IBM shuffles divisions to focus on servers

The company reorganizes its PC and server divisions in a way that could buoy the profitability of some divisions while lessening others.

3 min read
IBM is doing some spring cleaning--and remodeling the house to boot.

The Armonk, N.Y.-based company on Friday quietly shuffled product groups in a way that could buoy the profitability of some divisions while lessening others. The changes also acknowledge Robert Moffat's success running IBM's PC division.

IBM has shifted Intel-based servers out of its PC operation, formerly known as the Personal Systems Group, to the server division. Bill Colton, who had been the PC group's vice president of development, heads the new X Series group. He reports to Bill Zeitler, general manager for the entire server division. With that move, IBM also broke out from the Intel server operation a separate organization focusing on server appliances.

At the same time, the technology group forfeited the company's high-end printing operation, which the PC division has picked up.

The changes were long overdue, analysts say.

"It's not a surprise," said Gartner analyst Tom Bittman. "We've been expecting it for some time."

At one time, it made sense to have Intel-based servers with Intel PCs, but that changed as the systems grew more powerful, Bittman said. "If you look at these Intel servers, they're essentially competing against all of IBM's server line, so it doesn't make sense to have a different group managing them," he said.

The product realignment also fits in better with IBM's server rebranding. In September, the company consolidated all the systems under the eServer brand and renamed Intel-based Netfinity servers X Series.

But removing X Series, one of the PC division's most profitable product lines, could cut into profitability, say analysts. After about two years of losses--starting with a nearly $1 billion loss in 1998--the PC group has posted two straight quarters of profit. Removing X Series could jeopardize that.

"Absolutely, it's going to make the server numbers look better and the (PC division) numbers look worse," Bittman said. "Frankly, that's probably more important to IBM to show more strength in servers than to show more profitability in PCs."

Technology Business Research analyst Bob Sutherland said even with the X Series, IBM's PC division "was already expecting to report a loss in (first quarter) due to seasonality of sales combined with a softness of IT spending industry-wide. With the aggressive cost cutting and operational improvements by Moffat, I expect the new group to report profitability by the third quarter."

IBM spokesperson Ray Gorman dismissed any long-term concerns about the remaining PC organization.

"Where is the growth going to come?" he said. "Let me be perfectly clear: IBM is not getting out of the PC business. We're going to continue to grow the profitability of all the brands."

Under the new organization, called the Personal & Printing Systems Group, IBM established three separate divisions, with Moffat acting as general manager. That works out as a promotion for Moffat, who goes from managing a single group to a large organization with three divisions.

The remaining core operation left over from the old PC group, which Moffat had run, becomes the Personal Computing Division. The new PC division will continue to focus on desktops, portables and workstations under John Judge, who had been head of sales for the old PC group.

Bill McCracken will continue to run the printing operation, now called the Printing Systems Division. McCracken's group specializes in high-end, heavy-duty printing products. The division, for example, facilitates Barnes & Noble's print-on-demand services. Customers order books in select stores that are printed for pickup the next day.

Tom Peterson is responsible for the remaining division, Retail Store Solutions, which specializes in cash registers and other products for retail operations.

Gorman said the revamped PC operation would focus on services and "the new NetVista and ThinkPad lines you saw delivered last year; building those products directly and quickly."