Key IBM Growth Engine Appears to Sputter

The engine of economic growth in IBMs appears to be sputtering, the challenges with the companys broader strategy of enticing businesses to take over Big Blue important business, from product design to deal with salaries and customer service.

The unit in question is a research and design team for hire known as Engineering and Technology Services Department, or the electronic and technical services.

And 1,400 engineers, E-commerce and technology services, and have an impressive client list. It customized chips used in video game consoles made by Microsoft, Nintendo and Sony Corporation, which helped design components for the Pentagon and defense contractors. It has set up a portable magnetic resonance imaging devices Mayo Clinic information and data acquisition "black box" for cars in the United Arab Emirates.

IBM did not disclose precise figures for the group, but its revenue jumped 93 percent in 2004 and 39 percent last year, when it was expected to sign nearly 1 billion US dollars contract. While this is a very small share of the companys 90 billion US dollars of revenue, IBM has said the department is a good influence, in part because it can help promote the lucrative deal with the hardware - an important multiplier and During this period, the overall sales almost remain stagnant.

E and the ts, it has also given IBM new ways to harvest its 6 billion US dollars a year on research and development institutions. And cited IBMs annual report pointed out that "electronic and technical services is a key component of the" Big Blues plans to help customers solve their biggest "business performance transformation". In IBMs view, just like other business processes can be outsourced, so can R D and E ts, "represents a unique opportunity for the company," said the report, filed on February 28. It requires the unit to "strong revenue growth", and there was no indication that expectations of anything, but more of the same.

However, E ts, revenues declined 15 percent in the first quarter. In the slide show, accompanied by earnings to investors, IBM blamed the decline particularly strong performance in the same quarter of the year than the previous year.

Then last week, IBM revealed that E-commerce and technology services have appeared in 8% of the revenue decline in the second quarter. Slide show, cited a "corporate restructuring." E and indeed to the ts through internal transfers, this year, more and more integrated into the new "technology collaboration solutions" group with several of IBMs efforts to help customers with hardware engineering and design.

IBM spokesman Ed Barbini said he could not explain how the reorganization hurt E and the ts revenue. Rather, he said that e-commerce and technology services prior results was the substantial increase in the contract, in the small universe of video game makers, and now the group is shifting its focus to other fields, including aerospace, health care and telecommunications.

Forrester Research analyst navigation Ladejie see other factors at play. IBM is struggling to unify the marketing strategies for the previous groups technology collaboration solutions - and to cope with the vast number of services their companies and advisory bodies, he said.

Ladejie also attributed to a simple fact of competition, particularly from lower-cost service providers in India. Even if these companies can not with IBMs large, in-house research and design strength, they have enough resources to trap major accounts. For example, Radjou said, the product design services group in India-based Wipro Limited company cited the Boeing Company and General Motors Corporation, as customers.

Annex Research analyst Bob djurdjevic said that he suspected the ts E and the problem is that it almost an accident should happen, when customers look for the IBM company, to help design problems. It is now shifted to the more traditional consulting business, found it harder to sell itself rather than just fill orders.

IBM claims that " organizational reasons is a euphemism, as we have taken our eye off the ball," he said.

"Sony came to IBM and Microsoft (has too) and lo and behold after a 6-7 rotating wheels, they realized, there is a business. Now, they are trying to drive boats and ships them to realize that if they do not want to look. " Djurdjevic that E and the ts in a "embryonic" stage, and said that it is important to be seen as an opportunity for IBM. However, he said that the company will be wise to recognize its inherent challenges.

"The idea is you can not pick up regularly every quarter, the black box, or game console," he said. "I do not know if this will be a smooth business."