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The Birth of a Computing Revolution

By Alex Planes – Updated Apr 7, 2017 at 1:04PM

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Learning from the market's past to understand its present.

This article remembers key events that have shaped Wall Street history.

International Business Machines (NYSE: IBM) first joined the Dow Jones Industrial Average (INDEX: ^DJI) in 1932. It was later removed in 1939, and would not rejoin until 1979. To call this a big mistake would be one of the stock market understatements of the century, as the value of IBM shares would grow by 22,000% from removal to reinstatement. One analyst has estimated that the Dow would have been worth twice its 1979 value had IBM remained part of it continuously.

One of the key events in IBM's market-thrashing transformation into a modern computing pioneer took place on this day in 1958. IBM's 305 RAMAC, the first "supercomputer" with its own 3.75 megabyte internal hard disk drive (also a first), was revealed to the public on Sept. 13, 1958. The IBM 350 disk storage unit contained 50 magnetic disks that could spin at 1,200 revolutions per minute, with an average data retrieval time of 600 milliseconds. It was so large it had to be moved by forklift.

Souce: AsterHost.

The 305 RAMAC was rented to businesses in need of real-time accounting for a monthly fee of $3,200, which would amount to approximately $305,000 per year in current dollars. IBM built more than 1,000 of these systems between 1958 and 1961. In 1962, at full utilization, the RAMACs would have contributed only about 1.5% of IBM's total revenue.

The internal hard disk IBM pioneered -- along with the integrated circuit first demonstrated by a Texas Instruments (NYSE: TXN) researcher just a single day earlier in that very same year -- would go on to transform the modern world. Over time, incredible progress would be made in hard disk construction, as you can see in this comparison of a modern Seagate (Nasdaq: STX) Barracuda desktop hard drive to the original IBM 350:

Specification

IBM 350

Seagate Barracuda

Improvement (1958-2011)

Physical Size 60 in. x 68 in. x 29 in. 1 in. x 4 in. x 5.8 in. See Below
Total Displacement 821.67 cu. feet 23.2 cu. inches 99.98% decrease
Drive Space 3.75 megabytes 3 terabytes 83,885,980% increase
Disk Speed 1,200 rpm 7,200 rpm 500% increase
Data Seek Time 600 milliseconds 9 milliseconds 98.5% decrease
Cost (1 year)* $38,400 $150 99.6% decrease

Source: IBM and Seagate press releases. *Not adjusted for inflation.

We often talk about the Moore's Law of microprocessors when it comes to the incredible pace of computing improvements, but it's easy to forget just how critical data storage has been as well. Today, five of the Dow's components -- IBM, Microsoft, Intel, Hewlett-Packard, and Cisco Systems (Nasdaq: CSCO) -- have business models built entirely on the expectation of continued exponential computing growth. Of the others, none can rightly claim that their present-day businesses would exist without proper data management, made possible by constant improvements to hardware and software. Our modern world owes IBM a debt of gratitude for the innovation it first revealed on this day 54 years ago.

Some day soon, we might be thanking a new wave of companies for their world-changing creations. They're the driving forces behind 3-D printing, the technology that could transform the way modern manufacturing works. You'll discover the three companies behind the new industrial revolution in the Fool's most popular free report. Click here to find out more.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.

The Motley Fool owns shares of International Business Machines, Intel, Microsoft, and Cisco Systems. Motley Fool newsletter services have recommended buying shares of Intel and Microsoft. Motley Fool newsletter services have recommended creating a synthetic long position in International Business Machines. Motley Fool newsletter services have recommended creating a synthetic covered call position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$30,273.87 (-0.14%) $-42.45
IBM Stock Quote
IBM
IBM
$125.74 (0.19%) $0.24
Seagate Technology Stock Quote
Seagate Technology
STX
Cisco Systems Stock Quote
Cisco Systems
CSCO
$41.99 (0.41%) $0.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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