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IBM CEO Palmisano Says New Trends Will Spur Old Company

In addition to data centers, IBM expects to capitalize on the 3 billion people joining the middle class in the next 20 years.

IBM, which in recent years has struggled to grow its core software and services businesses, is counting on three trends to add some oomph to its top line, CEO Sam Palmisano said Thursday.

Palmisano said the company is poised to benefit from growth in emerging markets beyond the so-called BRICs -- Brazil, Russia, India, and China. IBM is also well positioned to extract more revenue from midmarket customers that want high-end technology and from large businesses that need to reduce data center costs and energy consumption.

"The world is changing ... and we need to make some adjustments," said Palmisano, speaking in Los Angeles to a group of IBM business partners.

Palmisano said IBM's efforts to expand its footprint in global tech hotspots like India and China have paid off, but noted that other parts of the emerging world are driving growth as well. "It's not just the BRICs, there are 50 or 60 others," he said.

"Three billion people will enter the middle class in our lifetime," said Palmisano. Much of that growth, he said, "will be supported by IT."

Another opportunity for IBM is the growing appetite among small and midsize businesses for enterprise-class technology. "That's a $500 million spend," said Palmisano.

Palmisano said IBM is also ready to profitably serve smaller customers thanks to its efforts to build out, along with Google, an infrastructure that enables it to deliver software and services through the Internet. The cloud, Palmisano said, is a virtual "application marketplace" that promises low overhead and high margins.

IBM's plan: to create a "Google like technical infrastructure that takes success in the consumer market and applies it to the consumer market," Palmisano said.

Palmisano said IBM also expects to profit from the fact that large corporate data centers need to be transformed in order to reduce space and energy requirements. "Those technologies have not been managed well," said Palmisano, noting that most companies spend three times more managing their data centers than they did buying the parts.

Data center modernization efforts will benefit IBM because it is, by virtue of its software, server, and services arms, the only vendor able to "solve problems end to end," Palmisano said.

"The solution is not a different router," Palmisano said. "Don't dumb down the problem."

Palmisano noted that IBM will be 100 years old in three years, but said that doesn't mean it can't cash in on new computing trends. "We don't mind being old. We're disciplined," he said.

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