When IBM introduced its first PC 20 years ago, the company jump-started the personal-computing revolution. Today, with revenues of $88.4 billion and products in just about every area of information technology areas, IBM (IBM) is the leading IT powerhouse. David Carlucci, general manager of IBM Americas, talked about trends in IT sales with BusinessWeek Online reporter Olga Kharif on May 23. Here are edited excerpts of their conversation.
Q: What kinds of IT products have been selling well this year?
A: We've been very focused on delivering capability for e-business infrastructures. And certainly, the industry has shifted more to a server-based computing model, so there's significant demand for servers and for storage and for middleware. And, of course, a significant amount of demand for the services capability that pulls all of those piece-parts together.
Q: How is that different from what was in demand last year?
A: I think we saw a large amount of infrastructure buildout in preparation for Y2K. So in 2000, we saw a little bit of a pause in spending because much of that infrastructure investment to refresh and to move applications had already taken place. The customers were utilizing a lot of what they had acquired prior to the end of 1999.
Software is a different story, however. The biggest uplift that we're seeing is in areas like e-business software, such as our Websphere platform. We've seen tremendous growth in that arena. We've also seen growth in the distributed-database business. And an acceleration as it relates to our server and storage business.
Q: What do you feel is the driving force behind IT purchasing today?
A: I think the primary issue is companies are looking for return on their investment. They're looking for cost savings that can be derived through the productivity gains of IT. And they're looking to support their ability to move to the network world for business-to-business transactions. So customers are investing in major applications in the areas like customer-relationship management and integrated supply-chain management. They're also building the infrastructure to support those types of applications.
Q: What do you think your customers are looking for in a supplier?
A: I think there is definitely a trend to use fewer suppliers and form tighter partnerships with companies that can supply total capability.... And that plays very well to our offerings. It gives us the ability to not only sell servers, software, and services but also to bring all of those pieces together.
Q: How big a factor is price is in your customers' purchasing decisions?
A: I think customers are looking for the lowest total cost of computing. They're looking for the ability to spread their costs out while attempting to yield a return from the investment. Companies are very, very price sensitive, mainly because there's a lot of competition. More and more, they're looking at the value of the return and then who can be most flexible in putting the piece-parts together, and the terms and conditions together.
So we've been very, very focused on leveraging our financing company and looking at long-term infrastructure buildouts for our customers to solve their business problems, and not looking at individual piece-part kind of procurements.
Q: But the IT industry has been under a lot of price pressure. How do you cope?
A: Price pressure varies by product area. And certainly, our PC business is extremely price-competitive. We see a lot of it, certainly at the low end of our product line. But I would say that, again, it gets more around to the problem a customer is trying to solve. And customers will always contrast and compare offerings and the economics of those offerings. But frankly, I don't see anything generically that says we're going to see across-the-board deterioration in prices. Actually, we're seeing incredible price-performance improvements every year.
Q: How important do you think financing is to your customers?
A: I think it's a very important tool to help our customers be able to invest in IT but do it around their affordability models. It gives them the flexibility to look at total solutions and total transactions...to structure a deal that would meet their bottom-line objectives.
Q: You mentioned tighter partnerships. What did you mean by that?
A: Partnership is often an overused word. But I'm not talking about things like joint ventures. I'm really talking about us looking at shared-risk proposals. So as we invest in helping them build their infrastructures, we're offering capacity-on-demand capabilities. We'll put more capability physically on a customer's location than we charge them for until they're ready to utilize that kind of capability.
That's what I would categorize as partnership -- where we're looking at the implementation of IT and the buildout of e-business infrastructures as kind of a joint effort. But we pace it around the customer's business needs.
Q: Do you think your customers are spending less because of the economic downturn?
A: I recently held an advisory council with some of our top customers. And the consensus was although there's always budget pressure, they're not seeing substantial budget cuts. And in fact, our data says that in the first quarter in the U.S., business investment in hardware and software grew about 11%.
So what we're really seeing is just a much, much tighter focus on applications that will yield the highest rate of return. They're not investing as wildly unless they have a better business case and a better view of what's going to yield greater return in a shorter period of time.