International Business Machines Corp Chief Executive Officer Sam Palmisano said the global economy may have hit bottom, and his company is investing US$10 billion to increase sales of on-demand computer services.
"There's no doubt there is excess capacity, but there is no doubt we are in a fundamental transition, and we see it every day," Palmisano said in a speech to customers, analysts and investors in New York.
"Perhaps we've hit the bottom and things will flatten out."
IBM and rivals including Hewlett-Packard Co want to sell more computer-related services on a per-usage basis over high-speed networks, similar to the way electricity is sold to utility customers. In some cases, companies can buy processing power, software or data storage on demand as if from a utility.
The investment in on-demand computing, which includes some acquisitions, marketing and research spending, "is not a risky bet," Palmisano said. IBM will spend US$700 million to US$800 million in the next year to market the service, he said.
IBM's quarterly net income has declined year-on-year the past five periods as sales of computers, software and chips slowed. The investment in on-demand computing makes sense, though it will take years to restore profit growth, investors said.
``It's not going to be the thing that drives the company for the next couple of years,'' said Edmund Cowart, chief investment officer at St. Petersburg, Florida-based Eagle Asset Management, which manages US$6 billion and owned 126,000 IBM shares as of June.
IBM may ``change the landscape'' of the on-demand market with the marketing push, Palmisano told reporters after the speech.
"Now is the time to show leadership."
Palmisano said on-demand computing could be used for just-in-time inventory controls, which companies use to make sure they don't overstock raw materials.
IBM has said the computing service will be particularly useful for financial-services companies, pharmaceutical developers and auto manufacturers.
Since Palmisano's promotion to CEO from chief operating officer in March, he has cut jobs and costs and shed underperforming units to maintain profit amid slumping demand.
He advocated this month's US$3.5 billion purchase of PricewaterhouseCoopers LLP's consulting unit and the pending sale of IBM's unprofitable hard-disk drive unit to Hitachi Ltd.
Palmisano will assume the added role of chairman from Louis Gerstner, who will retire from IBM at year's end.
Palmisano said he doesn't see a need for IBM to have a chief operating officer. The position has been vacant since he was made CEO. Three teams of executives oversee operations, strategy and technology, and report to Palmisano, he said.
"I don't need a body to tell me where we are."
The Armonk, New York-based company's sales from continuing operations rose 0.2 percent to US$19.8 billion in the third quarter, the first increase in more than a year.
The profit from continuing operations was US$1.69 billion, or US$0.99 a share, compared with US$1.71 billion, or US$0.97, a year earlier.
IBM is expected to earn US$0.79 a share this quarter and US$3.91 this year, the average estimates of analysts surveyed by Thomson First Call. Palmisano declined to give an earnings forecast today.
"Our earnings are not where we would like," Palmisano said.
He added that the company's profit has been stronger than many rivals' and the US-based computer giant won't cut research and development spending.
The 29-year IBM veteran said he has been in the computer business "longer than some CEOs have been alive."
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