IBM expects spending increase

International Business Machine Corp chief executive officer Sam Palmisano said he expects US economic growth to spur increased purchases of computers, software and related services.

"I'm very optimistic about the long-term growth of the information-technology industry," said Palmisano in a speech at a customer meeting at San Francisco's Museum of Modern Art. The computer-related industry "is no longer going to be driven by gizmos and guessing." Last month, Armonk, New York-based IBM, the world's biggest seller of computers and related services, said it would create 10,000 new jobs and spend US$200 million to retrain 100,000 employees for computer services and software work.

The US economy expanded at a 7.2 percent annual rate from July through September, the fastest in almost two decades, led by consumer demand.

"Consumer [spending] is already picking up," Palmisano, 52, said in a meeting with reporters. "IBM has very, very close relationships with most large enterprises in the world. We're seeing people planning for next year around the world to begin to take up spending in IT."

Market Gartner Inc expects computer spending to increase by less than 10 percent next year, down from growth as much as double that in the dot-com boom of the 1990s.

Palmisano the growth is "modest" but encouraging. He said he expects large companies to increase spending by between 2 percent and 4 percent next year. Spending by small businesses will increase by more than 10 percent, Palmisano said.

Customers undertaking new projects and not restarting projects that have been delayed for economic reasons, he said.

Palmisano said IBM's strategy of charging customers for the services they use, rather than a flat fee, is doing better than the company expected. He declined to be specific.

Some managers have said they doubt the year-old strategy, which IBM calls on-demand computing, will save them as much as promised. IBM also is trying to encourage clients to hire it to perform labor-intensive tasks like payment processing.

Some of corporate computer networks have said IBM's offerings are only useful for customers who perform poorly tasks such as running data centers, an argument Palmisano disputes.

"We have US$100 billion under contract," he said, referring to the backlog of the company's services business. "It's more than people who ran sloppy operations."

General Electric Co chairman and CEO Jeffrey Immelt, EBay Inc president and CEO Meg Whitman and Cisco Systems Inc.

President and CEO John Chambers also addressed the crowd of about 200 customers.

"They believe in this on-demand thing," Palmisano said. "I can't make them say this stuff."

Palmisano Louis Gerstner as chairman last year. He joined IBM in 1973.