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IBM Buys Into Firm Building Supercomputer : Funds Engineer Who Had Project Killed at Cray Research

December 23, 1987|CARLA LAZZARESCHI | Times Staff Writer

In a combination of the biggest and possibly the brightest in the computer industry, IBM said Tuesday that it intends to join forces with supercomputer superstar Steve Chen to develop advanced computing systems.

Details of the pending partnership, which is expected to be created early next year, were not revealed. Under terms of the preliminary agreement, however, IBM said it would provide unspecified initial funding to Chen's company, Supercomputer Systems, of Eau Claire, Wis., in exchange for a non-controlling interest in the business. In addition, the two companies would exchange technical information and assign employees to work together on some projects.

The partnership was immediately hailed as a major coup for both IBM, which had not yet entered the supercomputer market, and Chen, a brilliant 43-year-old engineer who dreams of building a computer that can process information 100 times faster than any now in existence.

Cray Market Share Could Erode

Chen, who was a moving force behind the ascent of supercomputer industry leader Cray Research, left the company three months ago when it cut off funding for a $100-million project he headed. Since then, Chen has been looking for money to accomplish his goal.

"Chen has a lot of credibility and there is no great reason to doubt that he can make this work," said Jeffrey Canin, an analyst with Hambrecht & Quist in San Francisco. "And IBM credibility, marketing ability and money is incredibly important."

Although the impact of the partnership will not be immediately felt, its products could erode the dominant position of Cray, the Minneapolis company that built the first supercomputer and has sold about 60% of the nearly 300 machines in use worldwide. In trading Tuesday on the New York Stock Exchange, Cray lost $2.25 and closed at $70.25. IBM closed unchanged at $118.25.

Beyond the effects on Chen, IBM and Cray, analysts said the pending partnership will make it more difficult for Japanese computer makers to muscle into the market for the huge and extremely fast supercomputers. Although Cray has sold an estimated 175 supercomputers since its inception, Japanese companies, led by Fujitsu and NEC, are poised to make a major move into the market in the 1990s.

Building an Even Faster Machine

"It's premature to say that the deal will cement U.S. supremacy of the market," said Steven Cohen, an analyst with the Gartner Group in Stamford, Conn. "But it's a benefit to have another strong U.S. player."

The pending deal calls for the two companies to develop supercomputers that employ parallel processing technology, a system with up to 100 microprocessors, or "brains," that work simultaneously. The machine's speed is a result of its ability to divide its work into several parts and send them to the individual microprocessors.

According to the two companies, Supercomputer Systems, under Chen's leadership, will be responsible for designing the high-performance computers that he said would be "100 times faster than today's machines."

Although no value was placed on the deal, some analysts speculated that IBM's initial investment would run in the "tens of millions of dollars." An IBM spokesman said the company's deal with Chen did not preclude him from seeking other investors.

The partnership is expected to make business more difficult for Cray, but most analysts said the effect would not be felt for three to five years. At the very least, analysts said, the IBM move would increase competition in the market.

Others suggested that Cray's profit margins, which have been running at an enviable 30%, would slide.

At worst, analysts said, the deal could do to Cray what IBM did to Apple--a reference to IBM's belated but powerful entry into the personal computer market that nearly derailed Apple.

"It could happen, but it would take time," said Gregory Kosinski, an analyst with Dataquest in San Jose.

Cray officials downplayed the impact of the pending partnership.

"There's no sense of a present threat," said a Cray spokesman. "This is not the first time in our history that some company much larger than ours has said it would design a supercomputer."

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