IBM to deemphasize PCs
By Brooke Crothers
Staff Writer, CNET News.com
March 24, 1999, 5:00 p.m. PT
In IBM's recently posted 1998 annual report, chief executive Lou Gerstner labeled e-business as IBM's future and repeated a mantra often heard among CEOs: "The PC is dead."
Gerstner had a new, very strong reason to claim the demise of the PC. In the personal systems division, which makes desktops and servers, IBM suffered a $992 million loss last year largely due to price competition. The personal systems division makes PCs, including desktops and portables.
The loss was off a whopping 516 percent from the year before, according to an IBM financial statement.
The 1998 report, which came with a letter from Gerstner, outlined the company's future, and it will IBM's Revenue Ride:
Personal Systems Group
1998 revenue 1997 revenue Percent change
Revenue $12.8 billion $14.4 billion -10.8%
Income -$992 million -$161 million -516%
Source: IBM
increasingly deemphasize the PC. IBM will attempt to capture a big part of e-business, according to Gerstner, which "represents an enormous opportunity…by 2002…the e-business segment [overall] will grow to $600 billion, and it will grow twice as fast as the industry overall."
But he also spelled out Big Blue's "difficulties." These include "soft memory chip prices and a PC price war," he said.
"Some were of our own making, wrestling with important product transitions in our server line, for example," Gerstner said. He also cited the usual geographical problem spots: Asia and Latin America.
"The PC era is over" was the title of one part of the report. A statement which, no matter how many times it's stated, carries a lot of weight as it is coming from the company that helped invent the business PC. CEOs such as Hewlett-Packard's Lew Platt have also been stating this along with major PC antagonists such as Sun Microsystems' Scott McNealy and Oracle's Larry Ellison.
"This is not to say that PCs are going to die off, any more than mainframes vanished when the IBM PC debuted in 1981…But the PC's reign as the driver of customer buying decisions and the primary platform for application development is over. In all those respects, it has been supplanted by the network," he said.
"As the Net takes over much of the work previously performed by PCs, we're seeing another interesting development: a proliferation of new personal computing devices, personal digital assistants, Web-enabled TVs, screenphones, smart cards, and a host of products we have yet to imagine. One market research firm predicts that sales of non-PC Internet devices will surpass PCs within five years."
Gerstner crowed plenty about IBM's upside. "Our market value--probably the most important measure of progress to investors--grew $69 billion. Last year, IBM's share price rose 76 percent. For the fourth straight year, we reported record revenue--$81.7 billion. Our earnings rose to $6.3 billion," he said.
Still, all was not sunny at IBM. Along with the decline in PC revenue, the server group posted a pretax profit of $2.84 billion, off a slight 1.6 percent from 1997. Software jumped about 27 percent from the year before to almost $2.59 billion.
Other highlights from Gerstner's letter:
"The basic components of computing--processors, memory, storage, networking--are becoming so small, powerful, and inexpensive that soon computing will be embedded in all kinds of everyday things that don't look at all like computing devices: cars, roads, machine tools, vending machines, houses."
"When all these are connected to the Net, they will make possible a new class of applications, invisible to end users but vitally important to businesses and institutions. IBM calls this "pervasive computing."
"[Another] major development looks like the polar opposite of pervasive computing, but it's really just the flip side. A new class of heavyweight computing systems is emerging that will make possible new ways to gain insight and foresight from both the enormous, underutilized stores of data that organizations already possess, and the sea of information that pervasive computing devices will generate. We call this capability Deep Computing."
"The Year 2000 problem is important, and it's being addressed. But a lot of work remains to be done fast. While no one knows for sure what will happen, we believe the largest companies, institutions, and government agencies will be ready, particularly those in technologically advanced nations. They got an early start fixing their systems, and they are using this year to test extensively. Less certain is how smaller businesses and emerging nations will fare. They've got to pick up the pace."
Greg |
