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 company's businesses in developing markets in Brazil, China, India, and Russia have been particularly active. It will open 10 offices in Russia, Kazakhstan, Ukraine, and Uzbekistan in 2012, doubling its number of branches in the region. Late in 2012 the company opened offices in Malaysia and Indonesia as Southeast Asia sees tremendous growth. IBM continues to seek opportunities outside the mature markets of North America, Europe, and Japan.
IBM's plan for growth is nothing if not effective. The company's annual revenue crested the $100 billion mark again in 2011 (it first topped $100 billion in 2008), and 2011 was the sixth consecutive year that it achieved a double digit increase in net income.
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 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 more than 6,000 in 2011 alone, the most ever for a single company in one year. IBM's R&D efforts put it at the forefront of such diverse fields as nanotechnology and quantum computing.
Mergers & 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.
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.
In 2012 IBM bought Kenexa, a provider of integrated and cloud-based recruiting and talent management software, in an effort to bolster its reach in social business and human resource applications. The approximate $1.3 billion cash transaction fits in with IBM's strategy of providing relevant data and expertise across every functional department in an organization. The purchase follows 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 DemandTec that year for $440 million. DemandTec specializes in cloud-based software (boosting IBM's Software-as-a-Service portfolio) used to analyze price, promotion, and other merchandising and marketing data for companies trying to determine the best product mix and prices based on customer buying activity.
IBM 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 will involve 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 will provide maintenance services for the RSS offerings as part of a multi-year agreement related to the deal.
In 2012 IBM also bought Israel-based mobile application developer Worklight to bolster its software for wireless devices and software quality and testing tools developer Green Hat to add cloud-computing capabilities to its application testing product line.
To expand its selection of data analytics software IBM bought 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.
Among its 2011 acquisitions, IBM paid $387 million that year to acquire Toronto-based risk analysis software developer Algorithmics to extend its analytics expertise for financial services clients in particular. Algorithmics specializes in tools used to manage market, liquidity, credit, operational, and insurance risk, among other areas. Also that year IBM acquired software developer Q1 Labs as part of an ongoing effort to build its network and data security holdings. Q1, a specialist in data analysis tools used to detect abnormal or suspicious network behavior, became a part of IBM's new security systems division, led by Q1's CEO; the unit also comprises ten other security businesses acquired by IBM, including Tivoli and Rational, as well as other security product and service operations.
IBM furthered its Smarter Cities initiative with the purchase of Dublin-based Cúram Software, a social enterprise management software provider. Cúram (Irish Gaelic for "care and protection") develops software to help improve the operational effectiveness of government social programs in areas such as human services, labor, health, social security, and military agencies.
In 2010 IBM bought Web analytics software maker Coremetrics, data compression tool developer Storwize, and document digitization and data management application maker Datacap. Its other data-centric purchases that year were of Netezza, which makes data analytics appliances used in data warehouses, for about $1.7 billion, and blade server and Ethernet switch maker BLADE Network Technologies. BLADE, which became part of IBM's Systems and Technology group, also developed virtualization software used to integrate and simplify networks in cloud computing environments.
The acquisitions were part of IBM's efforts to better compete with Cisco, HP, and Oracle in the market for corporate data-center network management. The company's purchase of security software developer BigFix fed into this as well by expanding its corporate security products lineup.
IBM has also used acquisitions to expand its business data analytics offerings to support risk and compliance management, areas which have become priorities for businesses needing to effectively identify financial and operational risks across all parts of their enterprises.
In 2012 it bought private Toronto-based Varicent Software, which provides software for analyzing sales data for areas such as HR, finance, sales, and more. In 2010 IBM acquired OpenPages, a developer of financial risk and compliance management software that has partnered with IBM for several years, as well as Texas-based business process management software maker Lombardi. The company also acquired PSS Systems, a developer of software used to analyze and automate information governance policies for large volumes of business data, while also automating the disposal of unneeded information. Additionally in 2010, IBM acquired Toronto-based Clarity Systems, a developer of software used to collect and prepare financial statements for electronic filing with the SEC and other regulatory agencies.
All of these efforts support the company's global strategy of providing complete backend data communications and processing systems (made up of its software and computing equipment) to large corporate, public sector, and education clients. Its systems are used for such purposes as automating health care records and facilities management at hospitals in Spain, managing high-volume payment processing for large banks and other financial services providers in Russia, automating service delivery and billing for telecommunications providers in India, and analyzing consumer shopping patterns to improve the flow of merchandise through the global supply chain.