems divisions of Xerox Corporation, and had spent ten years in management at IBM. Gene White became deputy chairman.
In early 1979, IBM introduced a line of medium-sized computers called the 4300 series. This line, coupled with reports that IBM would soon be announcing the H-Series of large computers, prompted many Amdahl customers to lease rather than buy equipment in order to be able to shift to an IBM product later. This development created serious cash flow problems at Amdahl. Revenues dropped by $21 million in 1979, with a 64 percent drop in net income.
On September 1, 1979, Gene Amdahl resigned as chairman, a post he had held since 1970. Deputy chairman Eugene R. White became chairman of the board and chief executive officer, a post that had never before been filled. Staying on the board as chairman emeritus, Amdahl led a new technical excellence committee and focused on strategic development. Less than a year later he resigned from the board to form Trilogy Corporation, a computer company that would compete directly with Amdahl and IBM. Recognized as one of the world's leading innovators in computer design, Amdahl again put his creativity to work on a new venture.
In 1979 and 1980 Amdahl Corporation failed in two attempted mergers, first with Memorex Corporation, a manufacturer of computer data-storage equipment, and then with Storage Technology Corporation, a maker of printers and tape and disc storage subsystems. The failures were attributed to Fujitsu, Amdahl's largest shareholder, which feared losing its influence in a merger and sought to keep tight reins on proprietary technology. Fujitsu's demands were rejected by the merger partners.
In November 1980, IBM announced the 3081 processor, previously labeled the H-Series, which would offer twice the performance of IBM's top model, the 3033, upon its completion in late 1981. The industry waited for Amdahl's response. Six days later Gene White announced the 580 series, a computer with processors twice as powerful as the Amdahl 470 series and still compatible with it, which also featured a more compact body and greater energy efficiency. Amdahl's new product was not slated for shipment until April 1982, however, and did not actually ship until August 1982, causing a drop in net income. In addition, Amdahl's early 580 series processor had significant reliability problems and was lacking in some of the features of the new IBM product. Amdahl's competitive advantage was further eroded by a U.S. Justice Department decision to dismiss a 13-year-old antitrust suit against IBM, enabling the giant computer manufacturer to price its products more aggressively and move faster with new technologies.
To expand its market, in 1980 Amdahl completed the successful acquisition of Tran Telecommunications Corporation, a maker of digital data communication networks. In 1982 Amdahl branched into storage devices by offering a direct-access storage device supplied by Fujitsu. This enabled Amdahl to broaden its product base and provided a buffer against the vicissitudes of direct competition with IBM's large-scale computers. By 1988 Amdahl's sales of storage devices had grown to about 20 percent of total sales. To remain competitive in its fierce battle with IBM, Amdahl was spending 13 percent of total sales on research and development in 1983, while IBM spent only 6.3 percent.
In 1984 Amdahl developed UTS, its version of UNIX, the operating system developed by AT&T. Amdahl claimed that UTS, which was compatible with UNIX, operated 25 percent faster run on the Amdahl 580 than on IBM's product, and did so for a lower licensing fee. The developers of the operating system ensured its complete compatibility with IBM's control programs.
Amdahl introduced multiple domain feature (MDF) in late 1984. MDF enabled a computer to run two or more different operating systems concurrently, while also performing multiple tasks. In just over two years, 30 percent of the Amdahl 580 series sites used this feature, cutting costs on software, hardware, and personnel.
In 1984 Heizer decided to liquidate its Amdahl stock. Fujitsu bought the offering, expanding its holdings to about 49 percent. The Japanese firm was prohibited by mutual agreement from owning more than 49.5 percent of Amdahl's shares, and in 1990 Fujitsu held about 43 percent of the company's stock.
Over the years Fujitsu provided important components and subassemblies for Amdahl processors, including LSI logic chips and very large-scale integration emitter-coupled logic chips, which are essential to Amdahl products. Fujitsu also played an important role in the design and manufacture of peripheral products. The two companies worked closely in supporting each other in their respective technological developments.
In May 1985 a former IBM executive, E. Joseph Zemke, joined Amdahl as chief operating officer, sharing the Office of the President with president and CEO John C. Lewis. Zemke had most recently been president and CEO of Auto-Trol Technology of Denver, Colorado, and had been corporate director of marketing at IBM.
Amdahl's model 5890, introduced in October 1985 to compete directly with IBM's Sierra-class CPU, stood up against its IBM counterpart in reliability and technology and offered multiprocessor capabilities that enhanced the performance range of Amdahl processors. In late 1986, Amdahl began shipping its new model. The computers performed even better than advertised, and final quarter sales boosted revenues to nearly $1 billion. The success of the model 5890 was reflected in Amdahl's increased customer base. Between 1980 and 1985 its customer sites in the United States grew from 450 to 1,350, and it expanded internationally from 14 to 19 countries. The company also increased sales of its large-scale disc-storage products made by Fujitsu.
Continued shipment of its successful product lines during 1987 catapulted Amdahl's revenues to $1.5 billion, an increase of almost 56 percent over the previous year, and earnings jumped nearly 250 percent. The company upgraded its successful 5890 to keep abreast of improvements in IBM's 3090 computer. Its further commitment to UTS enhanced its strength.
John C. Lewis was elected chairman of Amdahl in May 1987, retaining the title of CEO. Joseph Zemke became president, but continued his duties as chief operating officer. Gene White, formerly chairman, again became vice-chairman.
For most of its existence, Amdahl had played catch-up to IBM's product announcements, but in May 1988, it took the initiative and announced a new product line, the 5990 processor. Orders poured in. IBM reacted quickly to defend its 69 percent of the U.S. large-scale computer market share, but the new processor&mdashknowledged as the fastest in the industry--not only out-performed IBM by almost 50 percent, but was also more compact and less costly. By the end of 1988, Amdahl had shipped more than 40 of its new mainframes. The price and performance features of Amdahl's products raised sales nearly 17 percent to $2.1 billion. IBM responded by discounting its systems. Amdahl announced its own discounts, and the decreased profit margin caused earnings to fall by 30 percent in 1989.
Amdahl's consistent ability to produce computers with a superior price/performance ratio helped keep the company competitive in a market dominated by IBM. Staying on the leading edge of technology and catering to its customers' needs launched Amdahl to over $2 billion in revenues in 1989. In February, Amdahl acquired Key Computer Laboratories, Inc., a company that was expanding globally, with 33 percent of its revenues coming from Europe and 8 percent from Asia and the Pacific region in 1989. In 1991 Amdahl introduced Huron, a successful new application development software, and established the Canadian Software Development Centre. The center was run by Huron's creator, Helge Knudsen.
As the 1990s progressed, the major threat to Amdahl's viability no longer appeared to be IBM, but the shrinking mainframe computer market. As smaller, cheaper, and more powerful machines became available, Amdahl found its sales slipping. Excessive costs forced the company to stop work on a mainframe Unix product that had long been underway. By September 1993, sales had collapsed. Amdahl's CEO Zemke was quoted in Business Week as saying, "It was like Death Valley." Amdahl shut down factory lines and cut back the work force three times that year. The company reported a net loss for 1993.
Analysts predicted that Amdahl's continued success would require stronger innovation. Amdahl's strategy was to offer its customers integrated packages combining its hardware technology with the industry's most advanced software, as well as stellar support and consulting services. Amdahl's maintenance, support, and consulting services made up 28 percent of revenues in 1993 and increased another 11 percent in the first quarter of 1994. Margins on those services were almost double the hardware margins, and Amdahl's service businesses were consistently given the highest ratings in the industry.
In the following year, Amdahl entered into new partnerships with three computer firms: Electronic Data Systems, nCube, and Sun Microsystems. The agreement with Electronic Data Systems spawned the Antares Alliance Group, a joint software development group 80-percent owned by Amdahl. Antares was formed to market Amdahl's Huron and research new software ideas and prototypes for business analysis and modeling programs. Helge Knudsen became director of the Antares Research Institute.
In 1994 Amdahl introduced the Xplorer 2000 series. The new product was the result of an alliance between Amdahl, Oracle, and Information Builders, Inc. The partnership was formed, according to Software Magazine, to explore opportunities to create "massively parallel database servers and software that will let customers process thousands of transactions per second and share data between MVS and Unix systems."
Later that year, Amdahl and Sun Microsystems introduced A+ Edition, a group of extensions that allow Sun's symmetrical multiprocessing servers to perform more efficiently when a higher number of total possible servers are working. The software accomplished this by providing tuning for database applications with a large number of users and more evenly distributing the workload among the processors in the servers. While the new product was well received, some potential customers expressed concern about the cost for the value.
Businesses' need to downsize their information management, both in terms of money and space, may create a window of opportunity for computer companies that can produce products allowing companies to use their existing hardware and software more effectively. Software links, along with support and consulting services that allow users to manage huge amounts of data more efficiently, may be preferable to new equipment purchases. Although Amdahl's fortunes have fluctuated in a very volatile market, it has repeatedly emerged from near-extinction, and its tenacity and innovation may continue to pull it through over the long term.
Principal Subsidiaries:Amdahl Australia Pty. Ltd.; Amdahl Belgium S.A.; Amdahl Canada Limited; Amdahl Computer Systeme Gesellschaft m.b.H.; Amdahl Computersysteme Palais Lichtenstein; Amdahl Danmark Computer Systems; Amdahl Deutschland GmbH; Amdahl France S.A.; Amdahl Intl. Hong Kong; Amdahl International Management Services Limited (U.K.); Amdahl Ireland Ltd.; Amdahl Italia S.p.A.; Amdahl Nederland B.V.; Amdahl New Zealand; Amdahl Norge A/S; Amdahl Pacific Basin Operations (Thailand); Amdahl Pacific Services Pty, Ltd. (Australia); Amdahl Singapore; Amdahl Svenska AB; Amdahl Switzerland AG; Amdahl (U.K.) Ltd.
Further Reading:
Amdahl, Gene M., "The Early Chapters of the PCM Story," Datamation, February 1979.
Barker, Paul, "Developer of Huron Goes Back to His Roots," Computing Canada, March 30, 1994, p. 13.
Bozman, Jean S., "Amdahl, Sun Honor Promise with A+," Computerworld, October 3, 1994, p. 77.
Cancilla, Susan, "Amdahl, IBM Awake to Mainframe Revival," Info Canada, March 1995, p. IC2.
Hof, Robert D., "Amdahl Escapes 'Death Valley,' But Now What?" Business Week, May 16, 1994, p. 88.
Schmedel, Scott, "Taking on the Industry Giant," Harvard Business Review, March-April 1980.
Ubois, Jeff, and Vaughan, Jack, "Parellelizing DBs Come to Town," Software Magazine, June 1994, p. 24.
Uttal, Bro, "Gene Amdahl Takes Aim at I.B.M.," Fortune, September 1977.
Source: International Directory of Company Histories, Vol. 14. St. James Press, 1996.
