IBM Chairman Tells Strategy for New Markets : Update: He says products will fit the client-server trend. Analysts hear little news.
IBM Chairman Louis V. Gerstner Jr. on Thursday delivered a broad outline of the company’s strategy, saying its products are changing in ways unseen since the 1960s.
Gerstner said IBM has found further areas where it could save money, but does not anticipate cutting more jobs than previously announced.
He said International Business Machines probably will never again see the level of profitability that mainframe computers once brought. He said the decline of IBM’s gross margin, to 38% from 55% in less than three years, was an “economic shock the equivalent of the Los Angeles earthquake.”
Gerstner’s hour-long speech to Wall Street analysts contained little that was new to those who follow the company closely. IBM’s product announcements and annual report, sent to shareholders last week, had presented most of what he said.
Gerstner promised last summer to bring the company’s strategies together in a simple outline. In doing so Thursday, he answered criticism of a remark he made last year, that “The last thing IBM needs right now is a vision.”
Analyst Bob Djurdjevic of Annex Research called Thursday’s speech “much ado about nothing, from the sense of change.”
It reflected the growing complexity of the computer industry as much as the problems and opportunities IBM now faces. Gerstner noted, for instance, that some customers are saying they want the pace of technological change to slow down.
“We’re not betting the company on any one technology or gizmo,” Gerstner said. “That’s not to say we don’t have a secret weapon or two under wraps. . . . We cannot reduce what IBM must do and is doing to a sound bite or slogan.”
Nonetheless, he tried. “IBM’s mission is to be the most successful and important information technology company,” Gerstner said.
IBM will aim to bring its innovations to market more efficiently and play a leading role in the mutual advances of computers and telecommunications, he said.
In addition, he detailed how IBM is changing the way it interacts with customers. He said the company is increasing its business in developing markets such as China’s and using its large size to save money for itself and customers.
Most significantly, Gerstner announced that IBM will change all of its products to be used in so-called client-server networks. In that environment, computer brainpower and data is spread through many machines, not concentrated in one, as in a mainframe system.
Businesses have been shifting their computers to client-server systems for several years. The failure to capitalize on that trend was “the single most important mistake IBM has made in the last decade,” Gerstner said.
Gerstner addressed the analysts after the stock market closed Thursday. IBM stock finished the day at $56.375 a share, down 87.5 cents, on the New York Stock Exchange.
