IBM, Hanging Up on Phone Business, to Spin Off Rolm
IBM said Tuesday it is unloading its money-losing Rolm telephone equipment operations, which it bought four years ago amid much fanfare about the growing need to marry computer and telephone technology.
At a New York news conference, IBM said it will sell a portion of Rolm to West Germany’s Siemens AG and put the rest of the business into a joint venture with Siemens. Although the companies did not disclose the terms of the deal, analysts speculated that Siemens will pay IBM $300 million to $400 million.
The deal, widely rumored for weeks, generally was seen as a sign of IBM’s disappointment with Rolm, a Silicon Valley telecommunications manufacturer that it bought in 1985 for $1.5 billion. Since the purchase, analysts say, IBM has lost as much as $500 million on Rolm. Nevertheless, under IBM’s ownership, Rolm became the nation’s largest seller of PBX systems, telephone switching systems that route phone calls within a building.
“IBM is getting rid of an operation that wasn’t profitable, that wasn’t doing much for the rest of the company and that was viewed as superfluous to the entire company’s operations,” said William Easterbrook, a technology analyst for Kidder, Peabody & Co. in San Francisco.
IBM’s move to drop Rolm was also viewed as yet more evidence of the difficulty in merging telephone and computer technologies--long been seen as the inevitable future for the communications industry. When IBM bought Rolm in 1985, AT&T; had just entered the computer business, and both technology giants were expected to quickly invade each other’s turf.
However, the appearances were deceiving. “Converging computers and communications has proved to be a heck of a lot harder than anyone imagined,” said Paul Saffo, an analyst with the Institute for the Future in Menlo Park.
Added James Meyer, an analyst with Janney Montgomery Scott in Philadelphia: “We’ve found out that AT&T; doesn’t know the computer business that well and that IBM doesn’t know the telephone business.”
But the deal with Siemens teams IBM with a company on the cutting edge of central office switches--the newest telephone communications system and a technology in which IBM is said to be extremely interested. Central office switches, which employ the latest digital technology, can handle thousands of calls simultaneously, many times more than the older-technology private branch exchanges, or PBXs, that Rolm specialized in making.
Under the agreement, IBM will sell outright the development and manufacturing arm of Rolm, which employs 2,800 in Santa Clara, to Siemens. The new Siemens unit will be known as Rolm Systems and will also include 700 employees now working for Siemens. The unit will be based in Santa Clara and headed by Ray S. AbuZayyad, now an IBM vice president and assistant general manager at Rolm Systems.
The purchase, expected to close next year after federal review, would make Siemens the world’s biggest seller of office phone switches. Siemens could consolidate its lead if it is successful in its efforts to buy Italtel, an Italian phone company, and Britain’s Plessey Co.
The deal also calls for IBM and Siemens to jointly own a marketing and services company, known simply as Rolm, that will offer telecommunications products for private telephone networks in the United States. It will have 5,500 employees who currently work for Rolm and fewer than 100 now working for Siemens. The marketing company will be based in the Stamford, Conn., area and will be headed by H. Mitchell Watson Jr., now an IBM vice president for marketing and service.
In addition, IBM gradually will phase out a Rolm manufacturing and development plant in Colorado Springs, Colo., and offer jobs elsewhere in the company to all the employees there.
