IBM Chief Sets the Record Straight

The dot-com washout has captured most of this year's high-tech industry headlines. But the hardware and software markets aren't mired in the swamp that many think they are.

In the first quarter, U.S. businesses increased their investment in hardware and software by 11.3 percent as they continued bringing internal operations to the Internet, said IBM head Lou Gerstner. Technology is hardly dead, Big Blue's chairman and CEO told Wall Street analysts at the company's biannual meeting, it's just experiencing another "tectonic plate shift."

Gerstner also fended off speculation he would leave the position he has held since 1993. Rumors spread across Wall Street earlier this week that Gerstner would be attending his last meeting with analysts.

"I felt sympathy for Mark Twain when he said reports of his demise are greatly exaggerated," Gerstner said. "I'm impressed you have all come to see the old has-been." Later in the meeting, Gerstner was asked whether he would lead next year's gathering. "We don't plan that far in advance at IBM."

Gerstner spent most of his 75-minute speech discussing the shift in the high-tech industry. He said it has played to IBM's strengths in services, software and semiconductor technology.

He also took a jab at technology companies that have recently suffered high-profile downturns, in particular Cisco Systems and Hewlett-Packard. Earlier this year, HP CEO Carly Fiorina explained a sales fall off at her company by saying December saw the lights go out. Last month, Cisco CEO John Chambers equated worsening business conditions at his company to a 100-year flood.

There is "no blackout, and it's certainly no wash out," Gerstner said. "What's really going on here is the dot-com bubble has burst," and mindless predictions of an overnight business revolution led to "setbacks suffered by hardware, software and services companies who were accomplices in this new-economy mumbo-jumbo."

Now the hard work begins. "The fireflies are gone and the real storm has arrived," he said. "The real e-business leaders know there's no magic dust."

During the next few years, corporations will make massive investments in new, networked technologies and a new set of technology leaders will emerge. "E-business is just business ... and the real e-business leaders know that technology is hard work," he said. "We have entered the period where the real winners will be made."

Gerstner argued that IBM will be one of the leaders. This leadership will be largely driven by the push the company has made to develop its services business. These days, services will increasingly be the reason why customers select a particular company's hardware and software, he said.

Meanwhile, the PC business is "maturing rapidly and moving to commoditization." Gerstner did not say IBM would exit the business, as some analysts have speculated, but he admitted is was "not terribly strategic to the networked world."