COMPETITION TOUGHENS FOR NEAR-SUPERCOMPUTERS
An announcement by Alliant Computer
Systems Inc <ALNT> of a new low-end near-supercomputer and <ETA
Systems Inc>'s unveiling of a high-end machine in the same
category show competition is stiff in this market, industry
analysts said.
     Consultants said Alliant's new FX computer, aimed mainly
at scientists and researchers will be priced between 100,000
and 200,000 dlrs and will be faster than anything else in that
price range. But they said Alliant is trying to bring prices in
line with discounts it now gives many of its customers.
    "(The new FX) is significant to the extent that it
represents Alliant's recognition of the reality of the
marketplace," said a source who was briefed by Alliant on the
new computer. "The list price is more in line with what they are
seeing anyway."
    Near-supercomputers, often called mini-supercomputers,
resemble the massive supercomputers favoured by scientists but
are much less expensive and a quarter as powerful.
    Supercomputers cost well over one mln dlrs but
mini-supercomputers are generally priced between 200,000 dlrs
and one mln dlrs.
    Most near-supercomputers use a new computer architecture
called parallel processing, in which a problem is broken up
into segments and each segment assigned to a different
processor. General-purpose mainframe computers have just one
processor that works on one segment of a problem at a time,
making them too slow for complex scientific problems.
    Near-supercomputers have been in existence for only about
five years and the two leading manufacturers, Alliant and
Convex Computer Corp (CNVX), held two of the most successful
initial public offerings last year.
    But Alliant and Convex, a Texas company, are also facing
some 15 companies competing for between 200 and 250 mln dlrs in
sales this year, and the result has been lower prices and
shrinking profit margins.
    Heavy discounting, slow acceptance outside the scientific
market, lack of software and too many competitors also have
made analysts reassess prospects for near-supercomputers.
    Jeffrey Canin, computer analyst with Hambrecht and Quist,
said he just added a year to his original growth estimates for
the industry. He now expects sales to reach 1.1 billion dlrs in
1991, instead of 1990.
    In recent weeks both Alliant and Convex have said their
third quarter earnings would be reduced by "competitive pricing
pressures."
    Alliant said profits for the period will be about five
cents a share against eight cents last year, although revenues
for the period rose to 14.2 mln dlrs from 8.6 mln.
    Convex said third quarter earnings will be less than the
second quarter's 12 cents a share while revenues will rise
almost eight mln dlrs over the 1986 third quarter to between 18
and 18.5 mln dlrs.
    Until now, most of the price discounting occurred at the
bottom of the product line in near-supercomputers, but ETA
System's announcement could start squeezing Convex and Alliant
from the top, analysts said.
    ETA, a subsidiary of Control Data Corp <CDC>, introduced
two machines that are really full-blown supercomputers similar
to those sold by Cray Research Inc, the world's biggest
supercomputer maker, but at half the price of Cray's cheapest
model. The ETA-10 Model P costs 995,000 dlrs and the Model Q is
1.2 mln dlrs.
    ETA officials told a news conference the new machines may
be classified as supercomputers but they are aimed directly at
the upper end of the product lines from Alliant and Convex.
    Acceptance of ETA's product could be hampered by lack of
software, analysts said, noting this is an issue that faces all
parallel processor makers to some degree.
    Because parallel processing is a new architecture that has
yet to be widely used, third party software vendors have been
slow to write programs for the near-supercomputers.
    ETA, however, "offers a low priced entry into supercomputers
for some customers," one consultant said.
    Canin cautioned that "the price pressures will continue for
some time" and estimated that five percentage points have been
knocked off the gross profit margins of both Convex and Alliant
this year by price discounting.
    Next year, he said, the two companies will face a new set
of problems as they both introduce their second generation of
products. "I am always cautious about the first major product
transition."
 REUTER
