Consultant: Palmisano Speaks Of 'Paring Back'

IBM

In a late April speech to employees after IBM announced its first-quarter financial results, Palmisano said that after years of growth, it may be time for IBM to cut costs, reported Djurdjevic, who didn't disclose how he obtained a transcript of Palmisano's remarks. Djurdjevic, a consultant for his own Phoenix-based firm, Annex Research, couldn't be reached for comment.

"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," Palmisano said in his address to employees, according to Djurdjevic's report, which said that Palmisano didn't go into details.

Palmisano took over as IBM's CEO earlier this year when Louis Gerstner stepped down after a decade in the post. Almost immediately, the company told Wall Street analysts that its first-quarter performance wouldn't meet earlier projections. "As you know, on April 17, we announced earnings. Regardless of all of our hard work--and believe me I know everyone worked very, very hard--we're disappointed," Palmisano told employees, according to Djurdjevic's account. "We did not meet our commitments to ourselves. We did not meet our commitments to our investors. And it is disappointing."

An IBM spokeswoman confirmed that Palmisano addressed employees, but she declined to specify what he discussed and to comment on Djurdjevic's report. The spokeswoman said Palmisano's remarks to employees reflected those that IBM CFO John Joyce made in a first-quarter conference call with Wall Street analysts a week earlier. IBM executives have previously said that while the company avoided much of the pain felt by other tech companies during the past two years, it never believed it was immune.

In his remarks to IBMers, Palmisano said that although the company has a tough storm to weather, it's in better shape than other companies, according to Djurdjevic's report. "And I think when all the earnings are out, it's going to be like it was last year. If you take the total income of our top seven competitors and compare it to IBM's income, you'll see we earned more than half of the profit that was earned in the industry," the CEO reportedly said.

"We have a challenging environment to operate in, but we don't have any long-term, sustainable financial problems," Palmisano said, according to Djurdjevic's account. "We're making more money than anybody else out there. We are also executing in a very tough climate."

But in an evaluation of Palmisano's remarks, Djurdjevic said, "A vast majority of investors are voting with their feet. They can see that Sam Palmisano is evidently no 'change agent,' an attribute that [had boosted the IBM stock when Gerstner took over as a new CEO."

Despite Djurdjevic's report, at least one IBM solution provider said he's seen no significant or noticeable changes by Big Blue. "Everything has been status quo," said Steve Hamburg, vice president of technical solutions at Leviathan Development, a Los Angeles-based solution provider. "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," he said.