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IBM CORRECTS MISTAKE: REUNITES STO, SERVER DIVISIONS

IBM is folding its data storage group back into its server division, naming storage head Linda Sanford to lead the company's internal efforts to become an "on-demand" business, according to a source with knowledge of the move. International Business Machines Corp Chief Executive Officer Sam Palmisano announced the news internally on Wednesday, the source said. An IBM spokesman confirmed the Sanford appointment, but declined to comment further.

Palmisano, who took over as chief executive officer on March 1, last week said the computer hardware, services and software company would focus on creating more flexible computing options for its customers.

That means making it less expensive for customers to buy technology by creating pricing that allows them to pay only for what they use. It also involves businesses incorporating more standardized computing, such as the Linux operating system, and using the Internet.

IBM technology strategist Irving Wladawsky-Berger will lead efforts to convert customers of the Armonk, New York-based company to on-demand computing, while Sanford will head up the company's internal efforts to adopt the more flexible computing approach.

The storage division, which was broken out of the server division two years ago as IBM sought to gain market share against competitor EMC Corp, will be combined with the server group starting on Jan 1, according to the source. Bill Zeitler, who heads the server group, will head the new expanded unit at that time. IBM's server division sells everything from its servers based on standard processors from Intel Corp to its well-known proprietary mainframe systems.

One analyst said it was a good move because servers are often sold in conjunction with data storage machines, which can be either attached directly to the server or used as part of a broader network of computers.

"I thought it was a mistake to separate them then because they need all the encouragement they have to work closely together, and they did more of that, I think, when they were one group," said Mike Kahn, head of the Clipper Group in Wellesley, Massachusetts.

With the units combined, Kahn said, the company will be fulfilling its pledge to focus more on selling on-demand computing rather than just components.