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 services business, which accounts for nearly 60% 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. Its computing hardware legacy lives on in the form of its industry-leading enterprise server and data storage products lines. IBM, which serves customers globally, is transforming its operations as it deals with a rapidly changing technology environment.
IBM divides its sprawling operations across five segments. Global Technology Services and Global Business Services (together called Global Services) account for nearly 60% of revenue and include a full range of enterprise IT and business consulting offerings. Software (primarily middleware and operating systems software) generates about a quarter of sales, with Systems and Technology (advanced computer power and storage products) and Global Financing bringing in about 15% and 2%, respectively.
IBM's international business has become increasingly important to the bottom line. With clients in about 175 countries, overseas sales account for nearly two-thirds of total revenues. The US accounts for 35% of its total revenues, while Japan represents about 10%.
Sales and Marketing
IBM operates country-based units where consultants, products specialists, and others facilitate the adoption and fulfillment of its products and services. Among its major markets are Canada, France, Germany, Italy, Japan, the US, and the UK. The company also targets Austria, the Bahamas, Belgium, the Caribbean, Cyprus, Denmark, Finland, Greece, Iceland, Ireland, Israel, Malta, the Netherlands, Norway, Portugal, Spain, Sweden, and Switzerland.
It serves clients across most industries; leading industry groups include financial services, industrial, and communications.
As the company works to reposition itself to capitalize on data analytics and cloud computing, among other areas, it has seen revenue fall for two consecutive years. Revenue in 2013 fell 5% to $99.8 billion (on top of a 2% decline in 2012). With the exception of Software, IBM saw drops in all its segments in 2013, including a nearly 20% drop in its hardware business -- Systems and Technology. The hardware segment is struggling amid a changing landscape in which more customers are turning to cloud-based services instead of investing in their own server and storage upgrades. Net income, which had been rising steadily over the past decade, fell 1% to $16.5 billion.
With lower net income and the use of more than $2 billion in cash for taxes, cash flow from operations fell more than 10% to $17.5 billion.
IBM is in the midst of a transformation as it searches for long-term growth in a rapidly changing industry. The company has developed a broad strategy around three key trends: big data, cloud computing, and social/mobile. It sees these areas major growth opportunities and utilizes both organic initiatives and acquisitions to grown them. In mid-2014 IBM announced a major deal with Apple in which the two firms will create a new class of business apps for the enterprise mobility market.
In addition, IBM is focused on emerging markets where the populations and companies that serve them are embracing mobile, social, cloud, and big data at faster rates, in some cases, than mature countries. It opened its first Research Lab in Africa (Kenya) in late 2013 and enhanced its big data skills in China that year. Clients in Mexico, Vietnam, Saudi Arabia, and India, among other countries, are also benefiting from the company's big data and analytics expertise.
As it pursues growth, IBM is divesting low-growth operations. In late 2014 it sold its x86 server business to Lenovo for $2.3 billion. (Back in 2005 it sold its PC business to the Chinese computer maker.) The company has also expressed interesting in selling 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. In addition, also in late 2014, it divested its money-losing semiconductor business, paying about $1.5 billion to GlobalFoundries to have it take over the operations.
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, as well as Tealeaf Technology, a developer of applications used to help organizations process customer service data, and Vivisimo, a maker of software designed to optimize searching on the Web and internal computing systems.
To bolster its cloud computing software operations even further, IBM in mid-2013 swallowed up SoftLayer Technologies. It bought Israeli cybersecurity firm Trusteer for nearly $1 billion later that year, as well as mobile management company Fiberlink Communications. Purchases in 2014 include Cloudant and Lighthouse Security (cloud computing) and CrossIdeas (security software).