IBM: Idiot Boxes Not for Us

NEW YORK ( TheStreet) -- IBM ( IBM) has no intention of following Apple ( AAPL) into the booming tablet market, according to CEO Sam Palmisano, who spoke at a Wall Street Journal event Tuesday morning.

"We're not competing," he said, adding that he has no regrets that Apple, not IBM, came up with the iPad. "It's extremely exciting, and it's a good business model because of the App Store but, at the end of the day, it's not the kind of innovation that we're espousing."
IBM
IBM CEO Sam Palmisano

Palmisano also voiced his concern about long-term tablet margins, explaining that IBM is more focused on its "smarter planet" initiatives. These include broad-based technology projects geared towards traffic systems, healthcare and financial markets.

"Rather than something that lets you watch TV in another format, our scientists would rather do things that change the world," said Palmisano.

IBM sold its $12 billion PC business to Lenovo for $1.75 billion in 2004, which Palmisano described as a "reasonable" valuation. "We wanted to get out before it was obvious to everyone," he said. "When PC prices and margins are collapsing, it's a pure commodity."

Inevitably, Palmisano was also quizzed about Hewlett-Packard ( HPQ), which recently parted company with CEO Mark Hurd following an expenses scandal and is currently on an acquisition tear.

"We would never do a 3Par or an ArcSight ( ARST) because of the valuations -- we don't have to," he said, adding that IBM invests $6 billion a year annually in R&D.

As for the competitive landscape, the IBM supremo described Oracle ( ORCL), which recently hired Mark Hurd, as much more of a threat than HP.

"HP used to be an innovative company," he said, adding that the firm's focus is now much more geared towards reselling technology from the likes of Intel ( INTC), Microsoft ( MSFT) and EMC ( EMC). "They are not investing -- Oracle, on the other hand, has the cash flows and good margins, and they invest."

IBM, which has enjoyed earnings growth for 30 consecutive quarters, successfully side-stepped the worst of the recession, thanks to Palmisano's focus on high-margin areas such as software and services. Last year Palmisano came out top in TheStreet's poll to find tech's top recession-busting CEO, with the IBM boss clinching more than half of the votes, well ahead of Apple's Steve Jobs.

The Armonk, N.Y.-based firm forecast annual earnings of $20 a share by 2015 at its analyst meeting earlier this year.

--Written by James Rogers in New York.

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