Truce foreseen for 1993 in hardware pricing wars.

But skirmishing expected to grow in software prices

The hardware price wars that Los Angeles computer companies raged in 1992, which caused dips in profits and stock prices, should ebb in 1993. But pricing rivalry should continue spreading on the software battlefield where publishers will fight for billions of dollars in sales.

North American microcomputer software sales were estimated at $4.14 billion in the first three quarters of 1992, a 17.5 percent increase from the same period in 1991, according to data compiled by the Washington, D.C.-based Software Publishers Association.

Demand should stay at least that strong in 1993, particularly for Windows and Macintosh pull-down menu products, but pricing competition is expected to drive down software profits, predict industry analysts.

"You have (people making up) a big share of the market that are second- or third-time computer buyers and they will shop for price (in hardware). But they will still seek new programs," said Dave Tremblay, research director for the Washington, D.C.-based Software Publishers Association.

Most software publishers are located outside Los Angeles in areas such as Salt Lake City, the San Francisco Bay area and the Pacific Northwest. But L.A. is one of their biggest markets, Tremblay said.

Third-quarter North American sales of Windows software rose from $255.3 million in 1991 to $486.8 million in 1992, an increase of 90.6 percent. For the first three quarters, North American sales of Windows software increased to $1.32 billion, up 118.5 percent from $605.8 million in the same 1991 period, according to Software Publishers Association.

"But I don't think the demand will support that type of growth in 1993," Tremblay added.

More specifically, the U.S. market, particularly Southern California, for educational software should heat up in 1993 as many workers, laid off from jobs in the defense and construction industries look to personal computers as a learning tool, Tremblay said.

Meanwhile, Brian Kadison, accounting firm Arthur Andersen & Co.'s director of business systems consulting for Southern California, believes the worst of the hardware price wars are over but does not see any market-spurring technological breakthroughs forthcoming.

"There has been lots of product improvement. Computer systems (purchased two or three years ago) need more capacity to handle the Windows programs that have become so popular," Kadison said. That could cause a boost in demand in 1993 for memory and processing speed enhancements, he added.

On the international scene, Los Angeles computer-related companies will face greater competition from Japanese manufacturers in 1993, Kadison said. But the Southern California computer companies are well positioned to increase their market share in Latin America and Europe in 1993, Kadison added.

And, contrary to some pessimists, "I don't think the military will decrease its expenditures in the local computer industry," Kadison predicted.

Some Los Angeles computer companies share Kadison's guarded optimism.

El Segundo-based Merisel Inc., a wholesale distributor of products from 700 American manufacturers to 50,000 retail outlets around the world, plans to increase its $500 million in foreign sales (out of a total $1.5 billion in sales) in the coming year, said senior vice president of finance, Jim Brill. He predicted Merisel foreign sales will rise 40 percent in 1993.

Retix President Steve Frankel, whose company makes hardware that lets computers of different formats communicate with each other, sees a bright 1993.

"We hope companies, especially those with a global market, that have different types of computers will buy our second-generation router," Frankel said. He predicts Retix will enjoy a 20 percent growth in sales, from $70 million for 1992 to 90 million in 1993.

Ron Hammond, Quarterdeck Office Systems vice president of finance, predicted his Santa Monica-based company will have better sales and profits in the year ahead as more computer users look for ways to make different computer formats work together.

"Our performance in 1993 will depend on how well our new products sell," Hammond said.

Quarterdeck at the end of 1992 took to market a computer enhancement that lets a computer run two programs at the same time. He hopes it will help the company boost sales to its telecommunications, financial, aerospace, oil, government and manufacturing customers, Hammond said.

Santa Monica-based Candle Corp. makes software for IBM-compatible mainframe computers. Director of New Business Solutions Scott Phares said the company will reach further into Mexico and Europe this year to fill the growing demand for computer systems.

But it faces a problem recruiting the right management types for its growing company, he said.

"We need to develop more talented development and marketing employees and it's hard to recruit them with all the negative publicity Los Angeles had in 1992," Phares said.

El Segundo-based Computer Science Corp. also sees a bright 1993. The company serves as an out-source for many corporations' electronic data processing needs. But it also designs custom software for the military and for industry.

Bill Lackey, CSC's El Segundo-based manager of investor relations, expects steady growth in 1993. The company reported gross income of $2.2 billion in fiscal 1992 ended last April, compared to $1.7 billion for fiscal 1991.

In the more distant future, Los Angeles computer companies stand to make a bundle helping Hollywood film studios computerize their film libraries. But the futuristic goal will keep computer experts searching for new ways to condense and transmit data quickly with the help of computers.

It is this expanding computer technology that computer and entertainment industry leaders hope will eventually enable compression of a two-hour videotape into as little as 10 minutes on a disc at the studio library. When that happens, consumers can call a number at the studio library, enter their credit card or ATM code for billing, and have the signal for the video delivered via telephone to their television sets.

Once the technology is perfected, 80 percent of the $8 billion-a-year home video market will be captured by the studios, said computer/entertainment experts.

Video-on-demand technology also should create a widespread market for microcomputers that will be attached to televisions or videocassette recorders. The same technology would be used to compress other electronic data and send it from data bases to home computers, say local computer and video industry experts.

Companies that control film libraries, such as Warner Brothers, Universal Studios, Paramount Pictures, Twentieth Century Fox and Walt Disney Co., are positioned to make huge profits from video-on-demand. But they won't talk about it.

Some 90 million U.S. households have televisions and 65 percent of them already have videocassette recorders or players, said Tim Bajakin, president of Santa Clara-based Creative Strategies Research International Inc., a software development company.

He said once the link between personal computer and television is enhanced, and users see how easily they can access information and entertainment, Los Angeles will become the center for entertainment-related programming.

West Los Angeles-based Philips Interactive Media of America is publishing a library of programs ranging from children's games to a volume of encyclopedias. The developing computer technology lets users manipulate the data stored on the discs.

Philips has had its product on the market since 1991 but Glenview, Ill.-based Zenith Electronics Corp. and Fort Worth, Texas-based Tandy Corp. have developed competing systems.

Coding film libraries for transmission over telephone lines will create new jobs. So will production of specialized programming that will be released on video rather than through the theater distribution network, said analysts.