Three weeks after IBM Corp decreed that its European manufacturing plants will become, at least in part, autonomous business units, exactly what it hopes to achieve is still foggy. One spokesman initially described the plants as surplus to requirements, only to be contradicted by another – IBM Europe has made noises about a 12-month period in which the plants have to prove profitability, while others deny that there is any particular timescale. Some of the confusion can be laid at the door of the word profitability. It was assumed by some that profitability entailed selling products to new customers, but this is not necessarily so according to Ken Wilkie, the newly appointed chief executive at IBM’s UK Havant plant. The whole of Havant’s operation has been spun off as a separate business, so Wilkie has to find outside customers for the plant’s mix of personal computer and mid-range disk drives; integrated disk subsystems and ‘flexible circuitry’ expertise (those plastic straps bearing solder tracks found when opening up a personal computer or disk drive).

Adamant

Wilkie claims some existing success in the OEM markets: for the past two years, he says, a not insignificant proportion of disk drive output has been going to nameless OEM customers. Wilkie is adamant that there is little substance in the 12 months to live perception and there are no set percentages of outside sales that he has to meet to ensure survival. Instead he says, success will be measured in the same way as any normal business – in terms of profits and revenue that can come from anywhere, including sales to IBM. He even goes so far, as to claim that notionally, in the short term you could achieve the necessary revenue only with the IBM customers… I don’t think success would absolutely depend on it [selling to third parties]. But as for the long-term, he acknowledges that non-IBM sales will be key to Havant’s success, and says that he hopes to see half of the plant’s output going to new customers. This makes sense when taken together with IBM Europe’s statement that it has excess manufacturing capacity: rather than close the plants straight away, it has thrown them to the market – they will get business from IBM but only as long as they can provide products at the going market rate. How will the plants achieve this? Either by cutting staff and hence costs, or by finding outside customers. As well as providing cash, these customers will perform one other key service for the company – they will provide a litmus test by which IBM can gauge the plants’ true competitiveness.

By Chris Rose

Jean Richet, director in charge of restructuring at the Montpellier plant sums it up when he says: if we are able to sell outside then we are competitive and if we are competitive we can demonstrate this to IBM. Back at Havant most of Wilkie’s plans remain under wraps, though he says that the plant will be setting up its own sales and marketing operation, rather than relying on IBM Europe and will initially be targetting the UK market, though in the process he hopes to pick up orders from international vendors. He says he has confidence in all aspects of the Havant business and, despite IBM Europe assertions of over-capacity adds that he has full order books. Richet’s plans for Montpellier are more advanced. A series of studies, due to be completed in June will decide which operations will be spun off as Independent Business Centres – to be up and running by January 1 1994. But the plant’s best known activity as a manufacturer of water-cooled mainframes will stay firmly in the IBM fold and notionally expanded as the construction of air-cooled ES/9000s moves from Valencia in Spain, although the rate at which mainframe sales are falling suggests that this will be only a short-term boost. Around half the 2,000-strong workforce are employed building Enterprise Systems, with another 500 handling the manufacture of multi-layer ceramic-mounted multi-chip modules. This is the business that Richet sees as particularly promising (CI No 2,150). Currently it manufactu

res solely for IBM, handling everyting from small single chip and multi-chip modules to highly integrated packages spouting 2,000 or 3,000 pins from the base, which form the basis of Enterprise Systems, RS/6000s and AS/400s. Already, says Richet, the Montepellier engineers have made informal contact with potential customers, but large scale exploitation of the plants capabilies will rely on a pan-European technology products sales team, which is being set up in Paris. This operation is not primarily concerned with the hived-off European factories, but is designed to handle OEM chip sales from other plants within IBM’s technology products division. However Montpellier’s module portfolio fits neatly into its product range. Like Wilkie, 50% is the magic proportion that Richet hopes see going to non-IBM sources in the medium term, but he frankly acknowledges that we have a credibility gap as a supplier to other companies, that will only close once potential customers realise that IBM is serious about the business and is not entering the market as a temporary expedient to use over-capacity.

Lion’s share

Again, like his UK counterpart, Richet says that Montpellier has already found some OEM business and that outsiders account for 10% of his revenue. Encouragingly, none of this existing business comes from the module side, so Richet can be relatively secure that that proportion will grow. The lion’s share of outside business today springs from an application development operation, which started off developing administrative and manufacturing software for the plant, but now sells some of the results through the IBM France catalogue. However Richet admits that the future of this business is made uncertain by the proposed purchase of French software house CGI Informatique SA. The other current moneymaker involves selling IBM’s manufacturing know-how in a package that the marketeers have dubbed the Montpellier Solution. This builds on the company’s avowed expertise in the installation of production lines, the design of manufacturing processes and the like: Richet talks enthusiastically of expanding this business by turning Montpellier into a science park and leasing out spare buildings – there is, he says, a shortage of decent manufacturing space for lease in the region. Nonetheless Montpellier’s future seems to hinge largely on the module manufacture, and Richet says that he will be going head to head against the likes of Japan’s Kyocera Corp. He also hopes to woo companies like GEC Plc and Alcatel SA, which currently carry out similar work in-house. It remains to be seen whether the IBM name will prove to be boon or bane.