Siemens to purchase IBM's half of Rolm Co.; PBX profitability in question as sales, production recombine

Electronic News, May 11, 1992 by Andrew Collier

PBX Profitability In Question As Sales, Production Recombine

SANTA CLARA, CALIF. -- Still trying to restore profitability to its U.S. PBX manufacturing and sales operations, Siemens A.G. last week agreed to buy the half of marketing firm Rolm Co. it did not own from its joint venture partner, IBM. Terms were not disclosed.

The two companies, however, say they will continue to work together on specific products and IBM will also continue to sell Rolm PBXs in the U.S., Europe and Japan. Nevertheless, the move ends IBM's long road toward finding an elusive common ground among voice and data systems and their users which began in 1984 when the company acquired Rolm for $1.5 billion.

In 1988, IBM sidestepped partly from the business when it sold Rolm's manufacturing operations to Siemens for an estimated $1 billion and then with Siemens formed the 50/50 marketing unit, Rolm Co.

But over the years, Rolm, like many others in the PBX business, has failed to generate profits. Reports are that Rolm Co. has been losing one million dollars per week. Annual losses for the manufacturing and marketing units combined now reportedly approach $100 million. Company executives at this time will only confirm that Rolm is in the red. PBX profitability at Rolm and other firms has been questionable for many years, but uncertainty surrounding the original Siemens/IBM deal also exacerbated Rolm's distress. Rolm was placed in a defensive and comeback position vis a vis market leaders AT&T and Northen Telecom, and there were cumbersome aspects of the joint venture relationship regarding bookings and deliveries.

Ironically, just as IBM divests the PBX business, it is exploring another method of combining computing and communications -- this time in video -- through an equity stake in Time Warner (See related story, page 1).

Meanwhile, Peter Pribilla, group president for Siemens Private Communications business and president of manufacturing unit Rolm Systems, Santa Clara, Calif., will become president and chief executive officer of a re-combined Rolm manufacturing and sales organization. Ellen Hancock, IBM vice president and general manager, IBM Networking Systems, will be on the board of the new company. She had been on the board of Rolm Co.

Mitchell Watson, formerly president and chief executive officer of Rolm Co., will join a new Office of the President along with Karl Geng, who was senior vice president for Rolm Systems. Gebhard Doermer, currently president and chief executive officer of Siemens Private Communication Systems, will be chief financial officer for Rolm.

Sources said Mr. Pribilla is scheduled to return to another position in Germany and Mr. Geng is the heir apparent, but Siemens won't discuss this aspect of the recent development.

Rolm will establish company headquarters in Santa Clara, where Mr. Pribilla is based, and the Rolm Co. headquarters office in Norwalk, Conn., will be closed by Oct. 1. Rolm also has operations in Cherry Hill, N.J.; Austin, Tex., and Boca Raton, Fla. Products will continue to carry the Rolm brand name. In interviews last week, executives at Siemens and IBM acknowledged Rolm requires drastic surgery but they maintained Rolm's prospects would improve under a single management.

The executives said the decision to sell grew out of a study commissioned six months ago from McKinsey & Co. comparing Rolm with companies in the U.S. and abroad.