IBM Fights Slack Revenues With New Products



IBM's strength in E-business is its ability to offer computers ranging from palmtops to high-end mainframes. Its weakness is selling them. The disconnect was painfully clear in IBM's first- quarter financial results, released last week. Stagnant software and services revenue played a part, but what really hurt was the 12% decline in hardware sales, compared with a year ago.

All told, IBM's first-quarter revenue declined 5%, from $20.32 billion in the same period last year to $19.35 billion. It's the second bad showing in a row for IBM's hardware business. In the fourth quarter, server sales plunged 33% compared with a year earlier. At the time, IBM CEO Louis Gerstner reportedly warned employees that they had two quarters to turn things around.

This week, IBM is expected to introduce a slimmed-down PC, the first in its EON-class machines. Next, IBM will introduce a low- cost midrange Unix server--the RS 6000 M80--that's aimed squarely at Sun Microsystems' dominance in Web servers. Separately, IBM plans to expand its use of ultrafast copper chips beyond its RS/6000 line, giving more zip to its other server platforms. And it's about to adopt the Linux operating system for use on its mainframes, potentially expanding the universe of mainframe applications and users. To bring more efficiency across all its hardware lines, IBM says it intends to share more components among its various systems.

Even considering corporate and distribution makeovers in the works, some analysts think more changes may be needed. "There's too much [product] overlap, and it's confusing to customers," says Bob Sutherland of Technology Business Research. Salomon Smith Barney's John Jones gives IBM's PC business a 50-50 chance of survival.

IBM insists it isn't killing any product lines. The irony: Those product lines seem to be killing IBM.

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