Gerstner sees shift, not recession

New York

IBM chief, Louis Gerstner predicted that the global economy is not moving away from high technology, as suggested by the recent slowdown in PC and networking markets. Instead, Gerstner in his keynote address at the eBusiness Conference and Expo in New York said, "There is a shift taking place in favor of new Internet business tools rather than any overall slowdown in spending on technology."

"From my perspective, it's a little too early to predict that what we are seeing is, in fact a slowdown in any economy. I think what you all see, is a reallocation of technology spending dollars, not a diminution," Gerstner said.

IBM has remained quiet in recent weeks whether it has been impacted by the recent slowdown in several technology sectors. Rivals Intel, Motorola, Compaq and Gateway have warned investors of a sharp revenue slowdown. HP, IBM's closest rival, has predicted sales to actually increase in the next 12 months.

Gerstner did say that he believes IBM is somewhat insulated from the threat of spending declines. "The retooling of the infrastructure can be self-financing, if done right."

Gerstner also said the early wave of Internet frenzy has passed and declared "the death of easy" Internet success stories. "Today, e-business is just business… real business. This is not about building some utopian world of personal convenience, personal relaxation and leisure. Car makers are not investing millions so that you can talk to your steering wheel and ask your intelligent house to fill your intelligent bath tub--all so you can soak four minutes earlier."

The real opportunity, he insisted, is in continuing to build an improving online infrastructure and extend it globally. Major markets exist for IBM and others to provide "middleware" software that connects different computer systems, as well as what Gerstner calls "e-sourcing" in which companies rent software or services over the Internet from the likes of IBM instead of owning equipment themselves.

IBM, he said, will be more aggressive in going after niche markets where Sun, Oracle and EMC have been growing far faster. Gerstner said IBM's focus will be on building the connective tissues to bind together business organizations. "This represents a full frontal assault on the prevailing mantra of organizational theory--decentralization is good, centralization is evil.

There are some 700 million PCs, one billion wireless devices and a "trillion or more connected things" like toasters, car brakes and pace makers to connect to the Internet, Gerstner said. "We do have more infrastructure than anyone else in the world--in the form of servers, software and storage devices--and that opportunity will grow disproportionately compared to the PC opportunity."

He concluded by saying that IBM will grow its dependence on the Linux operating system as more corporate users adopt the operating software. IBM will invest nearly $ 1 billion in its Linux operations.

IBM has agreed to build the world's largest Linux supercomputer for Royal Dutch Shell in the Netherlands, which will use the system to analyze seismic data and identify oil reservoirs. The supercomputer will incorporate 1,024 standard IBM servers. "We're convinced that Linux can do for business applications what the Internet did for networking and communication,"