Annual meeting of stockholders

The first Web question addressed by IBM Chairman & CEO Sam Palmisano related to whether IBM would be splitting its stock. Mr. Palmisano noted that fundamentally, a stock split does not change the overall market capitalization of a company or the total value of an investor’s holdings. However, some investors view it as a sign of confidence in the stock’s growth potential.

“There is very valid argument to be made that it does create momentum, that it demonstrates enthusiasm,” he said. “And it also gives the opportunity for many investors who would find a price of around $120 to $123 high relative to a lower price in the sixties or seventies. They might find that a more attractive entry point.”

Mr. Palmisano explained that IBM most recently split its stock in 1997 and 1999 – and it is an action IBM considers from time to time. He also noted that the company has been creating significant shareholder value in recent years through aggressive dividend increases and share buybacks.

The second Web question Mr. Palmisano addressed was about IBM’s growth markets strategy. He began by explaining that in the first quarter of 2008, the company formed a new growth markets organization – headquartered in Shanghai – to better capitalize on the opportunities for growth in emerging markets.

These markets include not only the so-called “BRIC” countries – Brazil, Russia, India and China – but also nearly 100 other countries in Latin America, Southern Asia, Eastern Europe and the Middle East where IBM sees significant opportunities for growth. A new management system has been put in place with different incentives, different levels of expertise, and a more entrepreneurial approach than IBM might have in an established market where we have been operating for 100 years.

“The key to the whole structure is really one of a different investment strategy,” said Mr. Palmisano. “You need to be able to put the investments there, sustain them and protect them for the long term. And so far it's been working as you've seen in our growth in 2007 and in the first quarter of this year.”

Mr. Palmisano also addressed a Web question that asked if IBM will be getting back into the consumer electronics business. While acknowledging that the consumer electronics business brings lots of excitement and buzz, he noted that it just doesn’t bring a lot of profit opportunity.

Mr. Palmisano explained how over the past several years IBM has dramatically changed its mix of products, services, skills and technologies away from commoditizing businesses like PCs, printers and hard disk drives into more profitable businesses like consulting, services and software.

“When we looked at our portfolio, we came to the conclusion that strategically we wanted to go to the future and we felt that the PC-based technologies weren't going to be driving the future,” he said. “The Internet-based world that you all see and live every day will be driving these technology advancements going forward.”

Mr. Palmisano explained that IBM’s focus on higher margin businesses generates cash that gives the company the flexibility to reinvest in its own portfolio, to reinvest in research and development, to acquire companies, and to provide returns to shareholders in the form of share buybacks and dividends.

“Low-end devices and gadgets get lots of headlines and are incredibly exciting, but that is not what our shareholders are interested in, and that's why we've made those strategic shifts,” he concluded.