Big Blue? Try Huge Blue. International Business Machines (IBM) is the world's top provider of computer products and services. Among the leaders in almost every market in which it competes, the company focuses primarily on its growing services business, which accounts for more than half of sales. While IBM made its name in computer hardware, the company's information technology, business services, and software units are now among the largest in the world. The company is also one of the largest providers of semiconductors, and its computing hardware legacy lives on in the form of its industry-leading enterprise server and data storage products lines. IBM serves customers globally across most industries.
IBM's international business has become increasingly important to the bottom line. With clients in about 170 countries, overseas sales account for more than half of total revenues. The US accounts for 35% of its total revenues, while Japan represents 10%.
IBM divides its sprawling operations across six segments. Global Technology Services is its largest, accounting for 38% of sales. Software generates 24%, while Global Business Services contributes 18%. Its other segments include Systems and Technology (17%), Global Financing (2%), and Other (1%).
Recent acquisitions and key subsidiaries include Tivoli, Q1 Labs, Tealeaf Technology, Coremetrics, Kenexa, Diligent Technologies, Bowstreet, Emptoris, Lotus Development, Telelogic, DemandTec, SoftLayer Technologies, and Algorithmics.
Sales and Marketing
IBM's major markets are Canada, France, Germany, Italy, Japan, the US, and the UK. IBM also targets Austria, the Bahamas, Belgium, the Caribbean, Cyprus, Denmark, Finland, Greece, Iceland, Ireland, Israel, Malta, the Netherlands, Norway, Portugal, Spain, Sweden, and Switzerland.
The company spent nearly $1.4 billion on advertising for 2012.
Efforts to reposition itself as a full-service technology services company with a global focus have paid off for IBM both in terms of sales growth and profits. The company's annual revenue crested the $100 billion mark again in 2011 (it first topped $100 billion in 2008), and 2012 was the seventh consecutive year that it achieved an increase in net income.
Revenues were slightly down by 2%, however, from $107 billion in 2011 to $104 billion in 2012. This was attributed to a 7% dip in Systems and Technology revenue due to capital expenditures used to support new mainframes and new storage products. In addition, in 2012 Global Business Services sales were down by 4%. It also experienced lower sales in Consulting and Systems Integration in addition to a 2% decrease in Financing.
IBM's net income was up by 5% from $15.6 billion in 2011 to $16.6 billion in 2012. The company was helped by favorable foreign currency translations throughout the year and by gains associated with its divested retail stores solutions operations.
IBM uses acquisitions and divestitures as a means for growth. In early 2014 it announced plans to sells its low-end x86 server business to Lenovo for $2.3 billion. (Back in 2005 it sold its PC business to the Chinese computer maker.) It's also exploring the sale of its semiconductor business and has hired Goldman Sachs to find potential buyers. The company also plans to sell its System x, BladeCenter, and Flex System blade servers and switches, x86-based Flex integrated systems, NeXtScale and iDataPlex servers and associated software, blade networking, and customer service operations. It will retain its System z mainframes, Power Systems, Storage Systems, Power-based Flex servers, and PureApplication and PureData appliances. The divestment allows IBM to focus on its Big Data and Cloud offerings. In fact, IBM plans to invest more than $1 billion in the IBM Watson Group and $1.2 billion to expand its global cloud computing footprint to 40 data centers in 15 countries.
The company closed the initial part of a deal to sell its retail store solutions (RSS) business to Toshiba TEC for about $850 million in 2012. The sale involves a transition during which the business will operate as a joint venture. IBM will hold a 20% stake for three years, after which time, RSS will become a wholly-owned subsidiary of Toshiba TEC. IBM is providing maintenance services for the RSS offerings as part of a multi-year agreement related to the deal.
Like most tech titans, a key area of focus for IBM is the development of applications and services to support cloud computing. The company is designing software tools for managing and optimizing access to corporate information stored at data center facilities by the growing number of businesses looking to outsource or enhance their network and data management efforts. The trend also serves to further IBM's "Information Agenda," an initiative geared toward providing customers with better data analysis technology to contend with the expanding volume of enterprise data being collected across all industries. The company has positioned itself to offer a wide array of applications and services to better harness and process data generated by the global growth in digital communications and commerce.
IBM's forward-looking approach to corporate planning is also evident in its research and development programs, which consistently lead the tech industry in patent awards; it received 6,478 patents in 2012, the most for a company in a single year. IBM's R&D efforts put it at the forefront of such diverse fields as nanotechnology and quantum computing.
Mergers and Acquisitions
IBM continues to use an aggressive acquisition strategy to augment its own R&D as it expands and refines its mix of business software and IT services. The company steadily buys small firms with technology or expertise that expand or complement its product lines and service selection. It made more than 100 acquisitions in the first decade of the 2000s, and in 2010 the company announced plans to spend about $20 billion on acquisitions in the following five years.
In 2012 IBM bought Kenexa, a provider of integrated and cloud-based recruiting and talent management software, in an effort to extend its reach in social business and human resource applications. The approximate $1.3 billion cash transaction fit in with IBM's strategy of providing relevant data and expertise across every functional department in an organization. The purchase followed IBM's acquisition of contract and supply chain management software provider Emptoris, which marked another investment in its cloud business, specifically in the area of procurement management applications. The company also acquired cloud-based software provider DemandTec that year for $440 million. To bolster its cloud computing software operations even further, IBM in mid-2013 swallowed up SoftLayer Technologies.
To expand its selection of data analytics software IBM obtained Tealeaf Technology, a developer of applications used to help organizations process customer service data, in 2012. That year it also acquired Vivisimo, a maker of software designed to optimize searching on the Web and internal computing systems.