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IBM explains merged systems and technology groups

The Enterprise Systems Group develops and markets its four server lines and storage devices, and its Technology Group, has a big custom chip business and which used to have a big disk drive business before IBM sold it off to rival Hitachi Ltd last year.

At the moment, the Systems & Technology Group has two general managers, and each is maintaining control of his own turf. Specifically, Bill Zeitler is general manager of the systems side, as he has been for years, and John Kelly is general manager of the technology side, a post he has held for a while, too.

In a conference call with Wall Street analysts yesterday, neither executive said anything about whether or not the merger of these units would mean IBM could eliminate headcount, but they did admit that the merger would mean the unit would not have to do the intricate accounting work that has been necessary since the systems side of IBM has been one of the technology side’s biggest customers – buying processors, custom logic, and manufacturing capacity to create its servers and storage arrays.

The Systems Group, which had external sales of $14bn and pretax income of $2.1bn in 2003, has about 13,000 employees worldwide. The Technology Group had about $2.9bn in external sales and a pretax loss of $252m; it has sales has about 17,000 employees.

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Kelly said that because IBM was ramping up production in its 300mm wafer copper chip fab in East Fishkill, New York, had curtailed its chip business to only chase high-cost, high profit custom designs, and had sold off the unprofitable disk business (which went south largely because of failures IBM had in bringing a new generation of 3.5-inch disks to market), the technology side of the business would be profitable in 2004. Just how profitable, we may never know, now that this unit has been merged with the systems unit. With the dollar weak and server sales improving overseas, IBM could see significant improvement in server sales in 2004, and this will go a long way toward helping IBM’s hardware business – of which the systems and technology units are the dominant component – look strong together. By merging them, IBM can disclose as much or as little as it wants about the specifics of how well different pieces of the Systems & Technology Group are doing.

That said, the merger of the two units, which actually went into effect at the beginning of the year, is about more than accounting. It is about having the two halves of IBM’s technical brain know what the other is doing so that it can remain focused on creating only those technologies that will deliver improved systems and so it can use the vast engineering skills in the technology unit to more quickly bring promising technologies to market.

This article is based on material originally published by ComputerWire