Company News

UPDATE 1-IBM CEO blasts HP, defends 'old-fashioned' image

* IBM CEO says HP did not handle Hurd departure well

* Says IBM would “never do a 3Par” type acquisition

* Sees growth in Egypt, Vietnam, China, India

* IBM shares close down 0.58 pct (Adds HP declining comment, IBM share price update)

By Sinead Carew

NEW YORK, Sept 14 (Reuters) - IBM Corp has been known to revel in its image as the most boring technology company. But Chief Executive Samuel Palmisano took that a step further when he used a rare public appearance to tell his Silicon Valley rivals they should consider being more boring themselves.

Palmisano in particular took several swipes at computer maker Hewlett-Packard Co HPQ.N, questioning everything from its acquisition strategy to its technology investment levels and its recent handling of the exit of former CEO Mark Hurd.

He said on Tuesday that Hurd's exit package -- estimated at about $34.6 million [ID:nN0995681] -- was a mistake, especially since Hurd very quickly joined rival Oracle Corp ORCL.O after departing amid a scandal related to allegations of sexual harassment.

“They spent a lot of money to keep him for an hour,” the executive said in response to a question at the Wall Street Journal Viewpoints Executive Breakfast. “That to me was not handled in the best interests of shareholders.”

The executive also questioned HP's recent flurry of acquisition, including deals to buy data storage company 3Par Inc PAR.N for $2.4 billion and security technology company ArcSight Inc ARST.O for $1.5 billion. He said IBM IBM.N makes its acquisitions at "reasonable valuations."

"We'd never do a 3Par or the one (ArcSight) yesterday. We don't have to," Palmisano said, noting that 3Par had traded at $18 a share before HP agreed to pay $33 a share for the company to win a bidding war with Dell Inc DELL.O.

Instead of making flashy acquisitions, Palmisano said IBM makes sure it sticks with its policy of returning value to shareholders through dividends and share buybacks.

“I understand this is boring and old-fashioned,” said the executive, who joked that he would never get the HP CEO job.

He also defended IBM’s policy of not providing mid-quarter earnings updates, saying he focused on the long term.

Palmisano said he respects Oracle's high level of investment in new technologies. He was much less worried about competing against HP because that company does not invest enough in research and instead depends on reselling products of partners such as Microsoft Corp MSFT.O.

“If you’re pushing technology you will get returns,” Palmisano said.

According to their latest quarterly reports, HP invested 2.4 percent of its revenue in research and development (R&D) while IBM invested about 6 percent.

HP declined to respond to the comments.

Palmisano also said he was glad IBM had sold its personal computer business to Lenovo several years ago because of the declining profit margins in PCs. Retail prices have fallen to the extent PCs can sell for as low as $400.

“You can’t even cover advertising and support at $400,” he said. Asked if the PC business was over Palmisano said: “It ended three or four years ago.”

Instead, he said IBM focuses on investing overseas and building its technology services business by placing employees in growing markets.

Palmisano said IBM is looking to benefit from growth in economies such as China and India, and also cited Vietnam and Egypt as countries where IBM sees a lot of promise.

However, the executive said he had made little progress with the Obama administration in his discussions with officials about what would be good for business. In particular, the executive criticized the government’s policies on exports, saying that exports were key to future growth of the United States.

Palmisano, who turned 59 in July, said he was not “going anywhere” when asked if he would retire when he reaches 60. But in a slight effort to balance his criticisms, he also made fun of the flamboyance of his performance at the event.

“You see why they don’t let me out very often,” he said.

IBM shares closed down 76 cents, or 0.58 percent, at $128.85 on New York Stock Exchange on Tuesday. (Additional reporting by Gabriel Madway in San Francisco; editing by Stephen Orlofsky and Andre Grenon)