New order forces the pace of change .sx Alan Cane and Louise Kehoe look at the shake-up in the world's personal computer industry .sx The goalposts in the world's $9bn personal computer business have shifted with a speed which has left the main players shaken and disorientated .sx A grim certainty is now sinking in that the favourable conditions of the 1980s , in which the personal computer industry was born and flourished , will never return .sx It is forcing the leading companies to make strategic changes as quickly as corporate structure and culture will allow .sx For many , it may not be quick enough .sx International Business Machines , the world's largest computer manufacturer and the market leader in personal computers , is setting the pace .sx Faced with a sharp decline in market share as Far Eastern suppliers and others cut into its industry leadership with high-quality copies of its desk - top machines , 'Big Blue' this week forged a pioneering , 10-year agreement with Intel , a leading semiconductor company .sx The deal is to create a complete microcomputer on a single silicon chip .sx With this move , IBM is clearly signalling its intention to own and control tomorrow's personal computer industry .sx Intel's microprocessors are used in close to 90 per cent to personal computers .sx The new single-chip microcomputer will be based on the most advanced member of this range .sx Increasingly , manufacturing a personal computer involves little more than assembling microprocessor and memory on printed circuit boards in a suitable case .sx Disk drives , keyboards and displays are bought as standard components .sx The microprocessor maker , therefore , not only controls the capabilities of the machine but has the largest claim on the profits from the system .sx Through its deal with Intel , IBM is tapping into the only source of real profitability in personal computer hardware and ensuring that competitors will have to follow its lead - the cost of designing and manufacturing a competitive microprocessor of the complexity of the Intel device is likely to prove prohibitive for all but electronics companies with revenues of about $20bn a year .sx IBM's latest initiative follows a remarkable bargain struck earlier this year with its arch rival Apple Computer which could give it leadership in the fast-growing workstation business , while helping Apple to a larger share of the corporate pc market .sx Mr Aaron Goldberg , International Data Corporation's pc expert , sums up the alliance thus :sx " The Apple/IBM agreement is an excellent example of how the industry's internal power structure will undergo fundamental change .sx This elemental change will bankrupt at least 10 major companies .sx " .sx IBM , however , with total revenues of more than $60bn last year , is probably the only computer company with financial resources and marketing muscle successfully to undertake such mould-breaking initiatives .sx The state of the personal computer business is better demonstrated by the plight of other large players .sx Compaq , for example , the US personal computer company which epitomised meteoric growth in the 1980s , has been forced to make sweeping changes in virtually every respect of its business including pricing , distribution , and customer support .sx Its plans were made public yesterday at the end of two weeks in which it reported its first quarterly loss .sx It also announced the loss of almost 25 per cent of its share price , the dismissal of Mr Rod Canion , its founder , president and chief executive , and the resignation of five other top executives .sx The reshaping of Compaq involves abandoning many principles on which the company built its success .sx It will no longer concentrate on the top end of the market , representing itself as a quality alternative to IBM , nor will it sell exclusively through dealers .sx Instead it will seek cheaper ways of distributing its products including mail order , a technique used successfully by companies such as Dell Computers which compete on price and quality of support alone .sx That the pc industry is in trouble is not in question .sx Why it should be in such a predicament is another matter .sx The problems of the traditional computer industry have been well rehearsed .sx Large manufacturers' profitability has been destroyed by the falling cost of technology leading to increased competition and moves among customers to systems composed of standard components from different manufacturers .sx All this has made the industry's conventional large , expensive direct sales forces a hopelessly uneconomic way of distributing small , low-cost computers .sx What has happened to cause today's hiatus ?sx Three things :sx A sharp fall in growth .sx Dramatic price declines .sx Customer resistance .sx The personal computer business is now essentially a commodity business and obeys the commercial rules governing items such as televisions or video-recorders .sx Where there are too many suppliers and too much undifferentiated product , there will inevitably be a shake-out .sx So it is proving .sx Sales growth in the industry , which was sustained at an average annual rate of 20 per cent or so throughout the 1980s , has slowed abruptly because of the recession in the US , part of Europe and Australasia .sx This has masked the fact , however , that the market is maturing rapidly and in many business sectors is close to saturation .sx The replacement market already represents 50 per cent of business across the board .sx By 1995 it will represent close to 80 per cent of all pc sales .sx In the US , unit sales are up by perhaps 3 per cent this year while prices are falling at between 25 and 60 per cent a year .sx This pattern is being duplicated in Europe , suggesting the market is contracting in dollar terms .sx It is causing chaos in the distribution channels both in the US and Europe .sx No dealer can survive on the discount available from manufacturers .sx Average gross profit margins for dealers are coming down from more than 30 per cent to between 12 per cent and 15 per cent .sx They either have to sell in volume or add value through specialised software and services if they are to survive .sx Prices are being cut savagely , because of the rapidly declining cost of technology and because of deep discounting to win market share .sx This week alone , Toshiba of Japan announced price cuts of 30 per cent across its range in the UK ; Compaq said it would cut 25 per cent off its notebook computers in the US ; while Copam , a leading Taiwanese maker , said it would sell a top-of-the-line machine for under pounds2,000 .sx A similar computer from IBM is listed at more than pounds8,000 .sx Of just as much significance is the decline in brand loyalty .sx Customers no longer believe they are buying anything extra in quality or service by purchasing an IBM or Compaq computer raher than a Copam or Dell .sx They are buying on price .sx The move to a commodity market stocked with generic products which are difficult to distinguish is virtually complete .sx What are the consequences for personal computer makers of the new order ?sx First , they will have to find ways of taking cost out of the manufacturing process .sx Asian manufacturers combining low labour costs with highly automated assembly have an advantage here , as the Taiwanese group Copam illustrates .sx Second , they will have to seek economic ways of distributing products - such as retail chains selling 'own brand' pcs , mail order like Dell or computer superstores .sx Third , they will have to seek new ways of differentiating their products from their competitors - through marketing if not technology .sx Last month's big US personal computer industry show , Comdex , was marked by an air of desperation as makers attempted to persuade customers , to little avail , that there were genuine differences between their products .sx Performance no longer counts because everybody is using the same sets of silicon chips .sx There are new technologies in the wings which offer some possiblity of differentiation - pen-based computers , for example , or multi-media systems combining video , graphics , sound and processing in one unit .sx The speed of technical change is so rapid , however , that success in any of these technologies is unlikely to give any one company an advantage for long .sx Industry leaders aim , however , to expand the pc market by giving the personal computer a much broader appeal .sx " In the long term there are real growth opportunities in personal computers , " says Mr James Cannavino , head of IBM's personal computer business .sx " We have only begun to scratch the surface .sx " .sx Yet to reach a wider audience , he adds :sx " The personal computer has to compete with the television .sx We have to make kids want to turn on the computer rather than picking up the TV remote control .sx " .sx Fall in consumer spending leaves Whitbread lower .sx By Philip Rawstorne .sx WHITBREAD , the UK brewer and retailer , yesterday reported its first fall in profits for 16 years under the impact of the recession .sx Pre-tax profits for the six months to August 31 fell 7 per cent from pounds152 .sx 8m to pounds142 .sx 5m due mainly to the decline , in real terms , of customer spending .sx Bad weather and budget tax increases had added to the difficulties , Mr Peter Jarvis , chief executive , said .sx Beer volume sales for the industry as a whole were down 7 per cent - the worst fall for more than 40 years - and the company has made pounds6m provision against the risk of bad debts among its pounds180m free trade loans .sx The outlook for such debts appeared to have worsened in recent weeks and the full year's provision was likely to be greater than last year's pounds8m , he said .sx Despite the tough trading conditions , Mr Jarvis claimed the company had shown considerable resilience .sx It had out - performed the market in managed pubs , restaurants , and shops .sx " I am confident that once there is the slightest hint of sustained economic upturn , we shall return to our pattern of growth , " he said , but he warned that there had been no sign of recovery in the last two months .sx Turnover for the six months rose by 2.5 per cent to pounds1 .sx 06bn ( pounds1 .sx 04bn ) but trading profit declined 2 per cent to pounds139m to pounds136m .sx Fully diluted earnings per share fell from 24.68p to 23.32p but the interim dividend is raised to 4.55p ( ) .sx The Whitbread beer company lifted turnover to pounds449 .sx 4m ( pounds442 .sx 8m ) but profits , hit by the bad debts charge , were 5 per cent lower at pounds39 .sx 1m , against pounds41 .sx 3m. Overall volume sales fell by 6 per cent , reflecting the sale of 350 pubs and poorer business in the tenanted and take-home trades ; but volumes in the free trade were more than 6 per cent higher .sx Boddingtons bitter sales increased by 40 per cent and Murphy's stout by 12 per cent .sx Profits from the Pub Partnership leased estate rose from pounds32 .sx 4m to pounds33 .sx 7m on turnover pounds15 .sx 2m lower at pounds127 .sx 4m. The managed retail division increased turnover from pounds625 .sx 9m to pounds665 .sx 9m , but profits fell 9 per cent to pounds61 .sx 7m ( ) .sx Profits were 20 per cent ahead in the Brewer's Fayre and Beefeater pubs .sx The acquisition of GrandMet's Berni Inns , now being absorbed into Beefeater , pushed interest charges up from pounds7m to pounds17 .sx 4m. Apart from the budget Travel Inns , where the occupancy rate was higher than 80 per cent , the hotels division had a difficult period with profits 35 per cent lower .sx Pizza Hut increased sales and market share but profits fell .sx The Threshers off-licence chain improved sales by 3 per cent and profits by 8 per cent .sx Profits from property disposals increased by pounds4 .sx 7m to pounds17 .sx 9m. The company has now sold 500 pubs and another 600 will be sold in the next six months .sx Stones sign for Virgin .sx VIRGIN RECORDS has concluded an agreement with the Rolling Stones who were previously contracted to Sony Music .sx The agreement takes effect in 1993 and is believed to involve payment to the group of $30m-$40m , writes Michael Skapinker .sx The Rolling Stones have undertaken to produce three new albums for Virgin .sx From March 1993 Virgin will also acquire the group's back catalogue from 1971 onwards .sx Virgin would not disclose details of the agreement but it is believed the company will retain the rights to the back catalogue until all advances paid to the Rolling Stones have been recouped .sx Mr Keith Richards , one of the members of the group , has had a contract with Virgin as a solo artist since 1988 when the company released his Talk is Cheap album .sx