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News: Analysis & Commentary: COMPUTERS


For years, IBM has been a consistently embarrassing dud with consumers. Yet Chairman Louis V. Gerstner Jr.'s roots and heart are lodged deep in consumer marketing. So it probably was just a matter of time before the former American Express Co. and RJR Nabisco Inc. executive made his move to shore up Big Blue's tarnished consumer image.

After months of study, Gerstner has ordered Senior Vice-President G. Richard Thoman--also an American Express and RJR Nabisco alum--to create a new consumer division that consolidates existing IBM businesses in home personal computers, CD-ROM software, and online services, among others. The plan: Grab tighter control over IBM's far-flung consumer efforts, then use the new operation to divine hot trends and pump out a variety of products. Although still in the embryonic stages, the operation is expected to be up and running within a few months. Says Thoman: "We have to have an organization that focuses exclusively on consumers," so that they are more than "the third or fourth priority of a bunch of different divisions."

Gerstner knows Big Blue is way behind the consumer curve. Last year, IBM sold 700,000 home PCs while market leader Packard Bell moved more than 2 million, according to International Data Corp. IBM will sell just $65 million of consumer software this year--a fraction of Microsoft Corp.'s $300 million, says Link Resources Corp. In all, IBM's share of the $260 billion consumer market amounts to just $2 billion.

PRODIGY PLUG. To help build its putative consumer empire, Thoman has hired headhunters to search for a general manager with strong consumer marketing experience. He already has brought in David S. Hoyte, formerly executive vice-president of operations at Frigidaire Co., to run worldwide PC manufacturing. And last month, Thoman hired Michael Parides, a Compaq Computer Corp. marketing manager, as vice-president of consumer desktop marketing, a new slot.

What does IBM have to sell to consumers? First, there's the Aptiva home brand PC. The machine has been well received, but IBM badly misjudged demand last year, causing shortages and alienating retailers. A new line of Aptiva PCs is expected in August. Meanwhile, IBM's Prodigy online service, a joint venture with Sears, Roebuck & Co., could easily deliver additional entertainment and financial services. Other long-term possibilities: more education and entertainment software, printers, set-top TV boxes, and personal digital assistants.

The real boost, though, will have to come from new products not yet on the drawing board. IBM executives hope that a consumer-oriented unit will feed fresh ideas to the company's researchers, who will develop products that hit the next consumer trend at just the right time.

IBM's timing has left something to be desired. Too many times, analysts say, IBM disappointed by overhyping products, then overpricing them or not building enough. Says analyst Vadim Zlotnikov of Sanford C. Bernstein & Co.: "They have to prove that they have the ability to deliver that product at the right price." Consumers, in other words, will believe it when they see it.By Ira Sager in New York

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