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IBM: IT services are key
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May 10, 2001: 6:35 p.m. ET
IBM CEO Gerstner lays out company's long-term vision in yearly address
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NEW YORK (CNNfn) - The top executive at IBM on Thursday shared his vision of the information technology (IT) industry and outlined the tech titan's long-term strategy in relation to it.
Louis V. Gerstner, IBM's chairman and chief executive, told analysts gathered for his annual address in New York City that IT services will become much more important in the industry.
"While services is already the largest segment in our industry, we haven't seen anything yet," Gerstner said. "We're on the verge of a tectonic plate shift here."
Since he took the helm at IBM in 1993, Gerstner, who only speaks to analysts once every year, has transformed IBM from its traditional role as a 'box-builder' into a provider of technology, services and software. While IBM is still the world's largest supplier of computer hardware, it also now has the world's largest technology services business, which accounts for roughly 35 percent of its total sales.
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IBM Chairman and CEO Louis V. Gerstner's contract expires in 2002. (Courtesy/IBM) | |
In his prepared remarks, which are intended to provide more of a big-picture view of the company rather than provide short-term quarterly guidance, Gerstner focused on three major themes.
First, he said that despite the dot.com collapse, institutions of all sizes and types will make "massive investments" in networking technology over the next few years.
"The fireflies are gone, and the real storm has arrived," he said.
Second, he said he believes a new set of technological leaders are emerging in the IT industry. And finally, he said IT managers are going to base their buying decisions not so much on the hardware or software, but on the services that a company can provide.
He also described what he sees as a shift toward a server-based computing architecture, which he said will be "entirely dependent on open standards."
"In this new computing model, I believe it is clear that any proprietary product is destined to atrophy, dry up and blow away," he said.
Gerstner reiterates guidance
Although the meeting was not intended as a quarterly update, Gerstner did reiterate previous comments made by other IBM executives that the company will continue to post "high single-digit" revenue growth and "double-digit" earnings growth.
He stressed that the company has decided to focus on the bottom line more than the top line, which he said makes more sense given the current business environment and IBM's business model.
"Is double-digit revenue growth possible? Yes," he said. "But at the end of the day, we don't need it for our model."
He also pointed out that IBM's focus on earnings, cash flow and market share instead of revenue growth has shielded the company against some of the pricing pressure that is being felt by some of its competitors, especially in the PC and data-storage areas.
Check on other tech blue chips
"We're not going to chase revenue and destroy earnings," he said. "Chasing revenue in a commodity business is really dumb."
For the most part, Gerstner's comments were just reiterating the initiatives and business plans IBM already has articulated, touting everything from the company's semiconductor technology, which he said has a "two-year lead" over its competitors, as well as its initiatives in the network-server market.
Earlier in the day, some news organizations published stories speculating that Gerstner, 59, would signal his intention to step down from his post. However, he shrugged off the suggestion.
"As I was coming over here today, I was glancing at some of today's media reports and felt some sympathy for Mark Twain when he said reports of his demise were greatly exaggerated," Gerstner quipped at the outset of his prepared remarks.
"I'm impressed that all of you would come to see the old has-been," he added.
Gerstner's contract expires in 2002, and some company watchers have noted that all its previous top executive have retired at age 60. In July, the company promoted Samuel Palmisano to the new position of president and chief operating officer, a move many thought put him in line to succeed Gerstner as CEO.
During a question-and-answer period after Gerstner made his comments, one analyst asked Gerstner if they could expect to meet with him again at the same time next year.
"We don't plan that far ahead," Gerstner replied.
Shares of IBM (IBM: Research, Estimates) fell $1.78 to $115.20 ahead of Gerstner's remarks, which he made after the close of trading. 
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