Amdahl Corporation was an information technology company which specialized in IBM mainframe-compatible computer products, some of which were regarded as supercomputers competing with those from Cray Research. Founded in 1970 by Gene Amdahl, a former IBM computer engineer best known as chief architect of System/360, it has been a wholly owned subsidiary of Fujitsu since 1997. The company is located in Sunnyvale, California. Amdahl was a major supplier of large mainframe computers, and later of UNIX and open systems software and servers, data storage subsystems, data communications products, application development software, and a variety of educational and consulting services. In the 1970s, when IBM had come to dominate the mainframe industry, Amdahl created plug-compatible machines that could be used with the same hardware and software as offerings from IBM, but were more cost-effective. Boasting faster uniprocessors, the largest single image, greater performance characteristics and higher reliability, the Amdahl mainframe was compelling to buyers who were willing to consider alternatives to IBM. These machines gave “Big Blue” some of the little competition it had in that very high-margin computer market segment. Proverbially, during this time savvy IBM customers liked to have Amdahl coffee mugs visible in their offices when IBM salespeople came to visit. While winning about 8% of the mainframe business worldwide, Amdahl won a position of market leader in some regions, most notably Charlotte, North Carolina. In the early to mid-1990s, Amdahl won most of the major contracts for mainframes in the Carolinas.
Amdahl launched its first product in 1975, the Amdahl 470/6, which competed directly against high-end models in IBM’s then-current System/370 family. When IBM announced th introduction of Dynamic Address Translation (DAT), Amdahl announced the 470V/6 and dropped the 470/6. At the time of its introduction, the 470V/6 was less expensive but still faster than IBM’s comparable offerings. The first two 470V/6 machines were delivered to NASA (Serial Number 00001) and the University of Michigan (Serial Number 00002). For the next quarter century Amdahl and IBM competed aggressively against one another in the high-end mainframe market. At its peak, Amdahl had a 24% market share. Amdahl owed some of its success to antitrust settlements between IBM and the U.S. Department of Justice, which ensured that Amdahl’s customers could license IBM’s mainframe software under reasonable terms. Dr. Gene Amdahl was committed to expanding the capabilities of the uniprocessor mainframe during the late 1970s and early 1980s. Amdahl engineers, working with Fujitsu circuit designers, developed unique, air-cooled chips which were based on high-speed emitter-coupled logic (ECL) circuit macros. These chips were packaged in a chip package with a heat-dissipating cooling attachment (that looked like the heat-dissipating fins on a motorcycle engine) mounted directly on the top of the chip. This patented technology allowed the Amdahl mainframes of this era to be completely air-cooled, unlike IBM systems that required chilled water and its supporting infrastructure. In the 470 systems, the chips were mounted in a 6-by-7 array on multi-layer cards (up to 14 layers), which were then mounted in vertical columns. The cards had eight connectors that attached the micro-coaxial cables that interconnected the system components. A conventional backplane was not used in the central processing units. The card columns held at least three cards per side (two per column in rare exceptions, such as the processor’s “C-Unit”). Each column had two large “Tarzan” fans (a “pusher” and a “puller”) to move the considerable amount of air needed to cool the chips. In the 580 systems, the chips were mounted in an 11-by-11 array on multi-layer boards called Multi-Chip Carriers (MCCs) that were positioned in high-airflow for cooling. The MCCs were mounted horizontally in a large rectangular frame. The MCCs slid into a complex, physical connection system and the processor “side panels” interconnected the system, providing clock propagation delays that maintained race-free synchronous operation at relatively high clock frequencies (15–18 ns base clock cycles). This processor box was cooled by high-speed fans generating horizontal air flow across the MCCs.
Additional models of Amdahl uniprocessor systems included the 470V/5, /7 and /8 systems. The 470V/8, first shipped in 1980, incorporated high speed 64 KB cache memories to improve performance, and the first real hardware-based virtualization (known as the “Multiple Domain Facility”). Amdahl also pioneered a variable-speed feature on the V5 and V7 systems that allowed the customer to run the CPUs at a higher level of performance when necessary. The customer was charged by the number of hours used. Some at Amdahl thought this feature would anger customers, but it became quite popular as management could now control expenses while still having greater performance available when necessary. Gene Amdahl left the company he founded in August 1979 to start Trilogy Systems. With Gene Amdahl’s departure, and increasing influence from Fujitsu, Amdahl entered the large-scale multiprocessor market in the mid-1980s with the 5870 (attached processor) and 5880 (full multiprocessor) models. Under the leadership of Tom O’Rourke, Amdahl entered the IBM-compatible peripherals business in front-end processors and storage products. These products were very successful for a number of years with the support of Jack Lewis, the former CEO of Amdahl. The reliance upon a single product, within the complex business of mainframes and their equally valuable peripherals, condemned the company’s hardware business when market forces shifted to x86-based processors. This had been foreseen, leading to an increasing emphasis on software and consulting services.
Having abandoned its founding business of manufacturing mainframe computers, Amdahl Corporation has positioned itself in the early 21st century as a developer and implementer of information technology systems and services, and enterprise-level software, and as a provider of professional and consulting services. As an adjunct to its services businesses, the company, a wholly owned subsidiary of Japan’s Fujitsu Limited, continues to offer its customers computer servers and storage systems. Among Amdahl’s subsidiary operations are DMR Consulting Group, Inc., which focuses on e-consulting services and business solutions for both large corporations and Internet startups; Fujitsu Software Technology Corporation, which provides comprehensive software solutions in various areas of data storage; Fujitsu Technology Solutions, Inc., the unit that handles the company’s operations in the areas of servers and storage systems; and trustedanswer.com, a provider of outsourced customer service and customer support services.
Prehistory and the Startup Stage
Amdahl Corporation was founded on October 19, 1970, in Sunnyvale, California, by Gene M. Amdahl. Born in 1922 in South Dakota, Amdahl left his home state to pursue a doctoral degree in theoretical physics. With a knowledge of electronics gained in the Navy and a familiarity with computer programming garnered from a brief course, Amdahl designed and helped construct an early computer known as the WISC (Wisconsin Integrally Synchronized Computer). In 1952 Amdahl joined IBM and became chief designer of the IBM 704 computer, which was released in 1954. In 1955 Amdahl and other systems designers began conceptualizing a new computer for IBM, which they christened the Datatron. IBM’s Stretch, also known as the IBM 7030, was an outgrowth of the Datatron, a computer using new transistor technology. The name Stretch was not an acronym, but rather stood for ‘stretching the limits of computer technology development.’ Although Stretch was a financial failure for IBM, it was valuable as the precursor to the successful IBM System 360. In 1956 Amdahl left IBM; he worked at two other high-technology firms before returning to IBM four years later. Amdahl later became the principal architect for the phenomenally successful System 360, which was introduced in 1964. Amdahl was appointed an IBM fellow, and was thus free to pursue his own research projects. In early 1969, while director of IBM’s Advanced Computing Systems Laboratory in Menlo Park, California, he began to investigate the company’s cost-pricing cycle as it applied to a large computer they were developing. His team concluded that to make the computer pay for itself, IBM would also have to market two scaled-down versions of the advanced technology. IBM management insisted that Amdahl stay with the original plan to create only one large processor, while Amdahl recommended that they shut down the laboratory. The laboratory was closed in the spring of 1969. Over the following few months, Amdahl reviewed the policies that prevented IBM from aiming at the high end of computer development and presented his analysis to IBM’s top three executives. Although the officers agreed with his analysis, they maintained that it would not be in IBM’s best interest to change direction. Amdahl decided to strike out on his own.
Amdahl submitted his resignation to IBM for the second time in September 1970 and founded Amdahl Corporation just a few weeks later. Amdahl took none of IBM’s technical personnel with him when he left; he was joined only by young financial specialist Ray Williams and two secretaries. Amdahl and Williams determined that they would need between $33 million and $44 million to see a product to completion (in fact, it took $47.5 million). They had chosen a difficult year for raising money, as new capital gains taxes and an advancing recession made venture capital scarce. Amdahl and Williams first took their business plan to investment bankers, who rejected their proposal because they felt that Amdahl Corporation could not effectively challenge IBM. The pair eventually received $2 million from Heizer Corporation, venture capitalists in Chicago, the day after spending the last of their own investment. At the same time, three other young California computer companies–MASCOR (Multiple Access Systems Corporation, which was started by staff members who left IBM after the closing of the Advanced Computing Systems Laboratory), Berkeley Computers, and Gemini Computers–had gone bankrupt. Many of their employees joined Amdahl Corporation, forming an impressive technical team. During Amdahl Corporation’s first eight months, it continued the search for more capital. The needed funds came from Fujitsu Limited, a leading Japanese computer manufacturer, which suggested a joint development program and licensing under Amdahl’s patents. This 1971 agreement was accompanied by the $5 million investment that Amdahl needed to complete its second phase of development. In 1972 Nixdorf Computers, a leading German computer manufacturer, agreed to invest $6 million if Nixdorf could represent Amdahl in Europe. Fujitsu also increased its investment, and U.S. investors began to appear. Amdahl amassed a total of $20 million to build a prototype computer and a production facility. Also in 1972, IBM announced the debut of the 370, its first computer with virtual memory, a flexible, advanced memory technology. Amdahl had been developing a computer like the IBM 370, but without virtual memory, and IBM’s introduction forced Amdahl to scrap its initial design. Amdahl Corporation decided to offer stock publicly in early 1973, but could not find an underwriter. The company then experienced delays with the Securities and Exchange Commission until 1974, by which time the stock market had declined, so Amdahl returned to the private market. In August 1974 Eugene R. White, a vice-president at Fairchild Camera and Instrument Corporation, was appointed president of Amdahl Corporation. Effecting changes that helped save the company, White laid off almost half the employees and concentrated on marketing efforts and field support services. He was also instrumental in negotiations with Fujitsu and Heizer to get the funding necessary to complete the company’s first product.
1990s: Shrinking Mainframe Market, Focusing on Services
As the 1990s progressed, the major threat to Amdahl’s viability no longer appeared to be IBM, but the shrinking mainframe computer market. As smaller, cheaper, and more powerful machines became available, Amdahl found its sales slipping. Excessive costs forced the company to stop work on a mainframe Unix product that had long been underway. By September 1993, sales had collapsed. Amdahl’s Zemke (who became CEO in 1992) was quoted in Business Week as saying, ‘It was like Death Valley.’ Amdahl shut down factory lines and cut back the workforce three times that year. The company reported a net loss of more than $575 million for 1993 and revenues fell to $1.68 billion, a 33 percent drop from the record revenues of $2.52 billion the previous year.
Analysts predicted that Amdahl’s continued success would require stronger innovation. Amdahl’s strategy was to offer its customers integrated packages combining its hardware technology with the industry’s most advanced software, as well as stellar support and consulting services. Amdahl’s maintenance, support, and consulting services made up 28 percent of revenues in 1993 and increased another 11 percent in the first quarter of 1994. Margins on those services were almost double the hardware margins, and Amdahl’s service businesses were consistently given the highest ratings in the industry. In the following year, Amdahl entered into new partnerships with three computer firms: Electronic Data Systems, nCube, and Sun Microsystems. The agreement with Electronic Data Systems spawned the Antares Alliance Group, a joint software development group 80 percent owned by Amdahl. Antares was formed to market Amdahl’s Huron and research new software ideas and prototypes for business analysis and modeling programs. Helge Knudsen became director of the Antares Research Institute. In 1994 Amdahl introduced the Xplorer 2000 series. The new product was the result of an alliance between Amdahl, Oracle, and Information Builders, Inc. The partnership was formed, according to Software Magazine, to explore opportunities to create ‘massively parallel database servers and software that will let customers process thousands of transactions per second and share data between MVS and Unix systems.’ Later that year, Amdahl and Sun Microsystems introduced A+ Edition, a group of extensions that allowed Sun’s symmetrical multiprocessing servers to perform more efficiently when a higher number of total possible servers were working. The software accomplished this by providing tuning for database applications with a large number of users and more evenly distributing the workload among the processors in the servers. While the new product was well received, some potential customers expressed concern about the cost for the value. Expanding on its position as a provider of integrated services, Amdahl won a bidding war for DMR Group Inc., acquiring the Canadian firm in November 1995 for about $140 million. DMR provided information technology consulting services as well as systems development, systems integration, and outsourcing services on a worldwide basis. The firm had annual revenues of nearly $220 million, which boosted the share of Amdahl revenue that came from software and services to 40 percent. DMR was combined with Amdahl’s Business Solutions Group to form DMR Consulting Group, Inc., which operated as a subsidiary. Zemke resigned as CEO in March 1996 for ‘personal reasons.’ The move came in the wake of rather dismal results for 1995: net income of only $28.5 million and a further decline in revenues to $1.52 billion. Lewis became CEO once again. Soon thereafter, Amdahl acquired another services-oriented company, Trecom Business Systems Inc., for $145 million. Based in Edison, New Jersey, Trecom focused mainly on designing and providing client-server networks for corporations. Its geographic presence in the eastern and southern United States meshed well with DMR’s strength in the West and in Canada. The firm had annual revenues of $140 million. Trecom was eventually merged into DMR.
Amdahl returned to the red for 1996, reporting a $326 million net loss on revenues of $1.63 billion, partly due to costs related to the integration of its acquisitions. An even larger factor was a $130 million writeoff of outmoded water-cooled mainframe inventory. Amdahl’s mainframes were hurt by IBM’s 1995 introduction of CMOS-based mainframes, which were air-cooled and less costly to operate. Amdahl had to play catch-up in introducing its own CMOS-based models, the Millennium Global Servers, in late 1996. The later months of 1996 also saw Amdahl begin selling a line of Windows NT-based servers called EnVista. Amdahl packaged the servers with software and services related to the Internet, intracompany communications and data sharing, and database applications. In the area of open systems, the company added new storage systems to its product line and began reselling Sun Microsystems’ SPARC servers. Meantime, nearly two-thirds of revenues for 1996 were generated by Amdahl’s software and services operations. By mid-1997, with Amdahl having posted six straight quarterly losses, there was much skepticism about the future viability of the company. Those concerns were laid to rest in September of that year when Fujitsu purchased the 58 percent of Amdahl it did not already own for $878 million. Amdahl was now a wholly owned subsidiary of Fujitsu and could tap into the very deep pockets of the Japanese electronics giant. In the immediate wake of the buyout, David B. Wright was named to succeed Lewis as CEO. Wright had been executive vice-president of the company’s hardware and systems support operations, and his background in services was a key factor in his selection as Amdahl continued to increase its emphasis on software, services, and consulting. DMR in particular was growing at the rapid rate of 30 percent per year and its revenues reached $700 million in 1997. Part of this surge came from the accelerating demand for services related to the fixing or replacement of systems affected by the year 2000 computer bug. In early 1998 Amdahl entered into an alliance with Microsoft Corporation to provide products and services designed to integrate Microsoft’s Windows NT and BackOffice products with mainframe systems. The following year the company acquired Sentryl Software, which developed software for automated storage management systems.
In October 2000 Wright resigned as CEO, with Yasushi Tajiri named interim CEO. Just a few weeks later, the company announced that it was exiting from its founding mainframe business. On the hardware side, Amdahl would now be involved only in the server and storage sectors. The company’s future, in any event, clearly lay in the world of services and consulting. In December 2000 Amdahl announced that it would eliminate nearly one-fifth of its California workforce in connection with its exit from mainframes. At the same time, Fujitsu turned Amdahl into a holding company for several businesses: Amdahl Software; DMR Consulting; Amdahl IT Services, which focused on information technology infrastructure services for large-scale enterprises; and Fujitsu Technology Solutions, which was the company’s hardware arm, selling servers and storage systems. In March 2001 Amdahl Software was relaunched as Fujitsu Software Technology Corporation (Fujitsu Softek), with a mission of providing comprehensive software solutions in various areas of data storage. These moves early in the new millennium continued Amdahl’s transformation from mainframe manufacturer to provider of information technology software, services, and consulting.