Network servers lifting IBM, chairman says Large, linked systems seen as firm's specialty

March 05, 1996|By BLOOMBERG BUSINESS NEWS

NEW YORK -- International Business Machines Corp. Chairman Louis V. Gerstner Jr. said yesterday that the pendulum in the computer industry is swinging back to IBM's favor with the popularity of large, interconnected systems of computers.

"The industry is coming back our way -- it's coming back to our sweet spot," Mr. Gerstner said at an analysts' meeting in New York. "The focus in computing is shifting away from PCs and toward the network server and we are the server company."

All of the company's server platforms are gaining market share, he said. "And that is off a base of being No. 1 in large-scale servers, No. 1 in mid-range servers and No. 1 in UNIX servers."

IBM shares fell $2 to $116.125 in trading of 4.32 million shares. The shares reached a high of $128.875 last week, their highest price in five years.

IBM lost nearly $16 billion between 1990 and 1994 as prices for big mainframe computers plummeted and personal computer and server sales skyrocketed. Mr. Gerstner joined IBM in April 1993, and has since cut more than 63,000 jobs, slashed nearly $7 billion in costs and revamped management. Mr. Gerstner said IBM, the world's largest computer maker, also is gaining share in the PC server market, in which it holds the No. 2 position behind Compaq Computer Corp.

"In PC servers we just blew it, we just missed this market," he said, noting that IBM didn't enter that market until mid-1994. "We are gaining share, and we intend to do a lot better."

He also said the growth in these businesses is sustainable because of the continuing shift to networked systems of computers.

A server is a powerful centralized computer that distributes and manages a network of linked workstations, other servers or personal computers.

As more people link up to the Internet, work from home or communicate with fellow employees via electronic mail, the importance of networked systems of machines increases.

"This new model is changing where computing takes place. " Functions that are now inside PCs will migrate to the network," Mr. Gerstner said. "The economics of our business will change."

As more applications, information and processing power shift away from the desktop machine, IBM's core strength in databases, mainframes, software and services will be important, he said.

IBM is already the No. 1 services provider, managing and upgrading customers on its private network, and Mr. Gerstner said the opportunity is just getting bigger.

"The opportunity is vast," Mr. Gerstner said, in his third annual address to Wall Street analysts. "We are no. 1 in the industry and we only have 9 percent share."

He said IBM is hiring service employees "as fast as we can," and the company added 15,000 new employees in sales and services in 1995.

Pub Date: 3/05/96

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