Thursday, September 16, 2010

Commodity companies, commodity budgets

The WSJ Wednesday posted an interesting article (and also snippets of video) from its interview with IBM CEO Sam Palmisano. The videotape

The article reported:

Palmisano said he doesn't worry about companies such as H-P that have slashed their investments in core technologies and need to make expensive acquisitions to keep up.

"H-P used to be a very inventive company," Mr. Palmisano said in an interview at a Wall Street Journal event on Tuesday. IBM would never have paid what H-P did to buy data-storage provider 3PAR Inc., he said. "[H-P] had no choice," said Mr. Palmisano. "Hurd cut out all the research and development."
Unfortunately, the WSJ doesn’t actually share the video of Palmisano making these points. However, in the opening part of the video clip, Palmisano says:
If you look at the core business of a Dell or HP, it’s an electronics distribution channel for Microsoft, Intel, and storage guys and everybody else. There's nothing wrong with that, we just don’t focus on it as much.
To his credit, reporter Spencer Ante quantifies the impact of HP’s brutal budget cuts as part of its shift from innovator to low-cost commodity player:
Mr. [Mark] Hurd cut H-P's research and development budget to $2.8 billion, or 2.5% of H-P's revenue, in its last fiscal year from $3.5 billion, or 4% of revenue, in 2005, when he took over as CEO. Under Mr. Palmisano, IBM has continued to invest about 6% of its revenue in R&D, including $5.8 billion last year.
Alas, the interview also retreads old ground as Palmisano calls PCs a dying industry. His comments are classic sour grapes: IBM dumped PCs because it proved itself unable to compete in that business, while HP has become the market leader. (Neither HP nor IBM has made a transition from PCs to smartphones or tablets, but unlike IBM HP has a plausible entree with its Palm acquisition.)
If the article is interesting and informative, the video snippets are neither. It’s painful to watch the actual news (i.e. comments by a leading tech exec) with insipid commentary by WSJ staffers.

If the WSJ is going to produce video clips, they need to learn PBS production values and hire some broadcasting professionals. Its AllThings D spinoff has done a great job packaging interviews from its annual conference, so perhaps it can provide the WSJ with necessary expertise.

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