Science: Rich pickings for a chosen few: Kim Wilson looks at the winners among personal computers

IN THE past two years, the personal computer has, almost imperceptibly, become a consumer product. Most computer manufacturers have been struggling to cope with the change, but two companies, Compaq and Apple, have emerged as likely leaders in a new era of personal computing.

While the computer giant IBM is struggling to regain profitability, and scores of other, less well- known companies are fighting for survival in a crowded market, Compaq and Apple have shown that there are rich pickings for organisations that can find innovative formulas to achieve a good market share.

At one time both companies were being written off, but each has come back to take a strong position in the market. They have much in common, and both have learnt the same lessons. They have succeeded in moving from a reliance on limited sales of specialist, high-priced computers to a new strategy of low-cost, high-volume products for the mass market. They have realised the importance of developing retail outlets and competing with experienced consumer-oriented companies such as Amstrad.

The results have been dramatic: while IBM has recently announced the biggest financial loss of any company in history, Compaq revealed that it had sold twice as many computers as the year before and had increased sales by 63 per cent. Apple has reported its first dollars 2bn ( pounds 1.4bn) financial quarter.

IBM is still clinging to top position in retail sales in Britain, with an average of 17 per cent over the past year, but Compaq is knocking at the door with 15 per cent. Apple is at 11 per cent. A series of recent technology agreements between IBM and Apple will probably strengthen the latter's position. These three companies are on their own at the top - no other organisation has sales into double figures.

IBM has suffered from its reliance on old-style mainframe computers, and much of its recent loss was due to the costs of cutting jobs and restructuring; industry analysts are divided over whether it will be able to recover fully.

While corporate sales are still vital for both Compaq and Apple, the emerging consumer market is the major growth area for personal computers. Their new approach has led both companies to bring out low-cost computers for small businesses, home business and home entertainment, providing the customer with a machine that bears a famous name and has a reputation for excellence but which costs only slightly more than less-known rival systems.

Compaq's big success has been the ProLinea range of PCs, while Apple has developed several models, including the Performa range of ready-to-use Macintosh computers. In this market sector, price is just as important as the added value of having a well-engineered computer from an established company.

'New users are coming into the market because prices have fallen and manufacturers have repackaged personal computers to make them easier to use,' Howard Meredith, a senior research analyst at market analysts Romtec, says.

Apple's Performa series continues the trend: it comes pre-loaded with business software and has additions to its system software that make it almost idiot-proof. 'Apple brought out commodity products before most other people, and they now have a good product range in place,' Paul Gardner, UK director of Apple Business Services, says. 'We learnt to understand the importance of recognising and anticipating market trends and getting new products to market fast.'

By the end of this year half of Apple's sales will come from products launched during the past 12 months. Compaq says that it learnt the lessons later than Apple. 'The market had become very knowledgeable and also very price-sensitive,' says Vesey Crichton, industry marketing manager for Compaq. 'People were no longer prepared to pay excessive premiums for the best machines.'

The company tried to get costs down, but failed to halt its slide into loss until the chairman came up with a dramatic solution: he sent two middle managers on a mission to find out how the makers of cheap 'PC clones' were able to make and sell computers for so little. They built their own quality PC from off-the-shelf components for a fraction of the cost of a brand-name Compaq system.

The project resulted in corporate blood-letting and a new approach to making quality products. 'Take the computer's metal case,' Mr Crichton says. 'The manufacturer would ask within what tolerance he could make the corners of the box, and we would say, 'No tolerance at all'. This was a pointless obsession with detail - it made no difference to the quality of the computer.'

One distinguishing feature of all three companies is a large investment in research and development. Apple has developed a simple-to-use colour system for desktop publishing and will soon introduce more products for mobile computing. In July, Apple is expected to introduce its first Personal Digital Assistant, a hand-held notepad device called Newton, which will function almost like an 'intelligent' electronic secretary.

Mr Crichton says that small, portable devices such as this will open up new markets for business and consumer computer products over the next few years: 'Computer systems are still archaic, because they have had to be linked to old-fashioned mainframe computers. That is changing rapidly.'

Compaq recently launched a device to link portable computers through the cellular phone network, is developing its own Personal Digital Assistant, and anticipates voice-operated computers.

The companies that develop these new computer technologies will be in the best position to survive and prosper. 'Anyone can put together a desktop PC,' Mr Meredith says, 'but it's very much harder to produce a clone notebook computer and even harder to copy the new products that will be coming out. Any company that wants to stay on top must continue to invest.'

(Photograph omitted)