New York – The setting was a holdover from the days of the robber barons: a grand private club commissioned by J.P. Morgan himself. But the message IBM executives delivered to 30 companies’ technology officers was that many time-honored ways of doing business are long gone.
In this “flat world” age of specialized outsourcing, IBM argued, companies shouldn’t do too much by themselves. Even research and development work at the heart of what distinguishes businesses from rivals can be opened up and spread around.
There was a subtext, of course: How about letting IBM do some of that for you?
With International Business Machines trying to shake off pessimists on Wall Street as it heads into a quarterly earnings report Monday, Big Blue is trying to raise the profile of its 1,400 engineers who help other companies tackle R&D problems.
IBM sees that Engineering and Technology Services unit as an unheralded growth engine. Those R&D-consulting engineers are expected to haul about $1 billion in services contracts in 2005, just three years after the group’s formation.
But executives say the group’s real value is that it stimulates lucrative hardware sales – especially in the chip division, which has bet heavily on providing high-end microprocessors for IBM machines and clients.
The highest-profile work by the E&TS unit, as it is called, is customizing the chips that will run next-generation video game consoles made by Microsoft, Nintendo and Sony. E&TS also has a $100 million deal to develop military technology with Raytheon and an alliance to do telecom research with Nortel Networks.
The United Arab Emirates is paying E&TS $125 million to develop automobile “black boxes” that monitor traffic and automate toll collection.
E&TS people say this is just the beginning of a push to extend the fruits of IBM’s research and development efforts – which get nearly $6 billion a year in funding and make IBM the top U.S. patent holder – into such fields as gambling, aerospace, defense and medical devices.
