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IBM To Delay Windows-Competitor Software, Downplay PC Software Development Graphic

October 15, 1991

NEW YORK (AP) _ International Business Machines Corp. will not meet its year-end deadline for a new version of software it touted earlier this year as better than Windows, Microsoft Corp.’s hot-selling personal computer software, an industry official said Monday.

At the same time, IBM said it will sharply curtail a division that develops PC software. The division was set up three years ago to give IBM a larger presence in the burgeoning market.

The news adds up to more setbacks for the world’s largest computer maker in the software field, analysts said.

Software has become increasingly important as computers become more like interchangeable commodities, because software is a major way a computer maker can distinguish its machines from another brand. It also is more profitable than most computer hardware.

But so far, success has eluded IBM’s PC software efforts.

″I just don’t think they’re as mean and aggressive as some of the independent companies whose bread and butter comes from software,″ said Rick Sherlund, an analyst at Goldman, Sachs & Co.

″Software development is not efficiently done by large groups of people. IBM’s bureaucracy is pretty well documented,″ he said.

IBM said Monday it would limit the focus of its Desktop Software division, which it established in 1989 to become a major factor in PC applications software, such as word processing programs.

IBM said the division would no longer be a primary developer of software. Instead, it plans to license rights to the software the division owns to other companies or IBM divisions. Through these alliances, IBM said it intends to retain ″marketing and development relationships″ for the programs.

Jeffrey Tarter, editor of SoftLetter, an industry publication on the software industry, said the IBM division never developed software on its own. Instead, it sought out software titles developed by other companies that it could exclusively license and market.

″They acquired a handful of titles but nothing of any great consequence,″ Tarter said. ″It was a tougher business than they thought.″

Meanwhile, IBM will not meet its year-end deadline for a new version of its Operating System-2 software, an industry official with knowledge of IBM’s plans said on condition of anonymity.

″The failure to deliver (by the deadline) has tarnished IBM’s reputation,″ Sherlund said, referring to media reports. He said the delay could prompt some customers who have been waiting for the new OS-2 to switch to Windows.

IBM spokeswoman Tracy O’Neill would not confirm the OS-2 delay. But she said IBM customers who have been testing a preliminary version of the software identified additional features they want included. She added that IBM would have an OS-2 announcement at the Comdex computer show in Las Vegas next week.

Operating systems control the basic functions of a computer, such as organizing files. Application programs provide a specific function, such as word processing.

IBM has sold OS-2 for four years, but it failed to attract a strong following due to its limitations. In April, IBM gathered customers, analysts and reporters to promote the product, promising a vastly improved version by year’s end that would be ″a better Windows than Windows.″

Microsoft’s Windows, which makes IBM-type computers easier to use, replaces arcane typed commands with on-screen graphics. Windows works in conjunction with DOS, Microsoft’s PC operating system.

OS-2, in conjunction with its Presentation Manager software, provides a similar graphics-based operating system for PCs, replacing DOS.

Although IBM co-developed OS-2 with Microsoft as the eventual replacement for DOS, the two had a bitter separation earlier this year. Microsoft is now building on Windows for future operating systems, while IBM has centered its efforts on OS-2.

IBM said its new OS-2, in contrast to past versions, would run applications programs written for DOS and Windows as well as OS-2 programs. It also said it would run multiple DOS programs in different windows on the computer screen better than Windows does.

Microsoft stock rose $2.67 1/2 to $92.25 a share Monday by the 4 p.m. EDT on the over-the-counter market. Analyst Mary Meeker of Morgan, Stanley & Co. attributed the gain to the OS-2 news as well as Microsoft’s strong third- quarter earnings announced last Thursday.

IBM stock rose $1.37 1/2 to $101.25 on the New York Stock Exchange.

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