IBM CEO ducks layoffs issue, plays up strengths

Amid rumours of impending layoffs and after a quarter in which IBM missed analysts' earnings expectations for the first time in a decade, newly installed chief executive officer Sam Palmisano managed to skirt such issues during the company's annual meeting with financial analysts.

Palmisano did not elaborate on the company's recently ended financial quarter and dodged questions about employee cuts, saying only "you'll hear more about what we're doing" to reduce costs.

IBM's new CEO instead focused his remarks on an overview of IBM's long-term strategy and an optimistic assessment of its market position.

The IT industry is splitting, and those seeking to be "a winner in a major way" have only two options, he said: to invest heavily in research and development and lead through technological innovation, or to develop new types of business models.

Dell Computer is an example of the latter kind of leadership, Palmisano said, while IBM has chosen the first path. Without naming names, he insinuated that IBM's rivals are still trying to find their course.

Apparently referring to Hewlett-Packard, he said that "some people coming together" are mixing business models, planning an R&D machine that can stack up against IBM's but which will be funded by sales of products competing in low-margin sectors dominated by business-model innovators, he said. Boosting R&D spending was an impetus often cited by Hewlett-Packard for its acquisition of Compaq, a move that increases HP's dependence on the PC market.

Other vendors are still trying to figure out where they are, toying with an embrace of open standards and eyeing the software and storage markets.

"You watch the argument, and then the management team decides to try another company," Palmisano said. Several top Sun Microsystems executives, including the company's president, have recently announced their departures. Oracle has also lost senior staff members in recent months.

Palmisano touched on IBM's own trouble spots. The company is taking quick action to stem losses from its PC and hard disk drive operations, he said.

With its PC business, IBM had a cost problem and a business model problem, according to Palmisano. It fixed the first by outsourcing production of its desktop line, a move initiated in January through a deal with Sanmina-SCI. The business model problem is being addressed through a focus on building a system for direct distribution.

"We now have an acceptable equation for our PC business that we think is sustainable even in a tough environment in which volumes are declining," Palmisano said.

IBM is continuing negotiations with Hitachi on a deal to pool the companies' hard disk drive businesses into a new venture that would be majority-owned by Hitachi, according to Palmisano. Long term, the technological differentiation in that business won't be what it was, he said, a recognition that led IBM to begin considering its options for the slumping operation.

"Yes, we invented all this [the hard drive], but it was an issue, we're addressing it, and we hope to come to closure," he said.

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