Ibm Won't Live, Die On 'One Gizmo'

March 25, 1994|By Bloomberg Business News

NEW YORK -- International Business Machines Corp. Chairman Louis V. Gerstner Jr. told security analysts yesterday he won't bet the company "on any one technology or any one gizmo."

He did promise to do a better job making the company a more profitable computer maker. To do that, Mr. Gerstner said, he will use the company's vast assets more effectively, license more of its technologies -- from chips to software -- than ever before and try to make its wide array of products more compatible.

Licensing, as well as undertaking to make more computers and other systems for other companies, will also help fund "the very large costs of research and development" IBM needs to stay competitive, Mr. Gerstner said.

Licensing alone will bring in more than $500 million this year, the IBM chairman said. "And this is income that falls directly to the bottom line."

Although he promised to turn the company around soon, he declined to say how fast the recovery will take or predict profit margins for the computer giant.

"We are draining a swamp, and we've not been focused on the picnic grounds across the meadow," Mr. Gerstner said. "I can't tell you what our long-term profit margins ought to be and if I did, I'd be fooling you."

Mr. Gerstner and Jerome York, IBM's chief financial officer, conducted their first joint briefing for analysts since July.

Two months ago, Mr. York briefed analysts after IBM reported a record annual loss of $8.14 billion, or $14.02 a share. That was IBM's worst loss ever and the second-largest in U.S. corporate history. Mr. Gerstner took the heat last July when, after only three months in his job, he personally announced a record second-quarter loss of $8.04 billion, or $14.10 a share.

In brief remarks yesterday, Mr. York restated the company's financial targets of lowering costs, trimming debt and trying to generate profits from accelerated product sales. He didn't discuss the prospect of adding to the layoffs that have helped bring the company's payroll down to 256,000 employees from 301,452 in 1992. Mr. York has said previously that the payroll will fall to 225,000 this year.

"We're not terribly happy in absolute terms about our financial performance, but the ship is beginning to head in the right direction," Mr. York said.

Mr. Gerstner, who's been on the job nearly a year, reaffirmed that IBM won't spin off more of the company's businesses. He also said the company would try to generate more service and support revenue from clients, while offering them better support.

Mr. Gerstner said although IBM has learned how to develop best-selling products like the ThinkPad 700 laptop personal computer, it hasn't yet figured out how to meet demand. This kind of problem is "a personal nightmare I relive every day," he said.

Sounding like the management consultant he was before "parachuting" into American Express Co., RJR Nabisco Holdings Corp. and IBM, Mr. Gerstner gave a rough draft of a strategy that he said should make IBM "the world's most successful information technology company."

To do that, he promised the company will end duplication of research, speed products to market more quickly and streamline routine procedures, like purchasing industrial gases for the microelectronics division, to save costs.

Besides leveraging the company's strengths, he also pledged IBM would be easier to deal with. For example, he said that virtually all of the software that runs on IBM computers will be compatible.

Under the label "Workplace," IBM will devise a system of operating system technologies that will allow application programs to run on everything from a new IBM mainframe to a palm-sized "personal digital assistant," Mr. Gerstner said.

Much of that software work will center on the new PowerPC chip, which IBM developed jointly with Motorola Inc. and Apple Computer Inc. To date, IBM has shipped only one product using the PowerPC chip, but Mr. Gerstner promised new computers, including PCs, will be shipped with the new chip this year.

Mr. Gerstner noted that all of Apple Computer Inc.'s new Power Macintoshes will use the PowerPC chip made by IBM.

Running the company better will also mean IBM should be able to jump faster into the market for client-server computing, in which customers substitute networks of workstations and PCs for mainframes.

IBM was "late to the dance" getting into the client-server market but won't miss new opportunities, he said.

Also, the Armnonk, N.Y.-based multinational will use its decades of presence in international markets to win business in Asia and Latin America, with China as a tempting opportunity.

Mr. Gerstner also said IBM won't consider a "mega-merger" combining the fields of entertainment and computing, because there has been no demand by consumers for 500 TV-channel systems and other new services.

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