The potential for the computer industry is huge. In just ten years between 1951 and 1960, sales of large-scale computers have grown to about $1.5 billion. By 1965, the market is expected to skyrocket to some $4 billion and to about $8 billion by 1970.

Despite their glamour, electronic computers haven't proved profitable for their manufacturers, with the exception of IBM. Makers of giant computers like Sperry Rand have been under particularly heavy pressure because of heavy research and development expenditures. An additional burden of financing has been imposed upon the computer industry by the strong trend toward leasing.

At this point, according to the New York Herald Tribune, "more than three-quarters of all the computers in operation are leased and there seems little likelihood that this ratio will change for some time to come. When costs come down, the computer producers will expand the limits of their market but for the moment they are perfectly content to have most of their dealings with the government and the big corporations."

Development costs on the computers have been huge and, with the notable exception of IBM, probably no other company has been able to make money on them. Sperry Rand's Univac, for instance, is still losing substantial sums, though its sales are up.

Commanding over three-quarters of all computer business, IBM, of course, will be the chief beneficiary of the expected profit breakthrough. Bluest of all blue chips, it is the most popular stock not only with rank-and-file investors, but also with professionals. It is found in the portfolios of some seventy-five investment companies and mutual funds, with shares valued at $170 million, more than their investment in any other single issue.

IBM has won this top recognition largely through its unique ability to buck the normal corporate pattern, accelerating growth despite its increased size. It is common knowledge that as company size increases, growth rate tends to slow. That has happened to all the so-called blue-chip companies. But IBM is the exception. It has more than doubled itself every five years, as is commonly believed, though doubling in five would be quite a growth rate for a company of its size. It was only between 1946 and 1951 that it took IBM that long to double sales—$120 million to $267 million. The next doubling, to $564 million by 1955, was achieved in four years, and the next, to $1,172 million by 1958, in three years.

And even this progression has been overshadowed by the acceleration in earnings and dividends. Over the three periods, IBM registered successive improvements in per-share earnings of 29, 77 and 95 per cent and, in dividends, of 16, 26 and 67 per cent.

IBM's annual growth rate of 20 per cent has dwarfed the 9 per cent of its two nearest competitors, Burroughs and National Cash Register.

There is no question that at their current price range, computers are still a quality or class market, which leaves computer makers free to tinker with their equipment and to improve it all along the line. There's been no freezing of design such as would be dictated by the need to cater to a mass market. Thus, greatly  improved memory drums and a host of other new technical wrinkles have made the machines faster and more reliable.

The market has favored the solid-state transistorized computer which has decided advantages over the vacuum-tube type. Solid-state components take up less space, use less power, are more reliable, and last longer. Second only to IBM in this field is Control Data which, with its annual business still in the $4 million range, has been able to compete directly with the industry giants, especially with its recently introduced 7090 solid-state transistorized computer. It has won widespread recognition for technical excellence, vital to any company in an industry in which advances come almost daily. Control Data appears to be one of the primary beneficiaries of the pronounced industry trend toward solid-state transistorized types.

Other interesting companies include Burroughs Corporation which has been a leading producer of digital computers and input and output systems since its acquisition of Electrodata in 1956. It recently introduced a new concept of electronic data-processing systems which is expected to fully automate the processing of bank checks and accounting records. In recent years, to prepare itself for the great technological revolution which is now taking place in the industry, Burroughs has had greater capital expenditures, percentagewise, than its competitors, which accounts for its erratic earnings since 1948 despite tripled sales. Now, with its capital expenditures steadily tapering off, it should sharply improve its profit margin.

Among the makers of specialized computers is Electronic Associates, whose position in analog computers is said to be comparable to IBM in digital computers.

While digital computers are designed to work with numbers on digits, analog computers are based on the relationship of comparable qualities. Since numbers are at the root of even the most complicated mathematical formulas, the digital computer has a potential as universally applicable as arithmetic or mathematics   itself. On the other hand, the analog computer is a device to translate mathematical relationships into analogous physical relationships, which is most useful in solving engineering and scientific problems.

Important work is being done on the development of computers which combine digital and analog features.

While the computer market is large, the market for its related equipment is even larger. Herein lies the advantage enjoyed by such industry leaders as IBM, Burroughs, and National Cash Register which manufacture a wide range of peripheral equipment used with computers. Such equipment, which needs less costly research, is one of the most profitable segments of the business.

An exciting brand of accessory equipment is the thin-film memory field which appears to represent a climax for stored-program computers. A stored-program computer is an electronic computer with an internal storage system processing an entire program rather than individual bits of information. Early computers used punched cards or paper tape to feed information into the system. Then, a new storage technique was found using magnetic tape, which made possible an input rate fifty to seventy-five times that of cards. The use of tape has considerably improved the ability to store information within the computer memory unit.

Particularly interesting among the recent memory innovations is Telex, Inc.'s Mass Memory Module, a disk-file-type random access data-storage machine, which is in initial stages of production. The data-storage device employs revolving disks as the storage medium. Information is recorded on their oxide surfaces by read—write magnetic recording heads, which do not touch the disks but "fly" on a thin boundary film of air created by the disks' rotation. This technique has made possible faster access than had previously been achieved. As a result, it provides sub-stantially larger storage capacities as well as faster accesss, at a lower cost per unit of information stored.

The advance news of this data-storage device had caused quite a stir in the computer industry and was evidently behind the rapid movement of the stock from the 16 level in June 1960 to the 40 level in August 1960.

Then, in early December 1960, Sperry Rand announced its new Univac 1107 which was said to represent the first commercial use of thin magnetic film as a memory unit. The system, it said, opened the possibility of computer speeds measured in billionths rather than millionths of a second. Remington Rand Univac disclosed its work on the thin film memories at the prompting of the New York Stock Exchange, after Sperry Rand shares had risen sharply on heavy volume.

Close on Sperry's heels, Minneapolis-Honeywell announced the development of a thin-film memory device for its computers. Thin-film memories use a deposit of metal dots on thin glass film to store data. "We have definitely achieved nanosecond (billionth of a second) speeds with these films," said the company statement. However, it played down the significance of commercial thin-film applications.

Another fast-growing factor in the peripheral data processing equipment field is Anelex Corporation whose Printers and Print Stations, according to Edward P. Thorsell, Jr., of Putman & Co., investors, "comprise the leading independent line of Electronic Data Processing system output equipment.

"In an industry which is expected to grow rapidly over the next decade," said Mr. Thorsell, "Anelex is a specialist with strong possibilities for exceeding the records of its industry.

"Of particular importance," continued the Putman analyst, "is the rapid expansion of the data processing market Anelex serves—as more industries turn to EDP, a wider variety of problems with ancillary equipment is bound to arise." Mr. Thorsell, however, made sure to stress that the stock is highly speculative because of its smaller over-all position and limited product lines.

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