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EDITIONS
Thursday, 31 October, 2002, 00:30 GMT
IBM adopts new $10bn tactic
IBM personal computer
IBM says it is taking a big bet
IBM has launched a new business strategy backed by $10bn (6.4bn) in new investment.


It's a big bet, but not a risky bet

Sam Palmisano, IBM Chief Executive
IBM chief executive Sam Palmisano said on Wednesday that his company planned to adopt a new focus on 'on-demand' computing - a flexible business model under which corporate clients pay only for the computing power they actually use.

The on-demand model, also championed by IBM rivals Hewlett Packard and Sun Microsystems, is aimed at combating the tech sector downturn by making corporate computing cheaper.

Mr Palmisano said IBM would spend $10bn on building up the 'on-demand' business model, a sum which includes its $3.5bn acquisition of audit firm PwC's consulting arm earlier this year.

Gamble

"It's a big bet, but not a risky bet," Mr Palmisano told an audience of IBM clients.

"If the customers are going to say I need to save money and I have excess capacity, don't buck it, go with it."

Mr Palmisano also suggested that the economic downturn may be bottoming out, cheering the financial markets.

"Even though we're faced with some very difficult short-term economic circumstances, (customers) are ultimately optimistic about the long term," he said.

"In fact, you see some encouraging signs that perhaps we have hit the bottom, or things have flattened out."

Stocks rally

His comments helped to boost investor confidence in the tech sector, lifting the Nasdaq share index by 2% at the close.

IBM's own shares also finished higher, climbing 2.5% to $78.67.

However, some analysts said that on-demand computing, also known as 'utility computing', could actually reduce sales of computer equipment.

"It doesn't change the cost of a box, it changes the number of boxes a company has to buy," said Frank Gillett, an analyst at Forrester Research.

"Our hunch is that the net effect will be a drop in the number of boxes."

See also:

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