IBM leans more on drives, displays

As IBM continues to cut deals with industry giants such as Dell Computer and EMC, it is becoming apparent that its real strength is storage technology.

"Of the $6.8 billion OEM business, half of this is disk drives. This is really important," said David Ernsberger, vice president of worldwide sales at the IBM Technology Group which oversees IBM's colossal component sales businesses which, in addition to storage, include a smorgasbord of chip technologies, networking and communications hardware, and displays--in short, all major components used in computers today.

Meanwhile, Big Blue is "out of DRAMs" but gearing up to better supply PC makers hungry for its liquid crystal displays (LCDs), he said.

Ernsberger said that "all the [PC] majors" buy IBM drives. He cited IBM's popular 6.4GB hard drive for notebook PCs, used by almost all the top notebook suppliers, and its whopping 14GB hard drive used most prominently in its 770z ThinkPad portable as well as drives for servers and workstations.

Market researchers back this up. IBM became the overall market leader in 1997, according to Disk/Trend. "IBM...became the worldwide leader in overall sales revenues, with a 23.9 percent share of worldwide sales revenue," according to a report. IBM also makes key hard disk drive parts such as drive heads, which read and write the data, allowing it to forge new technologies quickly, Ernsberger said.

IBM is now looking beyond traditional computers with tiny storage devices. The storage division is preparing to introduce its "Microdrive" for digital cameras and other devices. "This will go into game machines, palm tops, and cameras," Ernsberger said. "This [market will be] every bit as big a revenue stream we're generating today." He said the camera makers such as Kodak, Canon, and Minolta are preparing cameras that can use the drive.

For future growth, Ernsberger said that one of IBM's "crown jewels" is active- matrix LCDs. Indeed, IBM is the only U.S. company that makes this critical component commercially. IBM sells stand-alone LCD monitors--as a replacement for the venerable but bulky CRT--but also supplies LCDs to notebook manufacturers, competing with panel makers such as Samsung, NEC, and Sharp.

IBM has always been a leader in technology and quality, said David E. Mentley, vice president, Stanford Resources.

IBM's problem now, said Ernsberger, is trying to meet demand. "All of the big guys are in some stage of a [LCD] relationship with IBM," he said but added "our ability to respond to [increased] demand is minimal right now." He said that currently about 60 percent of its LCDs go to IBM internally with the remainder to outside customers.

LCDs comprise about one-third the cost of a notebook PC, a larger piece of the cost compared to other critical components such as an Intel processor.

As a result of the Dell deal, the Austin, Texas-based PC maker is now designing IBM LCDs into some of its notebook computers, he said. LCD prices have been rising this year as demand surged.

But memory chip prices have headed in the opposite direction so Big Blue is fleeing the DRAM memory market. "Market pricing doesn't allow you to make any profit," he said. "We're selling selectively where we have commitments, but no new business."