IBM's Palmisano: Get into the grid

Making his first major public appearance since being appointed IBM's CEO to be, Palmisano outlined his vision for the future of technology at the company's PartnerWorld 2002 conference here Tuesday.

In the future, businesses will weave their operations together through complex networks based on open technological standards, he said. To succeed in this world, technology companies will have to provide everything from consulting services to scientific breakthroughs in software or component technology to massive numbers of servers and storage devices.

"Billions of wireless devices will go into this infrastructure that has got to run (constantly)," he said. "The industry is in a transition, and it is more than driven by the economic environment."

And the environment will continue to be challenging. "2002 is going to be a very tough economic year," Palmisano said.

Naturally, Palmisano, who will take over as IBM's CEO March 1, predicted that IBM will thrive in this environment. The Armonk, N.Y.-based company participates in nearly every segment in the industry, he said.

Just as important, the company has already adapted itself to this world by embracing technologies such as Linux and emphasizing a shift toward services. Nearly everyone else is in the transitional stage, he said.

Microsoft's .Net strategy, for instance, underscores a shift at the software giant toward becoming a provider of back-end transactional software, he said. Dell Computer, meanwhile, is moving into services, while Sun Microsystems is emphasizing Linux.

As if to mark a shift from the Lou Gerstner era, Palmisano, a much more gregarious executive, also threw some slightly veiled jabs at his competitors. He pointed out that Sun CEO Scott McNealy wore a penguin suit to deliver a keynote speech in London recently.

"That is a strategic shift at Sun," he said. As for the Hewlett-Packard-Compaq Computer merger, Palmisano on more than one occasion indicated that the deal would increase HP's exposure to the PC market and not necessarily help it catch up with IBM.

"We don't see the need for a major strategic shift," he said. "We don't see the need to buy a major PC company like our competitor."

EMC, a competitor in storage, "is a company you love to hate," he said.

Still, life at IBM is far from easy, he acknowledged. IBM occupies about 10 percent of the technology services market. The company could take 20 percent of it, but to get there it will have to increase its number of employees in this area from 135,000 people to almost 250,000.

IBM's future in the PC market also remains murky. PCs were one of the few segments in which IBM saw its market share decline in 2001, and finding a profit in the market will continue to be difficult.

"Two huge duopolists," he said, meaning Microsoft and Intel, "take most of the profits."

Dell's build-to-order business model has also become an onerous fact of life for competitors, he added. "There is no doubt about last year. Dell won the race from a (market)-share perspective," he said.

Though he didn't state that IBM would get out of the PC business, Palmisano clearly indicated he wasn't a big fan of the market. In some hardware markets, "you can't make it up in volume," he said.