Why the Giant Computer Companies were Gobbled Up

Summary : The technology story of the 60s was about the rise of computer giants, with IBM at the vanguard. This went on through the 70s but shifted in the 80s with the advent of the PC. But it wasn’t the advent of the PC and Apple that shifted the balance. It was Moore’s Law. The advent of VLSI levels of integration ...

The technology story of the 60s was about the rise of computer giants, with IBM at the vanguard. This went on through the 70s but shifted in the 80s with the advent of the PC. But it wasn’t the advent of the PC and Apple that shifted the balance. It was Moore’s Law. The advent of VLSI levels of integration in the early eighties changed the economics of the electronics industry by shifting the location of intellectual property from the printed circuit board to the chip level.  After this, the old IBM business model, that required chips be less than 15% of the value of the system, simply wouldn't work anymore.  When the IP shifts, so does the value.  VLSI set a new destiny in place for chip IC makers: it would ultimately allow them to capture 50% of the system value and thereby become the kings of hi-tech. It took ten years for this change to undermine the power structure of the computer industry, hitting the IBM's and DEC's full force in the early nineties. Unlike IBM, Apple leveraged VLSI to its technical advantage. Using Motorola's microprocessors it built a healthy business based on the IBM business model. But this would become the source of Apple's problems in the 90’s, because it could not be a chip company like Intel. Without chips Apple was merely an operating system in competition with Microsoft.  Yet it could not become a software company and drop its systems side because of its closed architecture. With no one building systems, it would have no one to sell to. It was the return of Steve Jobs from exile that changed this, because he saw the need to be a semiconductor company. He acquired semiconductor capability and companies. He was also one of the first to lever foundries and become a hypervertical. These were all tactical moves derived from a strategic agenda based on the shift of IP from the board to the chip.

 

By G Dan Hutcheson       

 

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