# U.S.

U.S. Stocks in 1987: How Did IBM Fall Behind? ## Just as with tokens today, the PC industry was growing rapidly The 1980s were the era when personal computers went mainstream. Global PC sales surged from 5 million units in 1985 to 20 million in 1987—a fourfold increase in just two years, representing a compound annual growth rate of 100%.

At the time, blue-chip giant IBM, the dominant player in mainframes and the company that helped establish the PC standard, was one of the biggest beneficiaries of this technology wave. Its earnings rose sharply, while its valuation doubled, from 10 times earnings to 20 times earnings. Its stock price more than doubled overall.

Intel, still one of the Nasdaq’s “Magnificent Seven” today, also surged, as did Microsoft. Microsoft had only gone public in 1986. Its core business may be unfamiliar to younger people today, but those of us who grew up with PCs used it: the MS-DOS operating system.

From its IPO through the 1987 stock-market crash, Microsoft’s stock more than doubled in just over a year. Intel, meanwhile, supplied the x86 architecture chips that powered the industry, and its stock rose two- to threefold during the same period.

From the moment microcomputers—desktop PCs—emerged in the 1980s, the three major pillars of the PC industry were already in place: the computer makers, the operating-system provider, and the core-chip supplier. Human imagination has historically been linear. A jump from 5 million PCs to 20 million may already have seemed extraordinary.

But who could have imagined what the market would look like 40 years later? According to the latest market-research data for 2026, the installed base of personal computing devices—including laptops, tablets, and smartphones—has exceeded 6 billion units, approaching one device per person on Earth on average.

Annual shipments have surpassed 1.5 billion units, 75 times the level of 1987. Now consider another example of explosive growth over the past three years: global token consumption was 120 trillion in 2023, 1.5 quadrillion in 2024—more than 10 times higher—and 7 quadrillion in 2025, nearly five times higher again.

For 2026, consumption is expected to reach 100 quadrillion, another increase of more than 10 times. Much of this growth is nonlinear—compounding at a power-law rate. But the human mind can perceive and forecast growth only roughly at a linear level.

## Microsoft and Intel formed the Wintel alliance, while IBM was left out Viewed from another angle, the three major pillars of the personal-computer industry had already emerged by the mid-1980s. Nvidia would not go public until 1999, but that is a separate story. By the 21st century, IBM had fallen behind the other two.

Even though IBM’s ThinkPad remained widely admired, its PC business was ultimately spun off in 2004 and sold to China’s Lenovo for more than 10 billion yuan. Microsoft and Intel, meanwhile, formed the Wintel alliance and continued to capture the PC industry’s most valuable profits for decades.

Whenever Microsoft released a new generation of operating-system software, Intel could introduce a new generation of chips. During the PC era, this formula worked remarkably well. With billions of users worldwide, consumers were effectively guided by the Wintel alliance and, every few years, contributed more than $1,000 in value to it.

## Why did IBM fall behind? Ultimately, the turning point came in 1981. To bring its PC product to market quickly, IBM adopted an unprecedentedly open strategy when developing its first personal computer, the IBM PC 5150. More importantly, IBM allowed Microsoft to retain the right to license MS-DOS to other PC manufacturers.

Intel’s x86 architecture also grew rapidly after IBM promoted and adopted it. This open strategy certainly helped accelerate the early adoption of the PC market. But it also created a direct competitive threat.

Because IBM handed control of the core software and hardware to outside companies, Compaq, Dell, and others were able to quickly introduce cheaper, functionally similar IBM-compatible PCs. Apple later recognized this lesson and chose a path very different from IBM’s: vertical integration.

From Mac OS to the iPhone’s iOS, Apple initially used Intel CPUs before introducing its own A1 processor in 2010. From hardware and software to the way software interacts with the real world—for example, through payment systems—Apple developed its products within a vertically integrated ecosystem. ## IBM’s Counterattack IBM was no fool.

It quickly realized its mistake and, in 1987, launched the PS/2 series of computers, built around a proprietary, closed architecture called Micro Channel Architecture (MCA). IBM also worked with Microsoft to develop a new operating system, OS/2, in an attempt to establish a new proprietary standard.

But the result was that the new PS/2 hardware was incompatible with the computers that had become widely adopted in the preceding years. Meanwhile, OS/2 was priced at more than twice the cost of MS-DOS. This reflected a problem common to large enterprises: IBM’s development costs were too high, and it priced its products with excessive confidence.

In addition, IBM insisted on using the older 286 processor even though Intel had already introduced the 386. IBM-PS/2 computers equipped with the 286 were simply not what consumers wanted at the time. This further demonstrated that IBM still viewed the PC market in a linear way.

It failed to understand that technological change in the PC era was extremely rapid. Home-computer consumers no longer cared only about brand reliability; they were increasingly focused on core computing performance. ## Ultimately, IBM made several key mistakes: 1️⃣ At the beginning, IBM was overconfident about its position in the industry.

It tried to enter the PC business through a “light-asset” model aimed at doing more, faster, and at lower cost. IBM assumed that, as in the mainframe era, it could maintain firm control over consumers. Instead, it ended up creating an entire competitive industry.

Even after recognizing the problem, IBM made the following mistakes: 2️⃣ After developing everything in-house, IBM tried to use the strength of its brand to pass all of its costs on to ordinary consumers. This resulted in excessively high retail prices with no competitive advantage.

IBM failed to recognize that the PC era was the era of individual consumers, and that the market was entering an intensely competitive phase. It still acted as though it were operating in an era dominated by institutional customers, when business relationships alone could lock in the market.

3️⃣ IBM failed to understand that PC hardware and software had entered an era of rapid, mutually reinforcing iteration. As PCs spread across a market of hundreds of millions of consumers and technology companies were allowed to compete, the pace of hardware and software advancement could only accelerate.

Yet IBM remained attached to a mindset centered on caution, stability, and cost-effectiveness. It insisted on using the already one-generation-old 286 processor in its new computers and ultimately lost the retail consumer market entirely.