Tech demand stable- Palmisano

NEW YORK: Demand for technology has stabilized relative to a year ago, IBM Chief Executive Samuel Palmisano said on the sidelines of a meeting with analysts and investors in Boston. The comments were similar to those made by the Armonk, New York company's Chief Financial Officer John Joyce last month when IBM announced its first-quarter earnings.

Technology spending, which soared during the 1990s as the Internet was being built up, fell in 2001 and 2002 and many industry analysts now expect it to be about flat in 2003. Palmisano said that historically, the technology industry has grown about twice as fast as the United States' gross domestic product, and he expects it to return to that rate again once demand improves.

That may be true for some areas of technology, such as services, but perhaps not for all, said John Rutledge, portfolio manager for the Evergreen Technology Fund who attended the meeting and owns IBM shares. "I personally am more skeptical on that," said Rutledge, adding that he did not believe Palmisano was implying that semiconductors and computer hardware would grow that fast.

Rutledge said that Palmisano's assessment of the technology spending climate was in line with the rest of the industry. "I would say across the board, spending really has stabilized. It's stopped going down, but there's really zero evidence of any growth returning," he said.

Palmisano said that IBM has purchased software and services companies in recent years to build the company's vision of "on demand" computing, in which businesses use technology to better manage purchasing and inventory and pay only for computing that they use.

The company has also divested many commodity hardware businesses, such as hard disk drives. When asked by Bear Stearns analyst Andrew Neff if IBM would consider buying a hardware company, Palmisano responded that IBM had passed on such opportunities before. There have been reports of market rumors in recent weeks that competitor Sun Microsystems Inc. might be headed for a sale.

"The pattern is they've been buying software and services and they've been divesting hardware. My interpretation is that would continue to be the case going forward," Neff said in a phone interview following the meeting.

Separately, IBM said in a regulatory filing that it had a work force reduction of 4,744 people related to its acquisition of PriceWaterhouseCoopers Consulting. PwC Consulting had 30,000 people in it when IBM purchased it in the fall of 2002.

It also disclosed that if it had accounted for stock options as a compensation expense during the first quarter, its earnings would have been reduced by $264 million to $1.141 billion, or 66 cents per share. That's down from $1.384 billion, or 79 cents per share that it reported.

Accounting regulators are currently considering methods for companies to begin expensing stock options, which IBM has said it opposes. IBM shares were relatively unchanged in after hours trading. They closed down $1.28, or 1.4 percent, at $88.70 on the New York Stock Exchange.

© Reuters