IBM chief: Company strengthening during slump
International Business Machines Corp. expects to prosper through the economic crisis by developing money-saving computer services and expanding deeper into the developing world, Chief Executive Officer Sam Palmisano said.
The company is counting on so-called cloud computing -- the concept of delivering software, data and computing power over the Internet -- to maintain growth amid the recession, Palmisano said today in a letter to shareholders.
Palmisano, who became CEO seven years ago, has shifted jobs overseas and focused on more lucrative businesses, pushing up IBM's profit margins to their highest point in more than a decade. The company topped analysts' estimates in January with its fourth-quarter profit and 2009 forecast.
"We will not simply ride out the storm," Palmisano said. "Rather, we will take a long-term view and go on offense."
IBM, based in Armonk, New York, fell $2.33, or 2.7 percent, to $83.48 at 4 p.m. in New York Stock Exchange composite trading. The shares have dropped less than 1 percent this year.
IBM's global reach may help protect the company during the deepening U.S. recession, Palmisano said. IBM generated 65 percent of its sales outside of the U.S. last year. Cloud- computing services, meanwhile, will make customers more efficient, he said. They allow businesses to ditch their own servers in favor of external data centers, which IBM runs.
"IBM is now a different company than it was a few years ago," Palmisano said. "As a result, we entered this turbulent period strong, and we expect to exit it stronger."
Pay Increase
Separately, IBM reported a 14 percent pay increase for Palmisano. He had compensation of $28.5 million in 2008, the company said today in a regulatory filing.
Stock awards and options accounted for most of the pay. His salary remained the same as the previous year, at $1.8 million. Palmisano earned $25.1 million in total compensation in 2007.
The company projected 2009 profit of at least $9.20 a share, beating the $8.75 average estimate of analysts in a Bloomberg survey. IBM aims to boost earnings to at least $10 a share by 2010.
Palmisano has increased revenue from software, IBM's most profitable business, with sales growing 2.6 percent to $6.42 billion last quarter. The gross margin on software, the percentage of revenue left after production costs, widened to 87.7 percent from 87.1 percent a year earlier.
The company eliminated about 4,000 jobs in North America in January, according to separation agreements supplied by an employee group. IBM cut about 1,400 jobs in both its software and sales units, according to documents dated Jan. 21. It shed 1,200 hardware jobs on Jan. 27, the severance agreements showed.