Some Gerstner comments near the bottom from his analyst meeting on selling the PC business...
John
May 9, 2000
Dow Jones Newswires
IBM CEO: New Servers Target Mkt Dominated By Sun Micro
Dow Jones Newswires
By Scott Eden
NEW YORK -- International Business Machines Corp. (IBM) Chief Executive Louis V. Gerstner Jr. gave advance notice to Wall Street Tuesday about a new line of mid-range computer servers the company is about to unveil.
Gerstner's comments, made during his annual address to investors and analysts, were meant to drive home the idea that Big Blue is emerging from a year-long period of "transition" - in which the company's stock has dropped from a high of 139 last summer. In New York Stock Exchange trading Tuesday, IBM shares ended at 109, down 3/4, or 0.7%.
IBM's new servers, which use a version of the Unix operation system, are aimed directly at the company's chief rival in the server sector, Sun Microsystems Inc. (SUNW), which has dominated the market for the Unix-based machines popular among companies for operating Internet functions.
"This is the sweet spot of the Unix market and where Sun has had an open field," Gerstner said of the new machines.
The product line, which Gerstner said IBM will officially announce on Thursday, will use copper-chip technology borrowed from IBM's S80 line of high-end servers.
Hardware sales have been a sore spot at IBM since last year, when Y2K spending freezes cut into the company's results. In the first quarter, hardware revenue fell 12% from the year-earlier period.
Gerstner noted during his speech, however, that for several years IBM has worked to make faster-growing businesses like services and software a larger portion of its revenue mix, and it will continue to do so.
"I'm not saying our hardware business is unattractive," Gerstner said, adding that as a CEO, "there is nothing better than having a great-big-solid cash cow."
Slightly cantankerous about the criticism his company has received lately from media and competition alike, Gerstner said that "we still feel good about this year, we feel very good about our strategy." He said the company's attitude toward revenue and net-income projections for the year hasn't changed since lower-ranking executives spoke to analysts about IBM's first-quarter results in April, saying that revenue growth should accelerate in the second half.
The Y2K effect "is over," Gerstner said, "and we're getting our business on track."
Gerstner said IBM has endured three "transitional phases" over the last year, including Y2K, the discharging of several businesses it deemed unlucrative, and a shift in the computer services industry to setting up Internet operations for customers in lieu of more traditional jobs such as installing enterprise software.
"Our customers around the world are consumed by e-business," Gerstner said. It was at last May's Wall Street address that the CEO hyped up Big Blue's role in helping companies set up Internet operations, saying that such services generated more money for IBM than "all the top Internet companies combined."
But on Monday, Gerstner said IBM didn't realize the extent to which traditional computer services would be overshadowed by the desire for companies to go online.
Gerstner's once-a-year appearance before Wall Street was widely watched for concrete signs of whether IBM might be reachieving the swift top-line growth of 1997 and 1998, a time also marked, not surprisingly, by a soaring stock price.
"Our model has not changed," Gerstner said. "Our model to build shareholder value is exactly as we created it four years ago: high single-digit revenue growth, low double-digit earnings growth."
Gerstner attempted to allay fears that IBM's services business - its traditional growth engine - would continue to experience weakness. "I have zero long-term concerns about a slowdown in services," Gerstner said, calling the recent sluggishness a "blip" on the company's "track record." In the first quarter, IBM's services arm posted revenue flat versus a year earlier.
Gerstner said the company's Web hosting operation - which he called the largest in the world - will double in size this year.
Big Blue's chief executive spent much of his 90-minute presentation Tuesday talking about the complicated "infrastructure" necessary for companies to build their Internet operations, and IBM's view that varied technologies will be needed to do it. His message was clear: IBM believes its "heterogeneous" approach will win out over rivals that specialize in only one area, such as Sun Microsystems with servers and EMC Corp. (EMC) with storage equipment.
Turning to PCs, Gerstner said the business remains perhaps IBM's biggest problem, especially commercial desktops, which continue to lose money. "We have a lot more work to do, and a lot to prove," Gerstner said. "We got caught along with others in a very important shift in the market," from indirect to direct sales. "It's been tough but we're starting to see results."
By the end of the year, IBM wants about 34% of its PC revenue to come through lower-cost direct sales, Gerstner said. "We're not going to let this be a drag on our business."
He shrugged off suggestions from analysts during the question-and-answer session about selling off the PC operation. "There are some things that are unthinkable at IBM," he said.
IBM will continue, however, to exit other underperforming business. Gerstner said that by year's end, IBM will be out of the DRAM, or dynamic random access memory, business. |
