The contents of Louis Gerstner’s address to New York analysts late Thursday, after the markets closed, were well enough flagged ahead of time, but the note of acceptance that the glory days really were over for good came as a surprise to some. We don’t make a lot of money on our mainframes, IBM Corp’s […]
The contents of Louis Gerstner’s address to New York analysts late Thursday, after the markets closed, were well enough flagged ahead of time, but the note of acceptance that the glory days really were over for good came as a surprise to some. We don’t make a lot of money on our mainframes, IBM Corp’s chief executive told the analysts: The issue isn’t how do we replace the mainframe. The mainframe is gone, Gerstner said. The question is now how do we create a sustainable level of margins that grow profits? He accepted that IBM will never be able to return to its days when profit margins were 55% to 60% instead of 38% currently. No IBM margins are ever going to return to the margins we used to have. We are not planning on it, Gerstner said. As reported, the six-point plan for IBM involves exploiting the technology from its labs better than in the past – the company has a woeful record of patenting things and then sitting on them until somebody else discovers the technology and wants to exploit it, and then simply bounding in to pick up royalties. The systems focus is now going to be on client-server computing, neglect of which Gerstner characterised as IBM’s worst single mistake over the past decade. He wants the company to become a leader in the emerging network services world, a preferred supplier to the builders of the information superhighway. He wants IBM to expand in emerging markets such as China and Latin America.
He wants to re-engineer the way IBM delivers customer value he’s wasted no time in picking up the impenetrable jargon, but that apparently means breaking up the sales force into small teams of specialists. And – as with the plan to use PowerPC chips throughout its product line, he wants IBM to use its size and scale to achieve cost advantages. He said the company’s cost-cutting plan is on track and he does not believe another write-down is necessary to pay for the thousands of job cuts at the company. But I don’t think we should plan on returning to the old IBM, he said shortly before the meeting: I don’t think we should plan on owning huge segments of the economic value in the industry. We’re going to try, but we’re not going to set our mental attitude or economic structure on the assumption we’re going to do it. Those presen say that his answers to analysts’ questions were even bleaker than his prepared remarks. Asked about IBM’s long-term operating profit margins, he said he simply couldn’t tell. We’re draining a swamp, and we’re not focused on the picnic grounds across the way, he said – I don’t know what our operating margins are going to be. Gerstner also said that numerous areas will take a lot of time to change, and cited IBM’s culture, which had a reputation for being slow to respond and arrogant as a big problem. He said he’s gone through old IBM strategy plans dating back to 1980 in which company officials clearly saw the market’s shift away from costly mainframe computers – but they failed to execute. Some customers say they want the pace of technological change to slow down, Gerstner noted: We’re not betting the company on any one technology or gizmo, he said. That’s not to say we don’t have a secret weapon or two under wraps but we cannot reduce what IBM must do and is doing to a soundbite or slogan: he suggested IBM’s mission is to be the most successful and important information technology company, but he didn’t want people in IBM to think that we can ever stop and think we’ve arrived, he added.