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IBM's new Engineering and Technology Services division, which includes 400 people in Rochester, is part of the company's strategic transition from primarily selling hardware to selling computing services.
"We are the outsource resource," said Steve Lewis, director of delivery for Engineering and Technology Services.
Looking for ways to spark growth, IBM created the unit six months ago to mimic a small company's nimbleness while leveraging its big-company resources, including its intellectual property and ability to finance or invest in its customers. While profitable, IBM has reported lower earnings for six consecutive quarters.
The unit is based in Somers, N.Y., and has grown from 700 employees to 1,000. IBM doesn't break out sales for small units but expects the unit to be a growth driver for the company. The division's customers include Minneapolis-based Medtronic Inc. and Costa Mesa, Calif.-based Consumer Direct Link Inc., a developer of wireless security handheld devices.
The unit focuses primarily on making computing devices for customers. It does everything from chip design to device design and develops accompanying software applications if needed, Lewis said.
Although customers can license IBM's intellectual property, they retain their intellectual patent rights so they can earn money from their own patents, Lewis said. Depending on the project, IBM could earn royalties on sales of devices. The business model varies by project, he said.
For example, IBM helped to finance a project for Consumer Direct Link and made an equity investment in the company because it believed there was a strong market for the security product. CDL developed fingerprint authentication technology for mobile devices, enlisting IBM to design, engineer and manufacture the handheld, which looks like a PDA.
Work for Medtronic
The division also signed on to develop a computer that Fridley-based Medtronic uses to monitor and program its surgically implanted products.
"We went to IBM thinking that if we need a computer, then we should go to the people who are expert at that," said Medtronic's Scott Nintzel, director of cardiac rhythm management instruments development and manufacturing. Medtronic sought out IBM in the early 1990s before the division had been formed.
Although outsourcing is expensive, and IBM's prices are at the higher end, Medtronic is tapping into a well that's bigger than the Rochester unit. The people in Rochester have access to IBM's entire organization, he said. IBM's Rochester location houses 4,600 employees who work within IBM's various divisions.
IBM engineered and designed a computer that Medtronic simply calls the "programmer."
The programmer, essentially an enhanced IBM Thinkpad laptop, monitors a patient's implanted devices such as a pacemaker. The latest-model programmer is contained within a magnesium die-cast enclosure that makes the computer strong and light, Nintzel said. It also has touch-screen technology and a built-in printer.
Aiming small
IBM is targeting small companies with good ideas, offering them a catalog of ready-made products and services. If a company is trying to get ahead in the marketplace, it can gain an advantage by working with IBM because most of today's computing technology has been developed at certain levels within IBM, said Samuel Prabhakar, director of system solutions. If a company uses another vendor, it might have to start from scratch.
The unit can make "practically anything," Prabhakar said. "But if you have a mundane design, we aren't a good match," he said.
For Xybernaut Corp., a Fairfax, Va.-based wearable-computer company, IBM designed, engineered and manufactured its MA5, a mobile assistant device that is used by Bell Canada, a Canadian telephone company. Bell Canada's service people, the telephone pole climbers, use the belt-mounted, voice-activated mini-computer, which is about the size of a paperback book. The MA5 has a wireless connection to the Internet, and the user wears a headset that has an arm with a mini-monitor.
It sounds a bit clunky, but it's better than climbing up the pole, running into a problem and then climbing back down to consult a reference manual, Prabhakar said. IBM designed the device to be a lot smaller than the previous version, he said.
The division also is developing a computer for Lockheed Martin that will calculate 1 trillion instructions per second. (The brain still is 100 times more powerful.) The computer will be a collection of 64,000 laptops that will learn about proteins by building them from scratch. The prototype should be done this year, with delivery of the finished computer in three years. The hard part is linking the computers together and getting them to work simultaneously, Prabhakar said.
A role model
The unit could face a challenge when a customer's competitor comes to it for services. "It hasn't happened, but we're preparing," Prabhakar said. The solution: Each project would have its own team of people.
Engineering and Technology Services even has a role model in the company: IBM's Global Services division, which helps companies use IBM's products to get their own products to market. Like Global Services, the new division has been given a lot of resources from throughout the company.
Global Services was created seven years ago when IBM combined its consulting group and another division, Integrated Systems Solution Corp. The idea was to begin charging for services that IBM had bundled in for free with hardware purchases, Lewis said. Then it had $22.3 billion in revenue and 94,000 employees. By 2001 it had $35 billion in revenue and 148,000 employees.
It might take five to 10 years, but "we like to think of a future very much like Global Services," Lewis said.
-- Sherri Cruz is at scruz@startribune.com. |
