Palmisano Warns Of Cost-Cutting

Palmisano's remarks, reported by consultant Robert Djurdjevic in a column on his Web site, were part of a speech on April 24 to IBM employees following the announcement of IBM's first-quarter financial results.

An IBM spokeswoman confirmed that Palmisano spoke to employees. She declined to address the specifics but said the remarks were consistent with those made by IBM CFO John Joyce in an earnings call with analysts in April.

According to Djurdjevic's report, Palmisano told employees: "We were building up investments in the company that were based on the assumption that we would have huge robust growth that is not out there anymore. And we [not just have to stay where we are, but pare back."

Djurdjevic, a longtime critic of IBM, did not disclose how he obtained a transcript of Palmisano's remarks.

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IBM executives have said that while the company has avoided much of the hurt felt by other high-tech companies during the past two years, the vendor never believed it was immune.

According to Djurdjevic's report, Palmisano told IBM employees that while he thinks the company has a tough storm to weather, it is in better shape than other companies. He also defended IBM's existing game plan, the report said.

"There is absolutely no reason for us to change our strategy," the report quotes Palmisano as telling employees. "If you think about what I just said, everyone is copying us. [Hewlett-Packard and Compaq [Computer are copying us. Sun [Microsystems is trying to align with EDS to have a solutions play. Sun was once completely opposed to the open industry-standard approach to computing and Linux. It's an endorsement, I think, of our strategy."

Steve Hamburg, vice president of technical solutions at Leviathan Development, a Los Angeles-based IBM solution provider, said he has not seen Palmisano's words translate into any significant or noticeable change. "Everything has been status quo," Hamburg said. "Generally speaking, in pricing, IBM has always been on the upper tier. If they can cut their costs and pricing, it might help them" be more competitive.