SIC 3571
ELECTRONIC COMPUTERS



The industry encompasses companies primarily engaged in manufacturing electronic computers. By definition, this includes machines that:

Included in this industry are digital computers, analog computers, and hybrid digital/analog computers. Establishments primarily engaged in manufacturing machinery or equipment that incorporate computers or a central processing unit for the purpose of performing functions such as measuring, displaying, or controlling process variables are classified based on the manufactured end product.

NAICS Code(s)

334111 (Electronic Computer Manufacturing)

Industry Snapshot

In the early 2000s, the electronic computer industry was struggling amidst a weak economic climate that presented challenges in business and consumer markets alike. According to the U.S. Census Bureau, after a sharp increase from $56.9 billion in 1998 to $64.7 billion in 1999, electronic computer shipment values fell in 2000 ($62.9 billion). As the economy took a turn for the worse, shipment values plunged to $49.3 billion in 2001. This affected virtually every product segment within the industry, including servers and workstations. Along with values, actual unit shipments also declined, falling from 27.2 million in 2000 to 22.7 million in 2001.

A number of factors were causing consumers to delay purchases of new computers in the early 2000s. The terrorist attacks that occurred on September 11, 2001, shook already-declining levels of consumer confidence. By late 2002, rising unemployment and a possible war with Iraq served to further exacerbate the average consumer's outlook. Thus, many were content to get by with existing personal computer (PC) technology in the short-term, saving discretionary tech purchases for items like DVD players, MP3 players, and digital cameras.

In the corporate sector, these same conditions led to a temporary slowdown in technology spending, as companies awaited better times. According to several industry analysts, the wave of year-2000-related new equipment purchases that took place at the end of the 1990s, as well as the availability of quality used equipment from bankrupt Internet companies in the early 2000s, also had a negative impact on the corporate market for new electronic computers.

Global competition among computer makers has favored nimble, low-cost producers, and many of these are U.S. firms. In fact, according to International Data Corp. (IDC), in late 2001 the four largest U.S.-owned computer makers—Dell, Compaq, Hewlett-Packard, and IBM—controlled almost 40 percent of world PC shipments. In late 2000 Dell proved itself as a potent competitor by wresting the title of world market leader away from Compaq. By late 2002, Hewlett-Packard had acquired Compaq, creating a new industry heavyweight that challenged Dell's leadership position.

Organization and Structure

The computer industry is segmented by product category. Different kinds of computers contain differing components, varying performance and price levels, and, to a certain extent, service different functions and markets.

At the most fundamental level, electronic computers can be categorized as either analog or digital. Analog computers are electromechanical devices whose operation is based on continuously variable quantities such as lengths, weights, or voltages. Digital computers, by contrast, operate by processing discrete quantities of digits or characters and offer greater flexibility in programming. Thus, almost all computers today are digital, and analogs represent a very small portion of industry production and sales. For this discussion, the term "computer" will refer to digital devices unless noted otherwise.

General-purpose computers are traditionally categorized by size, function, and processing power. These main categories are supercomputers, mainframes, midrange systems and servers, and microcomputers (PCs and workstations). While some have advanced formal definitions of each category, in practice the boundaries between each class are vague, and for example, there may be little or no difference between a low-end server and a high-end microcomputer.

Supercomputers. Supercomputers are high-speed number crunchers that allow scientists, engineers, and government researchers to process and manipulate massive amounts of data very quickly. Their performance is typically measured in terms of billions of floating point operations per second, or gigaflops, as opposed to millions of instructions per second (MIPS) assigned to most other types of computers. The fastest supercomputers reach processing speeds in the teraflops, or trillions of floating point operations per second. These technological taskmasters are used to complete complex feats, such as forecasting weather, designing ships and automobiles, conducting nuclear research, and carrying out advanced simulations. Supercomputers under development by IBM in the early 2000s were predicted to surpass the 1,000 teraflops threshold, entering the realm of pentaflops, or quadrillion floating point operations per second.

An important distinction exists between traditional high-powered "vector," and low-powered "parallel" supercomputers. The newer parallel devices join as many as tens of thousands of cheap microprocessors to accomplish what vector systems achieve with a handful of more expensive processors. Though usually less expensive, systems that use Massively Parallel Processing (MPP) technology can perform many tasks faster than traditional vector systems. Because supercomputers are such specialized devices—and usually regulated by the U.S. government—they are mostly used in defense and limited academic research settings.

Mainframes. Mainframe computers generally offer less raw computational power than supercomputers and are most often used to handle large volumes of large enterprise or institutional applications. Mainframes are also used by large Internet and e-commerce companies to meet the high-volume, high-reliability requirements of such firms. Traditionally, users accessed mainframes through satellite terminals, but mainframes are now commonly accessed by a variety of different devices over corporate networks. Some mainframes also offer add-on features that make them competitive with low-end supercomputers.

Midrange Systems. Midrange computers, also called minicomputers and servers, serve anywhere from a few to several hundred users, either locally or at remote locations. Small to medium-sized businesses, company departments, and manufacturing facilities commonly use midrange systems for communications processing, automation, reporting, and networking. Midrange systems often employ vendor-developed proprietary applications that are tailored to the organization's needs. Newer "open systems," though, allow the use of standardized operating systems and applications. Midrange computers can range in price from $10,000 to approximately $1 million.

Midrange systems include the diverse array of servers that are used in local area networks (LANs) and other networking arrangements. These servers are similar to midrange or mainframe computers in function, by serving multiple users with shared data, yet may be more similar to personal computers in structure, by being based on microprocessors. In fact, the lowest-end servers are merely high-end personal computers or workstations configured with the necessary software and telecommunications hardware. High-end servers often contain multiple microprocessors and have cut into the market traditionally served by computers based on more advanced processors.

Microcomputers. By far the industry's largest product segment, microcomputers, divided between personal computers (PCs) and workstations, are single-user, self-contained units. They offer the least raw computing power of any segment of the industry but provide the greatest amount of flexibility, diversity, and portability. This segment includes laptop and notebook computers.

Workstations are a special class of high-powered microcomputers. Many workstations are capable of performing intensive research, engineering, and graphics tasks that allow them to compete with low-end supercomputers and mainframes. High-performance microprocessors allow many workstations to employ high-resolution or 3-D graphic interfaces, sophisticated multitask software, and advanced communication capabilities. Workstation prices can range from $3,000 to more than $100,000. The traditional definition of workstations is microcomputers based on RISC (reduced instruction set computing) microprocessor design, but the distinction between workstations and personal computers is becoming increasingly blurred.

Background and Development

The first mechanical calculating devices were built in Europe in the seventeenth century. The English mathematician Charles Babbage carried that concept a step further in the nineteenth century with the design of the Analytical Engine, the first digital computer. The Engine design showed how programs could be stored on punched cards similar to those used by French looms. Although the Analytical Engine was never built, it influenced the first digital mechanical computers and helped pave the way for the computer revolution that changed the world.

The few computers in existence in the 1940s were primarily used to grind out tables of complex mathematical functions. Researchers that understood the potential of more advanced devices, however, were successful in securing sizable U.S. government and military grants to fund further development. The first general-purpose electronic computer, ENIAC, was completed in 1946. ENIAC, which stands for electronic numerical integrator and calculator, required partial rewiring in order to program it for different tasks. The first operational stored-program electronic digital computer, similar in function to computers of today, was completed in 1949 at the University of Cambridge. Although various analog devices were also developed and tested in the 1930s and 1940s, analog computers played a relatively minor role in the development of the industry.

The electromechanical computers of the mid-1940s had already been replaced by the early 1950s with more powerful and flexible electronic versions. 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 electronic 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 at an increasing rate. Furthermore, the first minicomputer was installed in 1965, breaking ground for an entirely new segment of the industry. The number of digital computers had increased from less than 15 in 1950 to more than 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. It was this development that 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, more than 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. International Business Machines (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 previously performed only by mainframes and powerful minicomputers.

Although the demand for mainframe and supercomputer sales advanced throughout most of the decade, manufacturers that focused solely on those products and failed to respond to the inevitable dominance of workstations and PCs found themselves in serious financial trouble in the mid-1980s. The number of PCs purchased by Americans rose from fewer than 500,000 in 1980 to approximately 7 million in 1984. By 1989 annual PC sales approached 10 million. Sales of RISC workstations grew at a rate of more than 110 percent annually between 1986 and 1988. As PCs increased their share of the entire computer-related market revenues from 10.6 percent in 1987 to 15.2 percent in 1991, the share of the market held by large-scale systems fell from 12.6 percent to 9.5 percent.

Many companies that led the computer industry in the 1980s suffered massive financial losses in the early 1990s, as they either retrenched or shifted their focus. Wang Laboratories, for instance, declared bankruptcy after posting an $11 million loss on $1.2 billion in sales and has since restructured itself as a software company. IBM accrued more losses in 1992 than most industry leaders generated in sales revenue.

Strong growth and solid profits enjoyed by most computer manufacturers during the 1980s faded in the early 1990s, as the industry realized a serious reduction in the overall growth of domestic demand. Several factors contributed to the downturn. In addition to the global recession of the early 1990s, manufacturers were beginning to confront the fact that the U.S. computer market was becoming saturated. Also, the shift from high-profit, large-scale proprietary systems to low-margin, open architecture, desktop computers was reducing profit opportunities.

Indeed, inexpensive personal systems that offered computing power similar to that offered by the mainframes of the early 1980s were now viewed as a commodity by many consumers. Rather than purchasing a PC system from a retail outlet at a price of $4,000 or $5,000, many customers in the early 1990s began purchasing more advanced systems through the mail or at discount warehouses for approximately $1,000 to $2,000. This trend only accelerated in the mid- and late 1990s with the explosive growth of Internet shopping (often direct from manufacturers) and the advent of sub-$1,000 PCs.

By most measures, the computer industry had a phenomenal run in the 1990s. Based on estimates by International Data Corp. (IDC), between 1992 and 1999 annual PC shipments worldwide skyrocketed 280 percent, including a 295 percent leap in U.S. shipments. Although global unit growth slipped to single-digit percentage gains in the early 1990s, the late 1990s saw consecutive years of 15 percent or greater increases, culminating in a torrid 20 percent unit rise during 1999.

Still, the financial picture was less triumphant. U.S. industry revenues stalled in the $50 to $55 billion range in the mid- and late 1990s, as price cuts all but washed out gains in unit volume. In 1998, for example, U.S. shipments rose about 14 percent, but revenue only treaded water with a 1 percent uptick, according to a published assessment by Forrester Research.

Current Conditions

The electronic computer industry faced difficult times in the early 2000s, as shipments and shipment values fell. However, research firm Gartner estimated that shipments would increase almost 2 percent in 2002. As the economy improved, a variety of industry analysts forecast that better times were ahead. IDC predicted business-related computer sales would rise almost 6 percent in 2003. As a result of better economic conditions and the need for new computer technology, Value Line expected equipment and software purchases to rise 7 to 8 percent during 2003. Gartner also forecast similar improvements. Worldwide, the research firm expected shipments to increase about 2 percent in 2002 and 7 percent in 2003.

Although price pressures eased somewhat in parts of 1999 and 2000, when a shortage of chips left PC makers struggling to keep up with demand and gave an opportunity to firm up prices, by late 2002 the electronic computer market was characterized by fierce price competition. Since the late 1990s, the industry's pricing climate has been relatively unstable. From 1998 to 2000, reported IDC, average PC prices worldwide skidded 18 percent, to $1,543 a machine. According to IDC, average desktop system prices fell 12 percent in 1999, 7 percent in 2000, and almost 10 percent in 2001. By late 2002, all leading computer manufacturers offered complete systems that cost less than $1,000. For example, Dell offered a desktop system with an Intel Pentium Four processor, a 1.8 GHz processor, and a 15-inch flat panel monitor for $699 after a mail-in rebate. Price competition also was fierce in the market for laptops, where good values also could be found for less than $1,000.

Aside from pricing worries, in the longer term the PC segment faces a potential slowdown, particularly in the United States, as the market for conventional PCs grows saturated and as other kinds of devices like wireless Internet appliances gain favor. Although some 40 percent of the U.S. consumer population didn't yet own a computer by 2002, reaching that market may only yield diminishing returns. In the home market, replacement PCs and second or third PCs for existing users may prove more fertile, but again other, more specialized devices are likely to encroach on PCs in these areas.

One device that may eat away at some traditional PC sales is the tablet PC. These devices, which cost about $2,000 when introduced in late 2000, are lightweight, pen-based computers with handwriting recognition capabilities. Although features vary by model and manufacturer, these devices rivaled low-end laptops in the areas of performance and Internet connectivity. According to estimates from the likes of Gartner and IDC, tablet PC sales were expected to account for less than 2 percent of all notebook sales in 2003. Helping potential sales was the fact that Microsoft developed a Tablet PC edition of its Windows XP operating system, designed for use on tablet PCs from manufacturers like View Sonic, Fujitsu, Hewlett-Packard, Acer, and Motion Computing.

Also contributing to a more fragmented market were handheld computing devices like the Palm Pilot as well as Internet-enabled phones. While these devices were poised to wrest some market share from traditional PCs, a number of limitations were preventing this in the early 2000s. For example, the majority of respondents (82 percent) to a survey conducted by the Yankee Group indicated that they do not use wireless Internet service. A number of different reasons were cited, including slow connection speed, availability, high cost, and difficulty of use. In addition, Business Week revealed other potential limitations to the widespread proliferation of such devices, explaining: "New hybrid voice and data communicators may pack a lot into them, but there's no single device that does everything really well. Each one is missing a feature, whether it's a color screen, an integrated phone, or a keyboard." Thus, consumers were forced to make trade-offs when choosing handheld computing devices.

Mainframes. In the early to mid-1990s, mainframes were roundly derided as archaic beasts, but by 1996 these high-powered creatures found redemption. For one thing, mainframe makers like IBM labored to bring prices down. In the early 1990s, mainframe power cost a steep $100,000 per MIPS of processing power. By 1997 prices were drastically lower, around $10,000 per MIPS, and by 2000 they had plunged to $2,270. At least one analyst believed mainframes could dip to $400 per MIPS by 2003. As prices spiraled downward, steady demand sustained manufacturers. IBM, the U.S. mainframe leader, experienced as much as 60 percent annual growth during the late 1990s in mainframe demand as measured in MIPS—but this barely kept sales level amid tumbling prices. Driving the growth, as companies rushed into e-commerce and other Internet activities, they found they needed mainframes' vast processing speed, storage capacity, and reliability more than ever.

By 2002 some information technology (IT) managers still favored the use of centralized mainframes, citing a number of advantages, including lower human administrative and support costs. However, many organizations were moving away from mainframes, opting instead for network-based and client-server arrangements. According to Standard & Poor's, this was leading to hefty annual price reductions—in the 35 to 40 percent range—and was forcing manufacturers like IBM to produce newer mainframe systems that were more cost effective and easier to use. Adding to the move toward mainframe alternatives was a growing shortage of workers who were familiar with them.

Servers. Much larger than mainframes in terms of revenue, servers are also one of the industry's most diverse categories. By various definitions, anything from a $3,000 souped-up PC to a $1-million mainframe can qualify as a server, depending on how it's marketed and used. Low-end servers, used to power small LANs and low-volume Internet sites, have been the fastest-growing segment. In the early 2000s, the server market suffered along with the rest of the electronic computer industry. Sales fell almost 20 percent in 2001, according to IDC. However, according to eWeek , by November 2002 IDC indicated that the server market had stabilized, and that it was likely on the road to recovery. At this time IBM had the greatest market share (29.8 percent), followed by Hewlett-Packard (27.2 percent), Sun Microsystems (12.1 percent), and Dell (8.7 percent).

In late 2002, the leading server manufacturers were marketing new "blade servers" that held great promise within the industry. As described in the November 26, 2002, issue of InternetWeek , blade servers are "designed to help IT managers cut costs by cramming more computing power into limited space in expensive data centers. Server blades are very thin, rack-mounted servers without onboard storage or power supplies. They're designed to save users costs in real estate, power, and by making storage usage more efficient."

Industry Leaders

Dell. Dell Computer Corp., of Round Rock, Texas, first gained its place in the computer industry as a direct seller of discounted IBM-compatible PCs to businesses. By the late 1990s, Dell had started to embrace the consumer market as well, vigorously pushing its Web site as a convenient way for companies and individuals to order the exact system they wanted. In addition to desktop models, Dell makes notebooks and lower-end servers, and more recently, it has begun to offer Internet hosting and related services, which carry higher profit margins than some of its hardware lines.

Legendary for its efficient inventory and production systems, Dell climbed its way from being the world's seventh largest PC maker in 1992 to become the world's leading producer, with more than 14 percent of the market by 2001. In 2002 the company's revenue totaled $31.1 billion. At that time, Dell employed 34,600 workers. In addition to its headquarters in Texas, Dell operated headquarters in Japan, Europe, and Singapore, as well as manufacturing facilities in Brazil, China, Ireland, Texas, Tennessee, and Malaysia.

Hewlett-Packard. Hewlett-Packard (HP), founded in 1938 and based in Palo Alto, California, is a leading company in PCs, workstations, servers, notebooks, and handheld computers, in addition to being the leading U.S. manufacturer of computer printers. HP is a leader in Unix operating system-based workstations and computers in general, for which it has designed its own microprocessor chips and developed a version of the Unix software.

In May of 2002, HP made waves in the industry by acquiring Compaq Computer Corporation. Before the merger, Compaq recorded 2001 revenues of $33.6 billion and held more than 11 percent of the world PC market. With pre-merger revenues of $45.2 billion, HP held 8 percent of the world PC market. The merger created a new industry heavyweight that competes in a variety of corporate and consumer segments, including digital imaging, digital publishing, infrastructure solutions, and IT services.

Prior to the merger, Compaq Computer Corp. introduced its first IBM-compatible PC in 1982. It managed to pull ahead of the competition through a strong capital base and superior marketing. By the late 1990s Compaq had become the largest PC maker in the world, surpassing IBM. Compaq traditionally focused sales through dealers and distributors, but in face of rising competition, it began expanding its direct sales efforts in 1997. Compaq produced computers in the desktop, laptop/notebook, and server categories. The company's midrange and low-end server lines proved highly competitive with those of IBM and others, and in 1999 Compaq became the dominant maker of entry-level servers. Compaq also greatly strengthened its place in the high-end hardware and services market with its 1998 acquisition of Digital Equipment Corp. (DEC).

IBM. Based in Armonk, New York, IBM remains a mammoth in the global computer hardware, software, and services industries. The company, founded in 1910 as 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 S/360 and S/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 seen as a miscalculation. Between 1985 and 1992, IBM dismissed 100,000 employees and restructured its operations several times.

After a period of losses in the early 1990s, when breakup rumors were rampant, and its mainframe business was thought dead, IBM staged a turnaround in the mid-1990s under its new chief executive, Louis V. Gerstner Jr. It branched further into software, high-end consulting, and systems management services to diversify its revenues. Moreover, it made all of its hardware businesses—from mainframes to PCs—more competitive on price and features. In the late 1990s, its strategy also included aggressive courting of Internet and e-commerce customers, offering Web-oriented servers, like the Netfinity model, and e-commerce services to help other companies build and manage their sites.

Though it lost market share to Compaq and others in the lower-end hardware markets, by 2002 IBM remained the world's largest computer company. In 2001 the company recorded $85.9 billion in sales through a diverse product and service line of PCs, business systems, and service/consulting contracts with other businesses. In 2001 more than 40 percent of IBM's revenues came from its leading Global Services unit, followed by hardware (38.9 percent) and software (15.1 percent).

Apple. Apple Computer is well known for being the most visible dissenter to the Windows/Intel standards that dominate the PC business. Apple, based in Cupertino, California, was a pioneer in PC technology when it was founded in 1977 and, after several short-lived models, introduced its immensely successful Macintosh line of computers in 1984. From the beginning, Apple's marketing efforts were aimed at the school, college, and home markets. It was never as successful in the business market. By the 1990s the position of the rival PCs based on Intel microprocessors and DOS/Windows operating systems had become solidly entrenched, and Apple's market share began to decline.

Apple finally decided to license its MacOS operating system in 1995 to spur the development of Macintosh clones, but the move failed to reverse the company's bad fortune. The computer maker's turning point came in 1997 when cofounder Steve Jobs was brought back as interim chief executive. Jobs halted Mac clone licensing, narrowed the company's sprawling product lines, revamped product marketing, and endorsed new product initiatives like the iMac.

By its fiscal 1998, Apple was turning an annual profit once again and riding on the success of the iMac. The popular model, which featured a simple, colorful design aimed at the consumer and education markets, sold about 1.8 million units in the company's fiscal 1999, almost half of all Apple's unit sales. In the early 2000s the company's products included the PowerMac G3, PowerBook G3, and PowerMac G4. These and other offerings supported sales of almost $6 billion in fiscal 2002.

Sun. Sun Microsystems Inc., based in Mountain View, California, became the leader of the workstation industry segment only five years after the company was founded in 1982 and only six years after the first workstations appeared on the market.

Sun pioneered the open system, Unix-based workstation, as opposed to those that ran only proprietary software. Open standards allow the sharing of software and hardware components among competing workstation manufacturers. Sun has also been a leader in developing computers based on the RISC microprocessor chip architecture. It developed its own improved version of RISC called SPARC (scalable performance architecture), and it licenses the technology to chip manufacturers. Sun's SPARCstation workstation computer, introduced first in 1989 and based on the SPARC technology, became the most popular workstation model.

As growth in the workstation market began to slow in the early 1990s, Sun began to focus more on developing Unix servers and storage systems, and became an important contender in those segments as well. By 2002 Sun was the nation's sixth-largest IT company with revenues of $12.5 billion. This was a sharp decrease from 2001, when Sun recorded revenues of $18.2 billion.

Workforce

The computer industry employs large numbers of electrical engineers, programmers, assemblers, and technicians. In fact, these occupations represent about 30 percent of the industry total. Companies also hire large numbers of people for miscellaneous management, sales, and clerical positions.

Despite the sharp uptrend in the industry's output, U.S. employment in computer manufacturing has been declining since its peak in 1984. Between 1984 and 1995, the computer manufacturing industry lost 32 percent of its workforce, an average annual rate of 3 percent. The computer industry is one of the more highly automated manufacturing industries, and many manual assembly jobs have been eliminated. Other manufacturing and assembly work has been relocated overseas.

As of 2000, computer manufacturing employed 73,730 U.S. workers, about 34 percent of whom were production workers. This reflects a dramatic decrease from earlier years. In 1990, for example, the industry employed as many as 278,500 people, with production workers making up just 25 percent.

Given the ongoing pressure on computer makers' revenues and profits, companies are expected to continue to introduce labor-saving automation and to outsource manufacturing activities to low-cost foreign producers. Furthermore, corporate alliances should moderate the demand for research and development professionals.

While the demand for programmers in the industry was expected to rise slightly, the demand for other occupations will likely fall, according to the Bureau of Labor Statistics. The demand for engineers, for instance, will slip about 3.5 percent by 2005. Likewise, technician and engineering management jobs will fall by 2 to 5 percent. Manufacturing jobs, especially, will disappear. The demand for electrical and electronic assemblers, for example, will likely plummet 55 percent by 2005. Analysts project that assemblers and fabricator positions will decline by about 37 percent, while the demand for production planning professionals will fall more than 20 percent.

Management executive positions are expected to decrease as well—by an estimated 22 percent. Even the number of lower level management jobs is expected to fall by about 20 percent by 2005. The one bright spot in the job picture is an expected 47 percent increase in the demand for systems analysts and computer scientists. This group currently accounts for only about 2.4 percent of employment in the computer and office equipment industries.

America and the World

U.S. computer companies solidified their lead in the global computer industry in the 1990s, aided by aggressive marketing, a strong U.S. economy, and weakness in parts of Asia and Latin America. According to IDC, in late 2001 the four largest U.S.-owned computer makers—Dell, Compaq, Hewlett-Packard, and IBM—controlled almost 40 percent of world PC shipments.

U.S. Export Trends. In 2001 U.S. computer exports fell to $8.8 billion, down from $9.6 billion in 2000. According to the U.S. International Trade Commission, Canada was the largest regional market for the U.S. computer industry in 2001. Canada accounted for approximately $2.0 billion, or 23 percent, of all U.S. computer exports in 2001. Following Canada, Asia and Europe accounted for two-thirds of total exports.

U.S. Import Trends. Imports of computers into the United States fell by 15 percent in 2001, dropping from about $13.6 billion in 2000 to $12.2 billion. Asia has long been the greatest source of U.S. imports, supplying 65 percent in 2001. Japan, Singapore, Taiwan, China, and Malaysia are leading Asian sources. Outside Asia, the United States also imports significant amounts of computer equipment from Latin America and Europe.

Research and Technology

The computer industry has historically benefited from considerable government funds in research and development. This was especially the case during the Cold War. More recently government funding of research in high technology industries has declined, and, according to a study by the Institute for the Future, the industry's own investments in research have not been as great to make up the difference. Furthermore, in the early and mid-1990s computer companies actually decreased the percentage of their revenues that they invest in research and development (R&D). Computer companies still invest considerable resources in new product research and development, but this is mostly for the short term. Long-term basic research in entirely new technologies is not funded as well as it was in the past. Shorter product life cycles and a commoditization of the computer industry have contributed to this trend.

Nevertheless, the computer industry remains very technology-driven. Many of the technological innovations that impact the computer industry are being developed in other, related industries, however. These include faster and more powerful microprocessors developed by the semiconductor industry, the capacity for more memory storage developed by the computer storage device industry, the support of more detailed graphic and video developed by manufacturers of computer monitors and displays, faster communications capabilities between computers developed by the telecommunications equipment industry, and more robust operating systems and sophisticated applications developed by the computer software industry. A trend toward smaller, faster, cheaper machines with greater memory will continue.

One continuing trend that is common among all these aspects of computers and related devices is miniaturization. Beginning with the invention of the microprocessor chip in 1971, and followed by the ability to store more data on smaller data storage media, the development of flat-panel displays, and computer system designs that better conserve space, computers have been getting smaller while retaining or increasing their processing power.

Another trend in computers is the integration of communications and processing equipment technologies that allow computers to act as telephones, answering machines, video-conferencing devices, and television sets. Still cameras, video cameras, and video players may also be attached. Eventually, some argue, the distinction between television sets and computers will be blurred.

Further Reading

"Bringing Mainframe Might to PC Servers." Business Week, 5 July 1999.

Burrows, Peter. "Computers and Chips." Business Week, 10 January 2000.

"BusinessWeek Says 2003 PC Sales Won't Boom." The Online Reporter, 16 November 2002.

"Californians' Online Spending Highest in U.S." Newsbytes, 28 February 2000.

"Computer and Peripherals Industry." New York: Value Line Publishing Inc., 18 October 2002.

"Computers: Hardware." Standard & Poor's Industry Surveys. New York: The McGraw-Hill Companies. 23 May 2002.

Dicarlo, Lisa. "Big Blue Outlines Power Plays." PC Week, 20 December 1999.

Downey, Geoffrey. "Mainframes: Cheaper Than You Think." Computing Canada, 23 August 2002.

"The Great Linux-on-Mainframes Debate Rages On." Client Server News, 19 August 2002.

Green, Heather. "Let's Have a Big Hand for the Handhelds; Now You Can E-mail, Surf and Phone with a PDA, but Peruse the Field Before You Choose." BusinessWeek, 11 November 2002.

"IDC: Server Revenues Stabilizing." eWeek, 27 November 2002.

Kunert, Paul. "Can Tablet PC Make the Leap from Niche to Mainstream?" MicroScope, 12 November 2002.

Lilycrop, Mark. "Nurture Mainframe Skills." Computer Weekly, 16 May 2002.

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