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News > Technology
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IBM's CEO dour on recovery
Palmisano sees little sign of recovery for tech sector in '02 or '03, calls for IBM to pare back.
May 7, 2002: 12:29 PM EDT

NEW YORK (CNN/Money) - New IBM CEO Samuel Palmisano told employees in late April that business was weak and a recovery was not around the corner, according to a transcript of his speech obtained by a critic of the company.

Shares of IBM (IBM: up $0.80 to $76.80, Research, Estimates) gained about 1 percent Tuesday morning after falling 7.1 percent Monday to hit a new 52-week low of $76.

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In a speech broadcast internally at IBM (IBM: Research, Estimates), Palmisano predicted that the tech sector will show declines this year and remain below its historic 10 percent to 11 percent growth rate even next year, according to Annex Research, which published a transcript of the speech on its Web site and in a news letter to clients.

"It's clear that the industry is not bouncing back this year," the site quotes Palmisano as saying. "We can argue whether it's down again or flat or modestly up. But it's not going back to high single digits or teens. Then project that out in 2003 and you see it's not going to be growing at 10 or 11 percent next year either."

Palmisano said IBM has too much capacity and that the Armonk, N.Y.-based company would have to "pare back" costs, the paper reported, but offered little detail.

"So although we've got the strategy nailed, we need to fine tune some things. 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 any more."

An IBM representative confirmed Palmisano's speech, but could not verify the wording in Annex's transcription, adding that Palmisano based his comments on industry analysts' forecasts and that nothing in the remarks should be taken as changing the company's guidance or comfort with analysts' earnings and revenue forecasts .

Analysts surveyed by earnings tracker First Call expect earnings per share to fall to $4.11 this year from $4.35 in 2001, and that 2003 EPS should be $4.82. Revenue is seen falling this year to $83.0 billion from $85.9 billion in 2001, and 2003 revenue is projected at $89.0 billion.

Annex Research President Bob Djurdjevic is a harsh critic of IBM management, and he sprinkled his transcript with questions about the accuracy of some of Palmisano's view of the industry and IBM's position in the market.

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"The Big Blue ship is leaking and creaking, and the new skipper says there's no need to change," Djurdjevic wrote. "Just keep those fingers plugged in the leaks, as we rehearse the sinking ship drill at Armonk. Well, investors think there is good reason to change. They are voting with their feet, just as we predicted back in January."

Annex Research is a market research and consulting firm that does not trade or take short positions in any of the stocks it follows, Djurdjevic told CNN/Money.  Top of page


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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.