He Loves to Win

He Loves to Win. At I.B.M., He Did.
Sun Mar 10, 3:14 PM ET

THE revival of I.B.M. over the last nine years is most tellingly measured not in numbers but by its return to pre-eminence as the industry leader. Once again, I.B.M. is the model others follow.

Consider the strategic debate behind the fevered proxy fight at Hewlett-Packard. Its planned purchase of Compaq Computer makes sense, Hewlett-Packard says, because the merger will make it more like I.B.M. A dangerous delusion, reply the deal's opponents. Who, they ask, could possibly compete broadly with I.B.M.?

Even the main question these days about I.B.M.'s future lends perspective. Sure, the skeptics say, I.B.M. is back with a vengeance, a powerhouse in the marketplace with strong profits. But, they ask, how much growth can be expected from a corporate giant with sales last year of $86 billion?

In 1993, when Louis V. Gerstner Jr. became chairman and chief executive, the question asked about I.B.M. was whether it would survive. And in choosing him, the I.B.M. board had taken a historic gamble on a professional manager with no experience in the computer industry.

Last Monday was Mr. Gerstner's first day at I.B.M. bearing just one title chairman. He will keep it until year-end, then depart. On March 1, he was succeeded as chief executive by Samuel J. Palmisano, a 29- year I.B.M. veteran who built up the vital services business, which now represents about half of I.B.M.'s revenue and profits.

The rearview mirror holds little interest for Mr. Gerstner, who is 60. Yet in a lengthy interview last Monday at the company's headquarters in Armonk, N.Y., he reflected on his worries in taking the job, the challenges he faced and the reasoning behind his crucial strategic, organizational and technical decisions there. He spoke of where he thought I.B.M. had been smart and where luck had helped a lot.

He spoke of matters beyond I.B.M. as well. He explained why he believes there is no new economy, a statement that prompted boos from the dot-com world when he first made it in 1999. He answered the criticism he received in the industry in 1993, when he said, "The last thing I.B.M. needs now is a vision," and explained why he was right. And, ever the outsider in the computer business, he discussed what he thought was special about the industry, what was ordinary and what still irritates, even amuses, him about it.

Mr. Gerstner also offered a bit of personal reflection. After leading three large corporations and achieving vast personal wealth, he said that the enduring thrill of being a chief executive and the part he would miss was really quite simple. "I love winning," he said, pausing briefly before answering the question emphatically. "I love the process of leading an institution and being part of an institution that succeeds, that wins. I get excited by our success. I get very frustrated by our failures, too, but I enjoy the game."

At I.B.M., the Gerstner record is mainly a success story. "Lou Gerstner re-established the company's belief in itself," observed Andrew S. Grove, the chairman of Intel, who has known I.B.M. as a partner and competitor for more than two decades. "It's hard to describe how beaten down that company was."

When he took the job, Mr. Gerstner, a former McKinsey consultant who went on to become president of American Express and then chief executive of RJR Nabisco Holdings, was far from the obvious choice for guiding Big Blue, the fallen icon of American technology, back from the brink. Among I.B.M. directors, there had been a sharp debate over whether to hire a technologist or a professional manager. In the end, the board bet that I.B.M. needed a leader, a strategist and a manager Mr. Gerstner's portfolio of skills not an executive with a deep understanding of computer technology.

He also had qualms. "If the board had been wrong, and that was my big concern that underlying it all there was a technical problem in I.B.M. then it would have been a very short tenure for me," he said, smiling and shrugging.

THOSE misgivings are a distant memory. Even last week, it was clear that he does not plan to slow down until he leaves. Monday was his first day at the headquarters in two weeks. He had been on the road, going to Philadelphia, Boca Raton and Salt Lake City, and abroad in Stuttgart, Munich, London and Edinburgh, mostly meeting with I.B.M. customers.

The day was the equivalent of a corporate pit stop; he was headed out again on Tuesday, adding to the more than 1.1 million air miles he has logged since 1993. His travel regimen reflects his management philosophy: getting out of the office to deal with customers and dwell in the marketplace is an antidote to the corporate insularity that was nearly I.B.M.'s downfall.

He began traveling to meet customers and to visit I.B.M. outposts as soon as he took over, and what he heard guided his action. He also read. As a former McKinsey consultant, he asked first for the I.B.M. strategic plans, current and recent. There were plans aplenty, he found, strategic blueprints for each division, even down to the product level. By the end of his first month, Mr. Gerstner, who always carries two briefcases of reading material when he travels, had read thousands of pages of strategic documents.

The reading left him enlightened and appalled. I.B.M., he said, was filled with smart people who had recognized the industry's major technological and economic shifts. Yet I.B.M. had repeatedly failed to respond. "Part of the culture was a tendency to debate and argue and raise every issue to the highest level of abstraction," Mr. Gerstner said. "The process almost became one of the elegance of the definition of the problem rather than the actual execution of an action plan."

SO, a few months after arriving at I.B.M., when he said the last thing it needed was a vision, he was declaring a break with the old culture of introspection and foot- dragging. Had he spoken of vision at I.B.M., he said, he knew it would have started "a yearlong debate."

"And we didn't need the vision," he added. "We needed to save the company economically."

Instead, he gave marching orders to the I.B.M. troops. "We were going to build this company from the customer back, not the from the company out," he said. "That was the big message from my first six months in the company, that the company was going to be driven from the marketplace."

As one symbolic step, he abolished the ritual of the I.B.M. organization chart. These fold-out charts were minor masterpieces of draftsmanship and printing, an intricate latticework of lines, color-coded boxes and asterisks. Lovely to behold, they recalled the engineering drawings of Leonardo da Vinci, according to one executive. Producing them was a cottage industry within I.B.M., and thousands of them were pinned on the office walls of its workers.

When asked about how to revise the organization chart under his management, Mr. Gerstner declared there would be no more organization charts, that anyone asking for one was focusing on the wrong thing.

Early on, he also changed incentives to put I.B.M. and its people more in step with the marketplace. When he came to the company, only 300 employees received stock options. Today, more than 60,000 do. He told his top 300 executives soon after he arrived that he expected them to own I.B.M. stock equal to one to four times their yearly compensation.

Mr. Gerstner argues that strategy and corporate culture are intimately linked. "You can't talk a culture into changing," he said. "You can't just exhort people to be different. You've got to point to fundamental strategic changes you're going to implement in a company and then drive the execution of that strategy. And it is in the execution of the strategy that the culture begins to change."

The first major decision Mr. Gerstner made was to decide to keep the company together, not split it up into 13 loosely linked "Baby Blues." Under that plan, put forward by his predecessor, John F. Akers, in December 1992, some would be spun off as separate companies with their own names, like AdStar, for the disk storage unit.

This so-called federation plan was moving ahead briskly when Mr. Gerstner arrived. "It was an extraordinary Balkanization of the company under way when I walked in," he said. "There were investment bankers sticking their flag on every piece of I.B.M. they could."

Auditors had been hired, costing millions of dollars, to create stand- alone financial statements for the spinoff candidates. "Every unit had run for the hills," Mr. Gerstner recalled, "creating their own human resources policies, their own communications policies."

In theory, the federation plan addressed I.B.M.'s fundamental trouble that as an integrated company it was not quick and nimble. It would be better off aping the personal computer industry, where fast-moving technology specialists like Microsoft and Intel prevailed.

"That was the industry model that I.B.M. was responding to," Mr. Gerstner said. "And I looked at that and I said, `Wait a minute, as a customer of I.B.M.'s, I'm not terribly drawn to that as a model for I.B.M.' "

Mr. Gerstner, an I.B.M. customer at American Express and RJR, liked the concept of "integrated solutions" that I.B.M. could distill the complexity of computing to solve business problems for companies. In his early travels for I.B.M., he heard similar sentiments from customers.

Aside from its breadth, in Mr. Gerstner's view, I.B.M. had another unique feature: its research prowess. "Now, I walk in and they're atomizing the company," he said. "I see both of I.B.M.'s distinctive competencies being destroyed."

Within 90 days of his arrival, Mr. Gerstner irrevocably decided to keep the company together. "I knew it was a big risk, but I never doubted that it was the right thing to do at I.B.M.," he said.

"What scared me" he added, was the need to do three things at once: change I.B.M.'s economic model, its strategy and its culture.

First, though, Mr. Gerstner had to cut costs. Work force cutbacks and plant closings were already under way, but he went deeper. In July 1993, he announced the company would eliminate an additional 35,000 jobs, bringing the declared total for the year to 60,000 and bringing the charge against earnings to $8.9 billion. As a result, I.B.M. reported a record loss of $8.1 billion in 1993 and, the next year, its worldwide employment fell to a low point of 220,000, from 302,000 in December 1992.

Looking back, Mr. Gerstner pointed to three strategic decisions that were "the fundamental underpinnings of building an integrated company." First, he created a broad computer services unit that sold bundles of hardware, software, consulting and maintenance to manage business processes like manufacturing, purchasing or marketing.

I.B.M. had a services arm before, but it merely kept the company's machines up and running for customers. To be a real computer services company, Mr. Gerstner noted, "it had to be product agnostic."

"The customer would not accept a services company if all it did was flog I.B.M. products," he said.

His decision to move into services set off "an incredible bomb in the company," Mr. Gerstner recalled, adding, "Here was a part of I.B.M. that was going to work closely with Oracle, Sun Microsystems and, God forbid, Microsoft." Yet IBM Global Services became the company's biggest business, the corporate vehicle that would, as Mr. Gerstner observed, "look at technology through the eyes of the customer."

His second crucial decision struck at another I.B.M. heritage, that of relying almost exclusively on its own homegrown technology. Before, when the company had gone outside when it plunged into the personal computer business in 1981 using Intel's microprocessor and Microsoft's operating system the move had been regarded as a grave mistake.

But by early 1994, Mr. Gerstner had decided that I.B.M. would move to "open systems." In other words, Mr. Gerstner said, "All of I.B.M.'s software would run on major competitive hardware, and all of I.B.M.'s hardware would support competitive software." To do that, the company would have to adopt standard software protocols that allowed different hardware and software products to talk to each other.

To Mr. Gerstner, the move toward openness was a technical manifestation of his broader strategy. "There's no way that you can get a company built around proprietary control to accept the open model unless they start with the customer and realize this is what the customer wants," he explained.

His third decision, made in 1995, was to fully embrace the Internet and what I.B.M. calls the "networked world" model of computing. Moving to open systems made it easier for the company to adapt to the Internet early. But the networked model of computing suited I.B.M.'s strengths big data-serving computers are the equivalent of power plants on the network, and the Internet shift moved the center of computing away from the personal computer.

As the Internet moved into the mainstream in the mid-1990's, it brought an explosion of computing complexity, as all kinds of hardware and software had to be able to connect to the global network. I.B.M.'s breadth and its services group were big advantages in this new environment.

"Here was a chance for I.B.M. to lead again," Mr. Gerstner declared. "We were able to articulate a role for I.B.M. in the networked world that spoke of the value of all we did."

I.B.M. welcomed the sudden spread of Internet-style computing as a gift, Mr. Gerstner admitted. "The company was extraordinarily lucky that the networked model of computing arrived in the mid-90's," he said. "And let me tell you, having worked in industries where the cycle of change is measured in decades, if not centuries, one of the things that is extraordinary about this industry is that if you miss a turn of the wheel you have a chance to get back in the game" every 10 years or so.

Still, it was his earlier decisions that put I.B.M. in a position to ride the Internet wave. Given the company's size, that strategy evolved quite rapidly. In late 1995, it formed an Internet division, which was not a product group, but more a corporate SWAT team to make sure the entire company was marching toward the Internet. Then, it carved out its niche, trumpeted in a massive advertising and marketing campaign, beginning in 1997, to push "e-business."

Competitors scoffed and advertising experts scratched their heads, but the message resonated with corporate customers.

The message helping companies do "e-business," documented in ads by examples remained consistent, as did the strategy. Amid the dot- com mania in 1999, Mr. Gerstner told Wall Street analysts that he regarded the hot Internet start-ups as "fireflies before the storm," suggesting that the big impact of e-business would be in the old economy. At the time, that was hardly conventional wisdom.

At the conclusion of Mr. Gerstner's tenure, his three strategic pillars have come together in what could be mistaken for the very word he avoided, a vision. And that strategy shift, actually executed, insured a real change in the corporate culture.

THE company's sheer number of recent hires is a clear sign of that and the buildup of the services business is a big reason. IBM Global Services employs 150,000 people, up from 7,600 in 1992. All told, more than half of I.B.M.'s employees have worked for the company for five years or less. In 1992, the figure was 14 percent.

Having succeeded in an industry skeptical of outsiders, Mr. Gerstner feels free to assess it. The computer industry tends to go astray, he said, when it "tends to reach to promise value in utopian schemes" the paperless office, the cashless society, the notion that shopping Web sites would bring the demise of bricks- and-mortar stores.

"The payoff from information technology is going to be in making transactions and processes more effective and efficient," he asserted. "So it's not about creating a new economy, it's not about creating new models of behavior or new models of industry. It's about taking a tool, a powerful tool, and saying, `How can I make my supply chain more effective and efficient, how can I make my purchasing process more efficient, how can I make my internal employee communications more effective and efficient, how can I as a government deliver services to constituents more efficiently and more effectively?' "

"So the computer," he continued, "is in a sense like the electric motor 120 years earlier. It's an invention that in and of itself is kind of interesting, but doesn't have a lot of value unless you like hitting the alt, control and delete keys, and all the other things you can do on a keyboard. Its value is in the application to other processes."

His reference to alt, control, delete the keys users strike to try to reanimate a personal computer, running Windows, that has crashed was a slap at Microsoft. Like many people, Mr. Gerstner, who travels everywhere with an I.B.M. Thinkpad notebook computer, finds PC's too hard to use. He believes the problem reflects the technical parochialism of the industry.

"There's an absence of concern about ease of use and almost a pride in technical complexity," he said. "What other industry would give you a product that, to turn it off, you first have to press a button labeled start? And you tell me one other industry where somebody could sell a product that you have to reboot on average five or six times a day to get it to work?"

Yet, unlike so many in the software business, Mr. Gerstner did not let his critique of Microsoft drive his business decisions.

In 1996, he decided that I.B.M.'s OS/2 operating system could not compete with Microsoft's Windows. "Most of the big technical decisions we made were half as much business as they were technical," Mr. Gerstner explained. "I mean, the decision to basically stop fighting Microsoft with OS/2 was hardly a technical decision. It was a decision on my part that it looked like we had lost, so why don't we get on with doing something else?"

That kind of unsentimental pragmatism has served I.B.M. pretty well for the last nine years.

Morningstar.com
Stocks on the Move: Schering-Plough Earnings at Risk
By Karen Wallace

Stocks rallied early Friday after the Labor Department said the unemployment rate was essentially unchanged at 5.5% in February. Many economists had expected a slight increase. Nonfarm jobs grew by 66,000, after months of losses. The Dow Jones Industrial Average gained 47 points to 10,572, and the Nasdaq Composite index climbed 48 points to 1,929. The S&P 500 index added six points to 1,164.

Leaders

Computer-equipment and Internet server company Sun Microsystems (Nasdaq: SUNW - news) rose 13.25% to $10.00 after management reiterated its revenue forecast for the third quarter in its mid-quarter conference call. Like others in the technology sector, however, the company believes information technology-spending probably will not increase much in the next three to six months. Morningstar's fair value of $16 per share assumes IT spending won't improve until late 2002. Sun Microsystems has good long-term prospects in the server business despite increasing competition from IBM (NYSE: IBM - news), said Morningstar senior stock analyst Joseph Beaulieu in a recent Analyst Report. Things may get worse for Sun over the next few quarters, but the shares could be rewarding over the long haul, he said. Later on Friday, Sun also said it had sued its rival Microsoft (Nasdaq: MSFT - news), alleging the company engaged in anticompetitive behavior. Microsoft was up nearly 2% to $63.95.

Kmart (NYSE: KM - news) shares rose 4.03% to $1.29 after the bankrupt discount retailer announced Friday that it would close 284 stores and cut 22,000 jobs. This move, which is part of Kmart's efforts to fight its way out of bankruptcy, will result in a charge of $1.1 billion to $1.3 billion in fiscal 2002. The closings and job cuts should boost cash flow by $550 million in 2002, and enhance operational and financial performance, according to a company press release. The store closings, which were highly anticipated, are a step in the right direction, said Morningstar stock analyst Mike Porter. ``The immediate effect of these actions will be that cash flows will improve, and that should give the company some breathing room for a couple of years,'' Porter said.

Intel (Nasdaq: INTC - news) rose 3.61% to $34.17 Thursday after the chipmaker said that March-quarter revenue will come in on the higher end of previously forecast numbers. Intel said it expects revenue for the first quarter to be between $6.6 billion and $6.9 billion, compared with the previous range of $6.4 billion to $7.0 billion. The firm also said its gross margins would be slightly higher than its prior forecast of 50%. ``Intel seems to be experiencing normal seasonal patterns,'' said Morningstar stock analyst Jeremy Lopez. ``Our outlook on Intel is unchanged, including our belief that the stock is fully valued at its current price,'' he said.

TMP Worldwide (Nasdaq: TMPW - news), operator of job-placement Web site Monster.com, rose 9.42% to $37.85 after today's encouraging data from the Labor Department. Other job recruiters were up on the news, including Yahoo (Nasdaq: YHOO - news), which last month acquired more than 98% of HotJobs.com, up 5.52% to $18.93, executive recruiter Korn-Ferry International (NYSE: KFY - news), up 12.73% to $9.21, and global staffing services provider Manpower (NYSE: MAN - news), up 7.66% to $40.06.

Laggards

Biotech company Biogen (Nasdaq: BGEN - news) fell 8.42% to $51.65 after the Food and Drug Administration approved multiple sclerosis drug Rebif, the rival drug to Biogen's Avonex. Developed by Swiss firm Serono, Rebif already commands a third of the MS market in Europe, and could grab a significant portion of Avonex's business in the United States, said Morningstar stock analyst Jill Kiersky. Morningstar's fair value of $40 per share assumes the damage, and the stock continues to be overpriced, said Kiersky.

Schering-Plough (NYSE: SGP - news) fell 5.45% to $34.00 after announcing it is seeking approval from U.S. regulators to market its Claritin allergy medicine as an over-the-counter product. This move is an attempt to fend off nonprescription competition for Claritin, which is a $3 billion-a-year prescription antihistamine drug. ``While we think this move may give Claritin some lead time for brand-building power in the nonprescription allergy market, it will devastate revenue and profits,'' said Morningstar stock analyst Todd Lebor. Morningstar will most likely reduce its fair value estimate of Schering-Plough as a result of today's news, Lebor said.

See current prices.

Suitors Line Up for Peregrine Supply Chain
Fri Mar 8, 2:13 PM ET

Kimberly Hill, www.CRMDaily.com

Peregrine Systems (Nasdaq: PRGN - news) is looking for a buyer to pick up its supply chain management (SCM) business and has retained Credit Suisse First Boston to help explore its options.

Analysts say that because Peregrine's SCM operations have valuable assets, there are going to be more than a few suitors. Aberdeen Group's Tim Minahan told CRMDaily that SAP and Oracle are possible buyers and said that other enterprise software makers, like Lawson, should not be ruled out.

Peregrine chairman and CEO Steve Gardner explained the sale in terms of Peregrine turning back to its original focus on infrastructure management systems.

"Creating an independent supply chain enablement business is consistent with our previously stated plan to refocus Peregrine on our core infrastructure management business," he said.

Gardner also said his company believes that the move will make its message to customers more clear -- and help the company return to profitability.

According to Peregrine, its SCM business had revenues of more than US$120 million in 2001. The unit includes assets gained through Peregrine's acquisitions of Harbinger and Extricity.

Among its e-commerce assets is Peregrine's global net market, Get2Connect, which serves some 40,000 companies and enables 1.3 million e-commerce transactions daily, Peregrine said.

Advance Notice

Louis Columbus of AMR Research told CRMDaily that he thinks the move is a smart one and that Peregrine did a good job in managing the announcement of its decision.

"Peregrine is doing an awesome job of handling this," he said. "They're being open and honest with customers, telling them ahead of time."

Blame the Economy?

Although Columbus pointed to Peregrine's history of successfully integrating acquired units, Aberdeen's Minahan wondered whether the outcome of Peregrine's foray into SCM might have been different under better economic circumstances.

"Over the past couple of years," he said, "Peregrine has grown aggressively, acquiring capabilities in supply chain and e-procurement, among other areas."

According to Minahan, Peregrine was building up to be a major player in the SCM space, but the economic downturn prevented the company from getting all of its units "synched up."

"I liken it to the Red Sox," Minahan said. "All those assets look good on paper, but you have to get them to work together."

Many Possible Takers

While Minahan mentioned SAP, Oracle and Lawson as top prospects for picking up the pieces, Columbus cited other possible buyers: IBM (NYSE: IBM - news) and GE Global Exchange (NYSE: GE - news).

"IBM makes sense, due to its pre-existing relationship with Extricity for B2B integration, the potential complement to its EDI (electronic data interchange) business, and its recent CrossWorlds acquisition," Columbus said.

As for GE Global Exchange, Columbus said that through purchasing the Peregrine piece, the company "would be able to expand its market reach and augment its core strategy around its supply chain integration business."

Minahan also mentioned that supply chain software makers like i2 (Nasdaq: ITWO - news), might be interested.

IBM Confirms $500 Million Five Year Pact With Nestle

ARMONK, N.Y. -(Dow Jones)- International Business Machines Corp. (IBM) confirmed a five-year technology contract with Switzerland 's Nestle SA valued at more than $500 million.

In a press release Thursday, IBM said Nestle, one of the world's largest food and beverage companies, agreed to give IBM the exclusive contract to provide servers, storage systems and database software for the company's Globe data centers.

Nestle launched the Globe project to create a uniform computer and information technology system across its operations by consolidating more than 100 technology sites into five data centers....

MSC.Software Named #1 IBM Product Lifecycle Management Business Partner for 2001 in the Americas

Manufacturers' Demand for PLM Solutions Pushed Global Provider to Leadership Position

SANTA ANA, Calif.--(BUSINESS WIRE)--March 7, 2002-- MSC.Software Corp. (NYSE: MNS - news), the leading global provider of simulation software, services and systems, today announced that it was ranked the #1 IBM Product Lifecycle Management (PLM) Business Partner in the Americas based on sales in fiscal year 2001. IBM (NYSE: IBM - news), Dassault Systemes (NASDAQ: DASTY; Euronext Paris: #13065, DSY.PA) and MSC.Software have been working together for the past four years to provide manufacturers with a complete suite of PLM products, services and systems. The three companies collaborate closely to bring innovative differential solutions to automotive, aerospace and other manufacturing industries.

``We are very excited to be the #1 business partner in 2001 and have our success recognized by our partners IBM and Dassault Systemes,'' said Frank Perna, chairman and chief executive officer of MSC.Software. ``Our customers in the Americas, Europe and Asia are seeing an extraordinary amount of value from deploying PLM applications and we look forward to continuing our success in 2002 and beyond.''

As an IBM Business Partner, MSC.Software distributes and supports the entire hardware portfolio developed by IBM and 3D PLM software portfolio developed by Dassault Systemes, including CATIA design and analysis applications, ENOVIA and SmarTeam collaborative Product Data Management (PDM) software, as well as process re-engineering tools. MSC.Software supports customers spanning the entire IBM/Dassault Systemes PLM environment, including computer and network systems, implementation services and supercomputing, design and analysis services, and process re-engineering and integration services. As an experienced provider of simulation technology, MSC.Software brings unparalleled depth of expertise to the IBM/Dassault Systemes PLM offering in the mid market.

Kim Stuckey, worldwide channel business manager, IBM Product Lifecycle Management, said, ``Selling is about winning, and therefore IBM is delighted to work with a partner like MSC.Software, who makes winning a habit. A focus on creating customer value through their knowledge of industries, processes and products has brought MSC.Software this deserved award. We salute their achievement.''

``MSC.Software has already demonstrated a very strong track record in helping customers implement and realize the benefits of our 3d PLM solutions. We are very pleased with MSC.Software's number one position for 2001 and we count on their strength and expertise across our entire product portfolio to have a strong 2002,'' added Philippe Forestier, Executive Vice President, Sales & Marketing, Dassault Systemes. ``Our solutions become a compelling choice for customers to create a sustainable competitive advantage.''

About IBM

IBM is the world's largest information technology company, with 80 years of leadership in helping businesses innovate. IBM Sales & Distribution, which supports more than a dozen key industries worldwide, works with companies of all sizes around the world to deploy the full range of IBM technologies. The fastest way to get more information about IBM is through the IBM home page at http://www.ibm.com.

About Dassault Systemes

Dassault Systemes (Nasdaq: DASTY; Euronext Paris: #13065, DSY.PA) is the premier global software developer in the PLM market, providing companies with e-business solutions to implement their digital enterprise, thus creating and simulating the entire product life cycle from initial concept to product in service. The CATIA, ENOVIA and DELMIA Solutions support industry-specific business processes to help unleash creativity and innovation, reduce development cycle time, improve quality, competitiveness and shareholder value: CATIA supports the digital product definition and simulation, DELMIA provides solutions to define and simulate lean digital manufacturing processes and ENOVIA delivers enterprise solutions that manage a comprehensive, collaborative and distributed model of the digital product, processes and resources. The combined integration creates the Digital Product life cycle Pipeline, supporting reuse of corporate knowledge. SolidWorks and SmarTeam, as Dassault Systemes companies, offer respectively 3D design-centric and collaborative PDM software solutions based on Windows and the Internet. Spatial, also part of the Dassault Systemes family, is a market-leading provider of world-class 3D software components and services (for 3D modeling, visualization, and interoperability) to meet the requirements of 3D in Internet-based e-commerce and B2B applications.

Information about Dassault Systemes is available at http://www.dsweb.com.

About MSC.Software Corporation

MSC.Software (NYSE: MNS - news) is the leading global provider of simulation software, with related services and systems, that help companies make money, save time and reduce costs associated with designing and testing manufactured products. MSC.Software works with thousands of companies in hundreds of industries to develop better products faster by utilizing information technology, software, services and systems. MSC.Software employs more than 1,200 people in 22 countries. For additional information about MSC.Software's products and services, please visit www.mscsoftware.com.

Friday March 1, 8:48 pm Eastern Time

IBM's Annual Report to Provide Expanded Information on Business Operations

ARMONK, N.Y. -- International Business Machines Corp. confirmed plans to expand information on business operations and industry discussions in its annual report to be distributed March 11 .

In a prepared statement Friday, IBM (IBM) said it expanded its "Expense and Other Income" section by breaking out intellectual property and custom development income separately on the income statement.

The "Management Discussion and Analysis" section describes the nature of licensing/royalty-based fee transactions versus sales and other transfer transactions....

IBM Annual Report to Include Disclosure
Fri Mar 1, 8:04 PM ET

NEW YORK (Reuters) - International Business Machines Corp. on Friday said it would modify its accounting methods in its 2001 annual report as investors stung by the collapse of energy company Enron Corp. turn an increasingly critical eye on the No. 1 computer maker.

Armonk, N.Y.-based IBM first said on Feb. 18 it would disclose more financial information after being criticized for a lack of disclosure surrounding the sale of an optics business during the fourth-quarter that added 12 cents to earnings, enabling the company to meet analyst earnings estimate

IBM shares, which were already up on a positive Wall Street research report in the morning, rose on the news and ended the day up 5 percent at $103.02 in New York Stock Exchange (news - web sites) trading, erasing half of the stock's loss in the past two weeks. The Dow Jones Industrial Average was up 2.6 percent on Friday.

After gaining 42 percent in 2001, IBM shares have fallen 11 percent this year as investors worry about when the computer services and hardware company's revenue, which has slowed more than its earnings, will grow.

IBM on Friday said that in the annual report due out March 11 it will shift two items -- gains and losses from foreign currency exchanges and real estate activity -- out of its operating expense line, called selling, general and administration expenses, or SG&A.

Critics say IBM includes too many items not directly related to the company's core business in that operating expense line, making it difficult to determine its performance. For instance, analysts said that the optics business sale in the fourth-quarter should not have been included in operating income.

Removing gains or losses on real estate or currency transactions will answer some, but not all of Wall Street's concerns, one accounting professor said.

"Pulling them out of SG&A probably makes that SG&A line more pure. Now whether or not it totally solves the criticisms, that really would be a function of well what are they still putting in SG&A," said Joseph Carcello, an accounting professor at the University of Tennessee's College of Business Administration.

IBM is one of many blue-chip companies like General Electric Co. that have fallen under increased scrutiny in recent months as investors who watched Enron collapse because of problems related to accounting have begun asking for more information.

IBM said that it would begin breaking out intellectual property and custom development income separately on the income statement and include addition information on the related sales.

It also said that its retirement related benefits section will include the combined impact of all retirement-related benefit plans, such as its pension plan. Gains or losses from IBM's pension plan, which is currently overfunded, contribute to the company's bottom line.

In addition, the company said the report will include more information on the company's capital structure and that its consolidated financial statement will include information on real estate, accounts receivable, workforce related charges and write-downs on equity investments.

"I think what IBM is saying is that the world has changed," Carcello said.

On valuations ...

"It amazes me that, in discussing the relative value of the S&P 500 Index (SPY: news, chart, profile), the current focus of Wall Street and other popular financial market analysts seems to have shifted to the estimated forward price-earnings ratio (despite questions about the reliability of those estimates, let alone past earnings). The estimated forward P/E ratio of the S&P 500 is in the range of 20 to 25. But this shift turns a blind eye to the trailing ratio, which is in the low 60s. If you have a Bloomberg terminal and look at the price and P/E ratio graph over the past four years, you'd see that up to Sept. 11, the trailing P/E ratio was in a range between 20 to 35. There is an incredible divergence post-Sept. 11 between the historic P/E ratio and index price. The current P/E ratio suggests the following: 1. The index should drop by about 50 percent in order to come in line with historic trends. 2. The index is a bubble waiting to burst. 3. The index will trade in a range over the next year or two despite improving earnings, and as a result the trailing P/E ratio will decline to historic levels. 4. The index will climb with improved earnings, exacerbating the over-valuation." -- David Lenik