Low End 32 Bit Systems 83-88 Oct83

This IDC Consulting Group report, prepared for Digital Equipment Corporation (DEC) in October 1983, provides a market outlook for low-end 32-bit computer systems from 1983 to 1988. Its primary purpose is to inform DEC's strategic marketing plan for its new microVAX computer system, addressing concerns about market size, demand drivers, competitive landscape, and optimal product positioning.

Key Findings & Projections:

• Market Growth: The 32-bit system market is projected for significant growth, from approximately 25,000 units in 1983 to 346,000 units by 1988 (68% compound annual growth rate), with revenues exceeding $20 billion by 1988.
• Market Evolution: IDC foresees a "melting" of distinctions between low-end mainframes, superminicomputers, minicomputers, and powerful microcomputers, forming a performance continuum. 32-bit architecture is expected to rapidly infiltrate all mid-range market segments.
• Demand Drivers: The demand for 32-bit systems is deemed "virtually inexhaustible," primarily fueled by the increasing need for improved performance in "processor-gobbling" applications (e.g., CAD, technical publishing) that are migrating to smaller systems.
• UNIX's Role: The widespread commercial acceptance of the UNIX operating system is identified as the most crucial factor in driving 32-bit system adoption. UNIX's portability, multi-user/tasking capabilities, and potential for reduced software costs will accelerate user migration.
• Supply Side Dynamics: The market will be flooded with 32-bit systems due to declining memory/storage costs, rising user sophistication, deeper computing penetration, and lower entry barriers for new vendors. Key chip manufacturers like Motorola (68000), National Semiconductor, Zilog, and Intel are advancing 32-bit chip production, with new technologies like CMOS also on the horizon.
• Competition: IBM and AT&T's entries into the 32-bit market are expected to significantly expand the overall market size and shift market shares.

Digital Equipment Corporation's Position & Recommendations:

• Current Perception: As of mid-1983, DEC was perceived as having "stumbled" in the minicomputer/microcomputer market due to a perceived lack of new products across its performance spectrum, a "tarnished engineering image," adherence to proprietary architectures slowing third-party software development, and mismanaged OEM relationships.
• MicroVAX Strategy: IDC advises that DEC's anticipated microVAX (a low-end VAX class product supporting UNIX/VMS) should be priced competitively, ideally in the $6K-$10K range for multi-user versions and $4K-$5K for single-user. A higher-priced entry ($20K-$30K) would have a significantly limited impact on market share and overall market growth. IDC suggests DEC should preempt the market with a slightly lower-priced, quality product distributed widely to establish long-term leadership.

Overall Recommendation: Given the projected shift to a supply-constrained 32-bit market by 1985, IDC recommends that DEC conduct a more comprehensive survey of its customer base and large organizations to better understand actual computing requirements, future computing styles, and the penetration of UNIX to ensure user acceptance of its 32-bit offerings.