supercomputer business january 11, 1985 rtpf' · pdf filewith regard to supercomputer...

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PRESENTATION TOM^CBOARD OF DIRECTORS

SUPERCOMPUTER BUSINESS

JANUARY 11, 1985 rtpf'R. M. PRICE ^ ^ \J /

0"INTRODUCTION

[PASS OUT OVERVIEW OUTLINE - REVIEW IT AND PLANS FOR DISCUSSING

THE TOPICS OVER THE COURSE OF THIS YEAR'S BOARD MEETINGS]

THE FIRST TOPIC I'LL COVER IN THESE DISCUSSIONS IS THE SUBJECT

OF SUPERCOMPUTERS, THE MARKET AND TECHNOLOGY RISKS, AND AN

OVERALL ASSESSMENT AND OUTLOOK FOR ETA. IN THIS DISCUSSION, AS

IN SOME OF THE OTHERS, WE WILL ALSO DISCUSS THE FINANCING

IMPLICATIONS OF OUR PROJECTS AND PROGRAMS.

THE MOST SIGNIFICANT FACT — IN FACT, PROBABLY THE ONLY ONE —

WITH REGARD TO SUPERCOMPUTER DEVELOPMENT AND MARKETING TO

REMEMBER IS THAT IT IS HIGH RISK -- VERY HIGH RISK. CONTROL

DATA HAS PERSISTED AND BEEN SUCCESSFUL IN THIS MARKET AS MUCH

FOR THE REASON OF UNDERSTANDING THE DYNAMICS OF THIS WHOLE

PROCESS AS THE TECHNOLOGICAL COMPETENCE OF OUR PEOPLE. AND WE

HAVE HAD HIGHLY COMPETENT, TECHNICAL PEOPLE BECAUSE HIGH STAKES

GAMES ATTRACT SUCH PEOPLE.

R M Price CDC speeches Charles Babbage Institute <www.cbi.umn.edu>

FOR YEARS SCIENTIFIC AND ENGINEERING COMPUTING IN GENERAL AND

SUPERCOMPUTERS IN PARTICULAR WERE LOOKED UPON AS A BACKWATER OF

THE INDUSTRY. NOW, AFTER AN HIATUS OF ALMOST TEN YEARS,

ATTENTION HAS ONCE AGAIN BEEN FOCUSED ON THIS VITAL ARENA OF

THE COMPUTING BUSINESS -- SUPERCOMPUTERS. BEGINNING WITH U.S.

GOVERNMENT OFFICIAL CONCERNS FOR THE JAPANESE NATIONAL ASSAULT

ON THE SUPERCOMPUTING MARKET IN 1982, A STRONG TIDE OF SUPPORT

FOR RESEARCH, DEVELOPMENT, AND ACQUISITION BY A WIDE VARIETY OF

END USERS HAS BECOME EVIDENT. I WON'T REPEAT IN DETAIL THE

RATIONALE FOR ESTABLISHING ETA IN 1983 AS THE VEHICLE FOR

PURSUING THE SUPERCOMPUTER PART OF OUR BUSINESS, BUT YOU WILL

RECALLD THAT IT WAS FIRST AND FOREMOST TO ESTABLISH THE

NECESSARY ENVIRONMENT FOR FUTURE SUCCESS AND SECONDLY TO

ADDRESS BOTH THE FINANCIAL AND FINANCING IMPLICATIONS OF THE

FUTURE ROUNDS OF SUPERCOMPUTER DEVELOPMENT.

NOW THAT ONE-THIRD OF ETA'S FIRST PRODUCT DEVELOPMENT HAS

ELAPSED, THE COSTS, OPPORTUNITIES, AND RISKS OF THIS VENTURE

CAN BE ASSESSED FROM A MORE CERTAIN PERSPECTIVE. I WILL DO IN

AN OVERALL CONTEXT OF THE "SUPERCOMPUTER BUSINESS."

[OVERHEAD PROJECTOR ON - TITLE SLIDE - THE SUPERCOMPUTER

BUSINESS]


TO VIEW CURRENT SUPERCOMPUTING IN PERSPECTIVE, IT IS HELPFUL TO

LOOK BACK AT THE NOT-SO-BRIEF HISTORY OF THIS RARIFIED AND

SOMEWHAT ESOTERIC SEGMENT OF THE BUSINESS. SINCE THE ENIAC

COMPUTER, THERE HAVE BEEN NUMEROUS SYSTEMS WHICH COULD BE

CLAIMED TO BE "THE FASTEST MACHINE IN TOWN" FOR A GIVEN ERA.

WE HAVE CHOSEN HERE TO LIMIT OUR DISCUSSION TO THE MOST

SIGNIFICANT DEVELOPMENTS OF COMPUTERS WHICH ASPIRED TO OR

ACHIEVED THE DISTINCTION OF BEING EXTRAORDINARILY POWERFUL FOR

THEIR TIME. IN SOME CASES, THE PUBLICITY AND FINANCIAL OUTLAYS

EXCEEDED THE PERFORMANCE GOALS, IN TERMS OF HISTORICAL

SIGNIFICANCE OF A GIVEN PROJECT.

AT THIS POINT, I SHOULD POINT OUT THAT IN BUILDING THE MOST

POWERFUL COMPUTING SYSTEM POSSIBLE FOR A GIVEN STATE OF BASIC

CIRCUIT TECHNOLOGY, THERE IS AN EXTREMELY SUBTLE AND CRITICAL

BALANCE WHICH MUST BE STRUCK BETWEEN ARCHITECTURE AND CIRCUIT

TECHNOLOGY. IN OVERSIMPLIFIED TERMS, IT IS POSSIBLE TO

CONCEIVE OF DESIGNS FOR WHICH THERE IS NO PRACTICAL POSSIBILITY

OF IMPLEMENTING IT GIVEN THE STATE OF THE ART. ON THE OTHER

HAND, TRYING TO ANTICIPATE TECHNOLOGICAL DEVELOPMENT AND

DESIGNING AROUND ANTICIPATED FUTURE DEVELOPMENTS, CAN AND HAS

LED TO AN ABSOLUTE DEAD END. THE PAST IS REPLETE WITH EXAMPLES

OF BOTH.


AS SOME OF YOU KNOW, THE SUPERCOMPUTER STORY REALLY BEGINS WITH

THE PARALLEL EFFORTS OF IBM AND UNIVAC IN THE MIDDLE 1950S

WHICH YIELDED THE LARC AND STRETCH AT LIVERMORE AND

LOS ALAMOS. (THESE WERE PRECEEDED, HOWEVER, BY AN ENGLISH

DEVELOPED COMPUTER CALLED ATLAS, WHICH ANTICIPATED MANY FUTURE

DESIGN FEATURES.) ANYWAY, LARC AND STRETCH WERE SHARED RISK

DEVELOPMENTS, WITH THE GOVERNMENT CONTRACTING FOR THE

MACHINES. THE VENDOR'S RISKS WERE PRIMARILY ATTENDANT TO

AGREEING TO A FIXED PRICE AND GUARANTEE OF COMPLETION OF THE

CONTRACT. BOTH THESE EARLY PROJECTS SUFFERED FROM THE SOON TO

BE FAMILIAR PHENOMENA IN SUPERCOMPUTER DEVELOPMENT OF

UNDERESTIMATING COMPLEXITY AND TECHNOLOGICAL CHALLENGES. THE

RESULT WAS LATE DELIVERY, UNDER PERFORMANCE, AND COST

OVERRUNS. ALTHOUGH IN BOTH CASES SOMETHING WAS FINALLY

DELIVERED, BOTH ATTEMPTS CAN ONLY BE CLASSED AS FINANCIAL

DISASTERS.

[OVERHEAD - SLIDE #2 - SUPERCOMPUTER PERFORMANCE]

THE UNQUESTIONED BEGINNING OF SUPERCOMPUTERS AS A CLASS, OF

COURSE, CAME IN 19 64 WITH THE DELIVERY OF THE INITIAL CONTROL

DATA 6600 MACHINES. IT WAS IN CONNECTION WITH THIS EVENT THAT

THE TERM "SUPERCOMPUTER" FIRST CAME INTO USE. THE GREAT

SUCCESS OF THE 6600 HAS OBSCURED A CRUCIAL MATTER. IT WAS

DESIGNED TWICE. THE FIRST TIME SEYMOUR CRAY — IN TRYING TO

ANTICIPATE CIRCUIT TECHNOLOGY — DEVELOPED A FLOP. HE HAD TO


START OVER. ALSO LOST IN THE MISTS OF THE PAST IS THAT EVEN

AFTER A SUCCESSFUL DESIGN WAS COMPLETED, THE MACHINE COULDN'T

BE PRODUCED IN ANY VOLUME AND ULTIMATELY IT WAS IN EFFECT

DESIGNED A THIRD TIME. ON TOP OF THAT, ITS DESIGN

PECULIARITIES WERE SUCH THAT THE MOST COMMON COMPLAINT FOR THE

FIRST FIVE YEARS OF ITS EXISTENCE WAS THAT CUSTOMERS COULD IN

PRACTICE ONLY REALIZE 30-40 PERCENT OF ITS POTENTIAL POWER.

NEVERTHELESS, THE SUPERCOMPUTER ERA WAS LAUNCHED. THE

REALIZATION OF COMPUTATIONAL RATES IN THE "MEGAFLOP" RANGE LED

IMMEDIATELY TO DEMANDS BY THE NUCLEAR RESEARCHERS FOR EVEN

GREATER HORSEPOWER INCREASES FOR THE NEXT GENERATION. THUS,

HAVING HARDLY DIGESTED THE POTENTIAL OF THE 6600, THE

GOVERNMENT LABS SET ABOUT PLANS FOR SPECIAL PURPOSE

"MULTIPROCESSORS" AND "VECTOR PROCESSORS" TO DEAL WITH THEIR

PROBLEMS. IT WAS THIS PLANNING WHICH LED TO THE TEXAS

INSTRUMENTS "ADVANCED SCIENTIFIC COMPUTER," THE BURROUGHS

"ILLIAC IV AND THE CONTROL DATA "STAR-100" PROJECTS. THE HOPE

OF DEVELOPERS AND CUSTOMERS ALIKE WAS THAT THESE MACHINES WOULD

BE AVAILABLE AS EARLY AS 197 0-197 2. SUCH WAS NOT TO BE THE

CASE.

WITH THE ADVENT OF ITS NEW 360 COMPUTERS IN THE MIDDLE 60S, IBM

HAD ALSO ENTERED THE SUPERCOMPUTER ARENA WITH ITS

360-90 SERIES. IT WAS SUCH AN AWFUL FAILURE THAT COUPLED WITH

ILLEGAL MARKETING PRACTICES, THEY GOT THEMSELVES A LAWSUIT.


MEANWHILE, SEYMOUR WAS DESIGNING A NEW MACHINE — THE 6800.

THE MACHINE WAS TO BE FOUR TIMES AS FAST AS AND A

STRAIGHTFORWARD EXTENSION OF THE 6600. IT TOO FAILED. ONCE

AGAIN WE STARTED OVER AND BY USING A DIFFERENT DESIGN --

INCOMPATIBLE WITH THE 6600 -- SUCCESS WAS ACHIEVED. THIS

COMPUTER WAS CALLED THE 7600 AND ENJOYED AN EXTRAORDINARILY

LONG RUN AS THE WORLD'S MOST POWERFUL COMPUTER.

THE REASON FOR THAT LONGEVITY WAS THAT THE TI-ASC EFFORT FAILED

AND WAS ABANDONED. THE ILLIAC-IV FAILED AND WAS ABANDONED.

THE STAR FAILED AND WAS REDESIGNED IN STAGES UNTIL FINALLY

TODAY'S CYBER 205 APPEARED.

MEANWHILE, SEYMOUR'S EFFORT TO BUILD THE FOLLOW-ON TO THE

7600 — A MACHINE TO BE CALLED THE 8600 ALSO FAILED ~ THIS

TIME, AS WITH THE 6600, IT WAS THE TECHNOLOGY SELECTION. BUT

THIS TIME THE SELECTION WAS TOO CONSERVATIVE RATHER THAN TOO

AMBITIOUS. SEYMOUR QUIT, TOOK A YEAR OFF, WENT SCUBA DIVING

AND DECIDED TO USE A DIFFERENT TECHNOLOGY. USING THE DESIGNS

DEVELOPED IN THE STAR (AS WELL AS THE 8600), HE ANNOUNCED A

"RADICALLY NEW ARCHITECTURE." WHAT WAS NEW, OF COURSE, WAS AN

LSI VERSION OF WHAT HAD BEEN DONE BEFORE AT GREAT EXPENSE.

MEANWHILE, HOWEVER, AFTER 10-12 YEARS OF EFFORT, THE "RADICAL"

VECTOR AND AS WELL AS PARALLEL PROCESSING ARCHITECTURES BEGAN

TO TAKE HOLD.


WITH THE STAR-100 EXPERIENCE AS A HARDWARE AND ARCHITECTURAL

TEST-BED, THE COMPUTING COMMUNITY BEGAN TO VIGOROUSLY PUT OUT

NEW SOLUTIONS FOR VECTOR MACHINES FROM PLACES AS DIVERSE AS

WISCONSIN, JAPAN, AND NEW YORK UNIVERSITY. THE PERFORMANCE

CURVE CONTINUES UPWARD THOUGH, WITH USER DEMANDS REMAINING

APACE AND EASILY SURPASSING THE NORMAL TECHNOLOGICAL AND

MANUFACTURING CONSTRAINTS THAT EXIST IN THE "REAL" WORLD OF THE

SUPERCOMPUTING BUSINESS.

HAVING REACHED CONSTRAINTS OF PERFORMANCE THAT EVEN THE BEST

TECHNOLOGY AND VECTOR/SCALAR ENGINEERING COULD PROVIDE, THE

INDUSTRY HAS LAUNCHED INTO THE COMMERCIAL EXPLOITATION OF

"MULTIPROCESSING" WITH THE ADVENT OF THE CRAY-2 AND THE

ETA-10. THE PERFORMANCE POTENTIAL IN MARRYING THE BEST ASPECTS

OF THE CDC CYBER 205 AND MODERN MULTIPLE PROCESSOR

INTERCONNECTION CAN BE SEEN IN THE 1986 TARGET FOR PEAK RATES

OF TEN BILLION FLOATING POINT OPERATIONS PER SECOND.

I HAVE DWELT ON THIS HISTORY AT SOME LENGTH ONLY TO EMPHASIZE

THE POINT I MADE AT THE BEGINNING. SUPERCOMPUTER DEVELOPMENT

IS VERY HIGH RISK — THERE HAVE BEEN MORE FAILURES THAN

SUCCESSES. TO THIS DATE, EVERY SUCCESSFUL MACHINE EXCEPT THE

LATEST CRAY XMP MODEL (AND I CAN'T SPEAK TO THE JAPANESE

EXPERIENCE) HAS BEEN DONE TWICE BEFORE IT SUCCEEDED.

NOW, LET'S LOOK AT WHAT THAT HAS MEANT IN TERMS OF DEVELOPMENT

COSTS.


[OVERHEAD - SLIDE #3 - DEVELOPMENT COSTS]

SCHEDULE DELAYS AND LIMITED SOFTWARE AVAILABILITY WERE THE

HALLMARK OF THE EARLY SUPERCOMPUTER EFFORTS. R&D COSTS WHICH

SEEMED TO SKYROCKET ADDED TO THE PUBLICIZED INFAMY OF MANY

PROJECTS. IT IS VIRTUALLY IMPOSSIBLE TO COMPUTE THE ACTUAL

EXPENDITURES FOR MOST OF THESE LARGE SCALE DEVELOPMENTS, WITH

ACCOUNTING PRACTICES AND POPULAR MYTHOLOGY GETTING IN THE WAY

OF TRUTH. FOR EXAMPLE, THE UNIVAC LARC EFFORT WAS CLAIMED TO

COST SOME $12 MILLIONS ON THE ONE HAND OR TO HAVE REQUIRED A

WRITE-OFF OF $30 MILLION ON THE OTHER. IBM, NATURALLY, NEVER

OFFICIALLY DISCLOSED THEIR INVESTMENT IN THE STRETCH, PARTLY

BECAUSE MANY ASPECTS OF THE TECHNOLOGY AND DESIGN WERE "SPUN

OFF" TO OTHER, MORE REWARDING GOVERNMENT CONTRACTS.

THE LONG BELIEF THAT THE CDC 6600 WAS DEVELOPED WITH A TEAM OF

ELVES IN WISCONSIN FOR A FEW DOLLARS A YEAR HELPED BUILD A

FRUGAL IMAGE FOR THIS COMPANY, BUT MASKS THE ACTUAL RESOURCES

NEEDED TO BRING THAT PRODUCT TO A STABLE, MANUFACTURABLE

STATUS. IN ADDITION, IF IT WERE POSSIBLE TO AGGREGATE THE

SOFTWARE INVESTMENT ATTRIBUTABLE SOLELY TO THE 6600, THE

FIGURES WOULD BE STAGGERING.

WHAT I HAVE ATTEMPTED TO DO HERE, THEREFORE, IS ESTABLISH SOME

REASONABLE R&D FIGURES REFLECTING THE COSTS TO BRING A

SUPERCOMPUTER TO THE MARKETPLACE, IN AN INITIAL BUT STABLIZED


FORM. WE HAVE CHOSEN A ROUGH $18 MILLION ESTIMATE FOR THE LARC

AND STRETCH PROGRAMS, UP TO THE POINT WHERE THOSE MACHINES WERE

INSTALLED AND MADE OPERATIONAL. THE 6600 AND 7600 FIGURES

REFLECT THE ARDEN HILLS AS WELL AS CHIPPEWA FALLS EFFORTS, AND

INCLUDE THE EARLY SOFTWARE COSTS FOR THOSE MACHINES. THE

STAR-100 AMOUNTS REPRESENT ONLY THOSE COSTS ASSOCIATED WITH THE

BIGGEST STAR MACHINE AND NOT THE STAR-65 AND ITS UNIQUE

SOFTWARE. TEXAS INSTRUMENTS AND BURROUGHS, WHEN PROBED, WOULD

PROBABLY AGREE THAT THEIR PROGRAM COSTS WERE ROUGHLY EQUIVALENT

TO THE STAR-100.

THE CRAY-1 COSTS REFLECT ACTUAL EXPENDITURES WHICH LED TO THE

CREATION OF THAT MACHINE, WHETHER SPENT BY CONTROL DATA OR CRI

DURING THE PERIOD 1970-1977. THIS IS AN IMPORTANT POINT, SINCE

MOST OF THE TECHNOLOGIES — PACKAGING, CIRCUITS, COOLING AND

POWER — IN CRAY-1 WERE DIRECT DERIVATIVES OF CDC RESEARCH

PROGRAMS.

THE ETA-10 R&D COSTS REFLECT THE EFFORT NECESSARY TO PRODUCE

AND DELIVER FOUR MACHINES BY THE END OF 1986 WITH THE RELEASE

OF ONE VERSION OF AN OPERATING SYSTEM AND COMPILER. FROM THIS

CHART, ONE WOULD GATHER THAT DEVELOPMENT COSTS WILL CONTINUE TO

RISE INEXORABLY. HOWEVER

[OVERHEAD - SLIE »4 - DEVELOPMENT COSTS (1984 $)]


WHEN ONE VIEWS THESE COSTS IN TERMS OF CONSTANT DOLLARS, HERE

WE HAVE USED 1984 AS A BASIS, A DIFFERENT PICTURE EMERGES. IN

FACT, COSTS HAVE RISEN GRADUALLY SINCE THE LARC DAYS, AND

PEAKED OUT IN THE EARLY 1970S WITH THE STAR-100. THE STAR-100

APPEARS TO BE TWICE AS COSTLY AS OTHER DEVELOPMENTS, A MATTER

WHICH IS NOT SURPRISING SINCE IT HAD BY FAR THE MOST EXTENSIVE

REDESIGN. SINCE THAT TIME, THE COMPARABLE R&D COSTS, IN

CONSTANT DOLLARS, HAS DIMINISHED SLIGHTLY. MORE SIGNIFICANTLY,

THIS REDUCTION IN TRUE R&D COSTS HAS BEEN ACCOMLISHED DURING A

PERIOD OF EXTREMELY COMPLEX TECHNOLOGICAL AND ARCHITECTURAL

TRANSITIONS, WHERE THE CAPITAL INVESTMENTS NEEDED FOR DESIGN

HAVE BECOME ASTRONOMICAL WHEN JUDGED BY PAST STANDARDS.

NOW LET'S MOVE FROM THE PRODUCT TO THE MARKET SIDE OF THINGS.

[OVERHEAD - SLIDE #5 - SUPERCOMPUTER MARKET POTENTIAL]

COUPLED WITH PERFORMANCE, SCHEDULE, AND COST RISKS, THE

MARKETPLACE POTENTIAL FOR SUPERCOMPUTERS HAS BEEN OF GREAT

CONCERN TO ALL WHO DARE VENTURE INTO THIS BUSINESS. ON THIS

SLIDE, WE SEE THE STUMBLING GROWTH OF THIS UNIQUE MARKET SINCE


THE LARC AND STRETCH WERE FIRST DELIVERED. A NUMBER OF FACTORS

HAVE BEEN RESPONSIBLE FOR RESTRAINING THIS MARKET UNTIL RECENT

TIMES. THEY INCLUDE:

0 THE HIGH COST OF THE SUPERCOMPUTER ITSELF;

0 THE LACK OF GENERALLY USEABLE SOFTWARE;

0 THE LOW LEVEL OF SUPERCOMPUTER "LITERACY;"

0 THE INSTINCT TO "BUILD" PHYSICAL EXPERIMENTS RATHER

THAN SIMULATE THEM (FOR EXAMPLE WIND TUNNELS);

0 THE MOVE TOWARD INDEPENDENT ORGANIZATIONAL USE OF

MINI COMPUTERS, RATHER THAN CENTRALIZED MACHINES;

0 UNIVERSITY EMPHASIS ON "MINI" TRAINING IN

APPLICATIONS AS WELL AS COMPUTER SCIENCE;

0 THE UNWILLINGNESS OF VENDORS TO VENTURE INTO THIS

RISKY FORM OF BUSINESS; AND

0 "COMPATIBILITY" ~ THE COST OF TRANSITION FROM ONE

ARCHITECTURE TO ANOTHER.

OF ALL THESE ISSUES, PERHAPS THE LAST ONE BECAME THE DOMINANT

FACTOR IN PRODUCING THE SUPERCOMPUTER "DOLDRUMS" OF THE

MID 70S. EVERY RESEARCHER WHO NEEDED MORE COMPUTING POWER

HOPED FOR A STRAIGHTFORWARD TECHNOLOGY SOLUTION TO THEIR

DILEMMA. IT WASN'T UNTIL RECENTLY WHEN THE CONCEPTS OF VECTOR

PROCESSING, PIONEERED BY THE STAR-100, BECAME VINDICATED BY

COMPETITIVE DEVELOPMENTS THAT THE GENERAL MARKETPLACE RESPOND


BY SERIOUSLY ENGAGING IN THE CONVERSION EFFORTS FOR PHYSICS AS

WELL AS MATHEMATICS TO UTILIZE THIS NEW GENERATION OF

SUPERCOMPUTERS. ONCE "VECTOR PROCESSING" BECAME ACCEPTABLE, IF

NOT "FASHIONABLE," TO SUPERCOMPUTER CUSTOMERS, MAJOR

INVESTMENTS IN MONEY AND CREATIVE RESOURCES BEGAN TO BE APPLIED

TO A BROAD RANGE OF PROBLEMS. THE RESULT IS THE STEADY UPTURN

IN THE NUMBERS OF SUPERCOMPUTERS BEING ACQUIRED IN THE 1980S.

AS THESE SAME CUSTOMERS HAVE BEGUN TO ACCEPT THE NOTION THAT A

COMBINATION OF VECTOR PROCESSING AND "MULTI-PROCESSING" ARE

ESSENTIAL FOR THEIR SUPERCOMPUTING NEEDS, THE MARKETPLACE WILL

BROADEN EVEN FURTHER. THAT'S THE GOOD NEWS. THE BAD NEWS IS

THE COMPETITION FOR THAT MARKET IS ALSO GREATER THAN EVER.

[OVERHEAD - SLIDE #6 - SUPERCOMPUTER MARKET POTENTIAL]

SEEN HERE ARE THE PROJECTIONS THROUGH 1990 OF THE SUPERCOMPUTER

MARKET, AS DERIVED FROM BUSINESS ANALYST ESTIMATES, IN

PARTICULAR A.D. LITTLE. SUPERIMPOSED ON THESE ESTIMATES ARE

THE PLAN PROJECTIONS FOR ETA'S SHARE OF THAT MARKET. BOTH

MARKET AND MARKET SHARE PROJECTIONS ARE HIGHLY SPECULATIVE.

[OVERHEADS - DISCUSS EVANS MEMO]^cW' ,y^- "

NOTES TO RMP REGARDING EVANS/THORNDYKE MEMOS.

\\ "POINT OUT SUMMARY IN FIRST PARAGRAPH.


POINT OUT THAT 12, 18 MONTHS DELAY WOULD ACTUALLY BE

FANTASTIC. IF EVANS IS RIGHT, THAT IS TRULY ENCOURAGING,

3) GO QUICKLY OVER THE POINTS:

0 COOLING - ENVIRONMENTAL PROBLEMS

0 1.5 MICRON TECHNOLOGY IS ON THE EDGE OF PRACTICAL

TECHNOLOGY

0 DEVELOPMENT TIME UNDERESTIMATED

0 SOFTWARE

0 PRICING

0 NEED FOR HIGH PERFORMANCE DISK

0 MARKET ESTIMATE

4) LAST PAGE. BASICALLY SAYS GO AHEAD.

THE ISSUE IS NOT TO DEBATE THE CORRECTNESS OF EVAN'S OR ANYONE

ELSE'S TECHNOLOGY ASSESSMENT. THESE DEVELOPMENTS ARE, ONCE

AGAIN, HIGH RISK AND ALWAYS SUBJECT TO UNKNOWNS. DEBATING

UNKNOWNS IS A NOT VERY FRUITFUL ACTIVITY. WE ARE IN ANY EVENT

TAKING ACTION TO PROTECT — TO THE EXTENT WE CAN — THE ETA-10

AGAINST DELAYS. THE SINGLE GREATEST PROTECTION IS TO INCREASE

THE CYBER 205 CUSTOMER BASE IN 1985, 1986, AND THUS TO PROVIDE

AN EASIER POTENTIAL UPGRADE BASE FOR THE ETA-10.

[ACTIONS TO DO THIS]

[OVERHEAD - SLIDE #7 - RISKS ASSESSMENT]


ON THE BASIS OF A YEAR'S EXPERIENCE, ETA WAS ASKED FOR ITS

ASSESSMENT OF THE MAJOR RISKS ATTENDANT TO ITS BUSINESS. THIS

SLIDE SHOWS THE RELATIVE CONFIDENCE LEVELS HELD BY ETA

EXECUTIVES IN 1983 AND 1984 FOR THE MAJOR AREAS OF RISK FOR

THEIR BUSINESS. THE TALLER THE BAR, THE HIGHER THE CONFIDENCE

FOR EACH YEAR'S PERCEPTION OF RISK AREA. SINCE "PERFORMANCE"

HAS BEEN A MANDATED TARGET, IT HAS NEVER BEEN AN ISSUE OF REAL

CONCERN. THE SCHEDULE, WHICH IS THE SECOND HALF OF THE CLAIM

"TEN GIGAFLOPS IN 1986," WAS ALSO A MANDATED OBJECTIVE, BUT ONE

WHICH COULDN'T BE ASSESSED UNTIL THE ENTIRE SCOPE OF THE

PROGRAM WAS UNDERSTOOD, AS IT NOW IS IN THE 198 4 ESTIMATES.

THE TECHNOLOGY CONFIDENCE TREND IS ALSO POSITIVE.

IT'S INTERESTING TO NOTE THE TREND WITH REGARD TO FINANCING.

WHEN ETA WAS BEING FORMED IN MID-1983, HIGH TECHNOLOGY

COMPANIES WERE ABLE TO READILY ENGAGE IN A VARIETY OF FUNDING

PROGRAMS. BY THE TIME ETA WAS STAFFED AND OPERATIONAL, IN

OCTOBER OF THAT YEAR, HOWEVER, HIGHLY VISIBLE TECHNICAL

INVESTMENTS WERE FAILING. THE STC AND TRILOGY DEBACLES OF 1984

HAVE MADE THE PICTURE WORSE. THE RESULT IS THAT LTD PTSH

FINANCING FOR SUCH PROJECTS IS SIMPLY NO LONGER AVAILABLE AND A

SIGNIFICANT AMOUNT OF EFFORT IS BEING DEVOTED TO DEVELOPING

CREATIVE FINANCING ALTERNATIVES FOR ETA.


IN 1984, THE CDC P&L IMPACT OF ETA WSrbtSE APPROXIMATELY

$10 MILLION AFTER-TAX, OR ABOUT 25£ PER SHARE. ETA'S

PRE-TAX EXPENSE W-ri^BE ABOUT DOUBLE THAT BUT BECAUSE CDC

STILL OWNS MORE THAN 80 PERCENT, WE GET THE TAX BENEFIT

OF ETA'S LOSSES.

FOR 1985, ETA'S P&L LOSS PRE-TAX WILL BE ABOUT

$35 MILLION PRE-TAX. CONTROL DATA'S AFTER-TAX CHARGE

WILL PROBABLY BE ABOUT $15-$18 MILLION, WHETHER OR NOT

ADDITIONAL OUTSIDE INVESTORS ARE FOUND. THE REASON CDC'S

P&L IMPACT IS THE SAME IN EITHER CASE DERIVES FROM THE

NEW TAX LAW, WHICH MARV CAN EXPLAIN (AT LEAST PARTIALLY)

IF YOU WOULD LIKE.

THE TOTAL FINANCING REQUIREMENTS THROUGH FIRST SYSTEM

DELIVERY (LATE 1986) ARE STILL ESTIMATED BY ETA AT AROUND

$100 MILLION. IN ROUND NUMBERS THAT IS ESTIMATED AS

FOLLOWS:

1984 $ 20 MILLION

1985 35 MILLION

1986 45 million

$100 MILLION


HAMBRECHT & QUIST (H&Q) TALK IN TERMS OF AN

ADDITIONAL $20 MILLION TO ALLOW FOR SCHEDULE

SLIPPAGE.

^frfr-STATE T-HftT IN TODAY'S NEW VENTURE, MARKET

ENVIRONMENT -- TO WHICH I HAVE ALREADY

REFERRED — IT IS NOT POSSIBLE TO DO A PRIVATE

EQUITY PLACEMENT (E.G. $15-$20 MILLION) AS

EARLIER PLANNED, UNLESS THERE IS SUFFICIENT

ADDITIONAL MONEY LINED UP TO SEE THE WHOLE

PROJECT THROUGH. MSlL-EBaM-4fllAT--l--HEAR--©-T-HBRW-I-SE,

<$=3Si«JR--THE.Y. ARE ..PROBASLX..RIGHT.

SO THE CURRENT PLAN IS TO SEEK CORPORATE

EQUITY/TECHNOLOGY INVESTMENTS FROM SELECTED MAJOR

CORPORATIONS A44B^*3~WT-Lir~A-SStST—i-N—DESJJSN«W"ttND

^PA-eK-AGfNtj*"7iN---A"PPRtXAC1^'TO~-Tm)SE~-TY.PES OF

ro;tj:n.tj:,al_jlny£s.tors .

if teat approach is successful to the extent of

say $2^ million, t^at, together with a\

$25 million revolving credit currently under

negotiation (with indirect cdc backing), would\ \ \

SATISFY ETAVS 1985 FUNDING REQUIREMENTS.


H&Q\ ENVISIONS THAT COINCIDENT Wl\rH THE "INITIAL'^

$25 MILLION OF CORPORATE INVESTMENTS, COMMITMENTS

FOR a\ ADDITIONAL $20 klLLION IN ROLLOW-ON

FUNDING\WOULD BE OBTAINED FROM THE "SAME SOURCES,

AND THAT TtiE $20 MILLION \rIVATE PLACEMENT WOULD

BE COMPLETED"N^T THE SAME TIME. WE HAVEN'T YET

AGREED WITH THESE LAST TWO ITEMS.

SO ALTHOUGH NOT TIED DOWN, THERE IS A REASONABLE PLAN

AND PROSPECTS FOR ETA'S FINANCING NEEDS. THE BOTTOM

LINE IS, HOWEVER, THAT CONTROL DATA IS THE FINANCIER OF

LAST RESORT. IN ANY EVENT, THE SUPERCOMPUTING BUSINESS

IS ONCE AGAIN ALIVE AND QUITE HEALTHY WITH PROMISE OF

GROWING INTO A ROBUST MID-LIFE. CONTROL DATA, WITH ITS

INVESTMENT IN AND COMMITMENT TO ETA SYSTEMS, INC., IS

PLAYING A MAJOR ROLE IN THE EXPANSION AND EXPLOITATION

OF THAT BUSINESS.

AND AS OPPOSED TO REPRESENTING A DECLINING PERCENTAGE

OF THE TOTAL COMPUTER SYSTEMS BUSINESS, THERE IS THE

POTENTIAL — ALBEIT WITH RISK -- TO NOT ONLY GROW IN

THAT REGARD BUT TO REALIZE A HEALTHY FINANCIAL RETURN

AS WELL.


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MEMORANDUM-ETAOctober31,I'MPage2

ETASVSIEMSPWPMElHO!10KWSWB

JTbevrwm2.5millionCMOSgatesforeaonprocessorwhich,with2Km«nWcontrolandthecommunionsbuffer,™™"J» iJSwrt/12milliongatesforihfirentry-l.v.1J*"*"*1* S.xrn^nrHlionjratesforthefulTs-proee-oreompl.x.ThwKanastounding8886™^^^$^*''°^"'

TO.lrmainbuildingblock*pfa^™9^j£?J^ procss.ETAIsdesigning^circuitTtodttemasks,•Jb™%™™lUtlonalaretheirslUcoi?foundry»»^~->^y'eT'™mLit ..rtaintechnologyp>Semsherea.well.For^nple,CMiOSUselfIndoartioularlyth*USmicronCMOSprocess,areMWth.toejMng!dr.^n«TtavM^iuehftrldwhaveunexpectedP'«««??-~h•* tjrorionllatfageiate.,aUaffaetingyieldandperfermtae..IE£vfuJStTfnwchVobUm.wiUaffectETATh.~9~> KiSlIndaWoparandproduceri>afurtherimpediment.ITAarguestheyonlyneedMOOoftheir18,000gat.array.hips;1TorS.irThr.rPrototyp«TandfirstthreeproductionquadsystemsIn1»M, 1^piloTuiescanmeettheirearlydemands,thusgivingthemmere^.TJolv.technologyproblems.IdouMthja-nd«*£»• sariesofproblems,certainlyaffectingeoatandselwdule,andpeaeroiydesignandperformance.

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3. To deliver three production systems by the end of 1936 as they nowplan I believe ETA should have at least one development system wellalong in test by this time. Unfortunately, they have only rudimentarytests of memory and gate array chips under way. They will not evenhave their planned technology test vehicle in operation until mW~19S5. ETA is depending upon simulation anjTcite prior sueoosoef astestimongto their plan. Yet I believe tj*t, with the problems theywill cneountor4nthe eold environmental *eU ** variations etwees,production unitsT^thev will be jn^a long cycle ©C redesign andreverifieation. Thus7^the4r "pyitem test* status Is m Impertasitindieation to me that their^he4ule will not be met.

4. Under ETA's plan, theif^systems programming will not be qualifieduntil mid-1987. WMn their plan is a m\as other complex functional control .subcontracts, such as compilers and external shele>*$iey estimate thecontrol codelSTA is committed to produce at 1§§,©®0 lines. They arestill writingthe functional specifications and do net hav>sufficientdetailedycode analyses yet, nor have they affixed contingencies ontheir cooe estimates. From my experience, the complex multiplyenvironments their system will address will require a lot more code inthe operating system. I expect the software will be several monthslater than they now plan.

ETA counts upon friendly users taking lit! and early-1987 systemswith less performance and unqualified software. I concede they eanprobably find a few "friends" who will take the systems in an

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MEMORANDUM-ETAOctober31,1984Page3

ETASYSTEMSPROPRICT/nor10BEttFIHUCED

5.

6.

uncompletedstate,butIdonotbelievetheywillfndjmfficiantuser,tosupportthevolumeproductiontheyplan.I^X^t.s?ed environmentbythattimewillgenerallyrequire™tuândRestedsystemswithmorecomprehensivesoftware9UWry™™T**J*\ numberofôjnpetitorswhowillhavefullysupport,maturesystemstooffer,albeitaTsomewhatlessperformance^

IamconcernedabouttheiTîftess^fortheytellustheirmarkupis3xcost!Thisisalmostaô^no^levels«nd,giventheleadingedgetechnologyand^^V^'^^^ indeed.Thus,Iworryabout^fteirbusinessviabiltjTshojildeo«tsescapecontrol.

Thevdonothaveadisksubsystemtosupportthe400Mb/secbandwidthrequii^nt.Rather,theyinitiallydependmultiplexing9$b/secCDCHydra^fel^l?j»k^ht1Chî1e^s expensivejtfidcomplexsubsystemandcouldaffectsystemsperformanceinsomeapplicationareas.

They/areinvestigatingaDOD-fundedresearcheffortat^RCAinvolvinganopticaldiscwithmagneticbiaswhich"UnirtblyisreWwrite.However,fromtheirdescriptionoftheeffortIdoubtitsviabilityandavailabilityintheETAtimeframe.

Thus,ETA'sdisksubsystemisweakandsophisticatedusersaregoingtoseesomedifficultiesinthrough-putperformancewhichwilllikelytempervolumes.

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7. A.D. Little is ETA's market forecast source. This study predictsexponential growth 1985 - 1990. From my knowledge, I doubt boththe volumes predicted and ETA'a-penetration ability. For example,worldwide predicted 1987 volume4s 100 units with approximately «5of these to U.S. users. ETA's/plan is 17 systems selling only in theU.S.Jthus they estimate 259ênetration in 1917 in the faoe of Cray,the Japanes^r*BMjnd others.

I believe the projected volumês^ê somewhat high and ETA'spenetration plans>re risky, even iftftewkârdware were ready involume and software was qualified, which IBei&ve will not be thecase.

On the point of the/100°K environment, ETA worries about this as ©potential majorproblem. Mr. Thorndyke's view is that, if the cold environment does presen>pcoblemsrequiring significant redesign, he could ship his equipment for room temperfefcireoperation, thu/suffering a 2x reduction in processor performance. ETA believes thiswould be adequate for the short term.

Given the likely competition I am unconvinced and furthermore believe that ETA ha.not made sufficient analyses of the business consequences should their speed fall soshort.

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MEMORANDUM - ETAOctober 31,1984Page 4 /

tw systems rmsMNOI

Mr. Thorndyke also has in mind a reduced performance/reduced price systemextractable frpjnJkhjejGJ^^ however, this is unfunded and requires moreETA planning before it is ready for seTitros~ana&ies.

My viewpoint is that ^ambrecht o: Quist would be unwise to accept- thepresent ETAschedules. However, it the ETA sensitivity analyses show there still is a vTaMe-busjnessand Mr. McGettigan'and his colleagues can develop a strategy to fairly market toprospective investors on the basis of the likely schedule delays, then perhaps a way canbe found to proceed with the proposed underwriting.

cc: Jeff Can inBill Hambrecht

Ken HartDuane KirkpatrickCharles McGcttiganDean Woodman

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ETA S1STEWS, INCORPORATEDInteroffice Memorandum

DATE:

TO:

FROM:

SUbJ

Foil

1.

November 20, 196K

Board of Directors

L. M. Thorndyke

bob Evans Wemo 10/31/6**

2.

owing .re the responses to Evans/' eajor concerns

The 100°K «kviron»ent - thetests at ETA\nor in literatiReport state* that semi chi~change with no, damage. Weriak bow.

iip stress has not been noted ine. Also, a recent SRC Researchtake a large temperature rate ofnot consider this a significant

We expect thatlearning from tchanges in theaponse time inunable to projebe.

Minor processing adjujvoltage) to "opperformance advantation". Vendor priand it is deeded u«eet desired objec

the redesi/gn suggested as a delay will be viaie Test Vehicle and will incorporate these design

irst uniis. His point is the engineering re-Bh would be long, however, 1 believe he iswhat a/small, dynamic company's response would

tments are required (primarily threshold" CMOS operation at 100UK. Thein/izeis outweighed by the required "customize-

ng is sensitive to process customizatiorcessary for ETA Systems to customize tc5.

The number of &«¥«»semi devices do net faiaemi area oi chi^p. T1250 chips, *-128 is

larger than cited but from experienc<due to the number of gates per die buigross number of ALS1-20K for 2-6K i<

$86 chips, and 6-256 is 3158 chipslow numbi

CPU.

compared to the Cray 1 of 225,00These are veryaemi devices pe]

True, the 1.5duction but renicron ana involume in 19]*icron or les

icron technology is at the leading edge of proearchers have\emonstr.ted VLSI device£ t>€low„ 1'VHS1C are aimi\g at .5 micron. We need modes5 and today knoV of 13 people productizing 1.

^»-«n ft- lese The corrosion\etc, are clearly solved to mak51* «IRAK aW256K DRAK thus we\ don't understand the probletill?ALSI-2& has"only one-fourtk the number of transistors pechio as these memories. The number of chips used in the «-12?•iftftl thus'only 6,000 are needed for three systems includinsoa-es t We don't believe that number is significant. ThCYBER 205, for example, uses 6500 LSI-166 chips per CPU.

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5.

6.

The tlijf between * cJev el opment tiodel and production is one ofludgment and experience- Kr. Evans doe* not buy simulation norlow volume products. He cited that lfcH designed the TCK o! the308* for 1? years to production as the reason we have too shorta time. Ajain, we *r* not IbK nor Willi he market tolerate suchan approach. /

The software \lines of code are reasonable and our phaseddevelopment plvan allows for milestones to be measured andcorrections inserted if required. Th£ Apollo terminals and extracompiles/day possible is a significant programmer efficiencyenhancement that\i& not accepted M' him,

Kr. Evans agrees that a few friendly customers will buy earlymachines. The supercomputer industry is exactly that environment. Apparently He feels that/our compatible machine does notget any credit for upgrade marketing with current users. ternem-ber over HO CYBER 2Q$'s will eyist by the end of 1985 ell upwardcompatible.

The markup allows for\accounting structurethe same costs as our

The disk subsystem wewill be supercomputerthis area at all in fonformance subsystem.

701 GP/business. We do not have the sa&es IBK Ahus their markups are not based on

fford is identical to Cray's thus ito^petitive. He is not experienced in

sting lower volume due to lower per-

7. The market success is jiour optimism. /

^mental and we have many reasons for

The other areas of lower performance, loaner CPU's to be shipped incase the 100°K CPU's are n<j>t available was misunderstood. Mr. Evanspresumes that the 100°K problems ^are unsolvable thus must stay withair cooled. We don't pl^/n it that\way. Those air units should belooked on as loaner and Replaced w\ien 100°K problems are solved (ifthey exist); thus extra/income on \the upgrade. We will sell thelower performance as a product too.

Kr. Evans does not uaeriously suggest si

erstand

ing clockthe S\emi-manufacturing process tcto ^il^ns due to process problems.

A true lower perforthe initial checkouairf thus the discand will not be for/aduring the ETA10 checkout

L. K. Thorndyke

LKT359:b

nee machine will\be available asprocedure.

sed backup.while. tee

though.

aresultof

The Entire system is operated irThe productization is not funded

will establish product feasibility

SUBJECT sJarwwr CATALOG

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supercomputer business january 11, 1985 rtpf' · pdf filewith regard to supercomputer...

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