From Gates, a Cheer for I.B.M.

By Steve Lohr
The New York Times

May 27, 1993

Good news for I.B.M. shareholders, and it comes from an unlikely source -- Big Blue's sometimes nemesis William H. Gates.

"With all I.B.M.'s technical assets, which are considerable, the company should be worth twice as much as it is today," said Mr. Gates, the chairman of the Microsoft Corporation.

There will be no quick fix for the International Business Machines Corporation, Mr. Gates stressed. The turnaround opportunity at the computer giant, he said, will be a "three- or four-year job to double the value of the thing."

The 37-year-old billionaire offered his views over a late-night dinner on Tuesday, the eve of his first meeting with I.B.M.'s new chairman, Louis V. Gerstner Jr. The Gates-Gerstner meeting, which had been the subject of great interest in the computer industry, was held yesterday morning at I.B.M.'s offices at 590 Madison Avenue in Manhattan.

No Grand Alliances

On Tuesday night, Mr. Gates portrayed the next day's session with Mr. Gerstner pretty much the way I.B.M. officials had been discussing it for the last few weeks -- as part of the new I.B.M. chairman's effort to meet with customers, suppliers and competitors to gather information before he sets his strategy for the company. No grand alliance would be formed, Mr. Gates insisted.

"This meeting has become way overrated," Mr. Gates said. "It's no big deal."

I.B.M.-Microsoft relations have long been a delicate issue.

I.B.M. helped make Microsoft the powerhouse it is today by choosing the Redmond, Wash., company to supply the operating system software for its personal computers when I.B.M. entered that business in 1981.

The friction between the two companies developed in more recent years, stemming mainly from I.B.M.'s backing of the OS/2 operating system. Microsoft helped develop OS/2 but later abandoned it in favor of its Windows software and the Windows NT program that was introduced earlier this week.

A Discussion of Issues

Yesterday, an I.B.M. official said the Gates-Gerstner session proceeded as advertised. "The discussion focused entirely on broad industry issues," the official said. "And it was nothing close to a negotiation."

Small wonder, though, that Mr. Gerstner would seek the counsel of Mr. Gates. His ideas have made Microsoft the world's largest software company and made Mr. Gates the richest man in America.

What Mr. Gates said in the private meeting is not known. But the night before in a midtown Manhattan restaurant, Michael's, accompanied by an aide and a reporter, he held forth on the challenges facing the I.B.M. chairman.

It was big drinking night for Mr. Gates -- he had two Cokes with his medium-rare porterhouse. He was dressed in a button-down shirt, slacks and loafers, with no tie or jacket. When he spoke, he rocked forward and back rhythmically in his chair.

A key decision for I.B.M., according to Mr. Gates, will be determining whether a huge corporation, engaged in all facets of the computer business, really makes sense in an increasingly diverse and fast-paced industry.

"And that depends on who's running it," Mr. Gates said. "Look at General Electric. Under Jack Welch, it makes sense." He noted G.E.'s performance as measured by its profits, the market position of its varied businesses and the company's return to shareholders.

"But under someone else, a big integrated company like G.E. may not make sense," Mr. Gates continued, without offering an opinion on whether Mr. Gerstner is the Jack Welch of the computer industry.

I.B.M. remains an engine of high-technology research, Mr. Gates noted. "And nearly 300,000 people wake up every morning and go to work for I.B.M." he added. "Our company has only 14,000."

GRAPHIC: Photo: William H. Gates. (Associated Press)