International Business Machines Corporation at a Glance

Uppers

  • Excellent benefits
  • Telecommute and flexible work options are available

Downers

  • Not one of the top payers in the tech industry
  • Size can mean individuals can get "lost in the crowd" and find it difficult to stand out

The Bottom Line

  • While no longer the top name in the tech field, IBM remains a well-respected technology company known for reliability both as an employer and for its products.

About International Business Machines Corporation

International Business Machines (IBM) bets that cognition is the ignition for growth. The company is investing in its cognitive computing systems, led by the Watson artificial intelligence platform, that help customers in a wide range of businesses analyze massive amounts of data to make better decisions. Among other areas the company is betting on for growth are security, cloud, and blockchain. The company's information technology, business services, and software units are among the largest in the world. While IBM has placed less emphasis on hardware, the company maintains enterprise server and data storage product lines that are among industry leaders. As the perennial leader in the number of US patents granted, IBM has plenty of ideas in the pipeline.

Operations

IBM manages its sprawling operations in five segments.

Technology Services and Cloud Platforms, which generates about 45% of revenue, provides a portfolio of cloud, outsourcing, and other managed services focused on clients' enterprise IT infrastructure. Offerings include maintenance for IBM products and other technology platforms, as well as support.

Cognitive Solutions, which provides about a quarter of revenue, includes Watson, IBM's cognitive computing project. Major Watson initiatives are Watson Platform, Watson Health, and Watson Internet of Things. Another part of the unit is the company's security platform, which provides detection and protection against cyber threats across a customer's operations.

Global Business Services, about 20% of revenue, provides consulting, application management services, and global process services to help customers move their businesses to digital platforms.

Systems, about 10% of revenue, is IBM's hardware business. It provides technologies for hybrid cloud and cognitive workloads. The unit sells servers, storage systems, and operating systems software.

Global Financing provides credit arrangements for customers to buy IBM products. It accounts for about 2% of revenue.

Geographic Reach

The international in IBM has become increasingly important to its bottom line. With clients in about 175 countries, sales outside the US account for more than 50% of revenue. Customers in Europe, the Middle East, and Africa (EMEA) generate about 30% of sales and Asia/Pacific, about 20%.

Sales and Marketing

IBM operates country-based units where consultants, product specialists, and other workers (most hired locally), facilitate the adoption and fulfillment of its products and services. It serves clients across most industries; leading industry groups include financial services, industrial, and communications.

Financial Performance

Over the past five years, IBM has lost about $20 billion in revenue as it tries to reposition itself to capitalize on cognitive computing, data, analytics, and cloud computing. So far, sales declines tied to older products have outpaced sales of its newer offerings.

Revenue slipped about 1% to $79.2 billion in 2017 from 2016. Sales were about 2% higher in Cognitive Solutions from offerings in security, industry platforms, and Watson offerings. The company reported double-digit growth for its Watson Health products. Systems sales rose about 6%, driven by strong response to its z14 mainframe. In terms of dollars, the small Systems segment ($8 billion in revenue) added some $480 million in revenue while Cognitive Solutions ($16 billion in revenue) added about $266 million.

Sales from Technology Services & Cloud Platforms dropped about 3% with declines throughout the segment. IBM, however, reported that within the segment the cloud, analytics, mobile, and security elements grew. In Global Business Services growth in strategic initiatives was offset by declines in large ERP and on-premise enterprise application implementation.

IBM's profit dropped by half to about $5.7 billion in 2017 from 2016. The biggest difference was a one-time tax bill of about $5.5 billion because of changes in US tax laws enacted in late 2017.

The company had about $12 billion in cash in 2017, compared to about $7.8 billion in 2016. The company banked more cash from favorable exchange rates and spent less on acquisitions in 2017.

Strategy

IBM halted its string of quarterly revenue declines at 22 quarters in the fourth quarter of 2017 when sales rose almost 4% from the same quarter in 2016. For the year, IBM's revenue was down about 1.5%, the sixth straight year of lower annual revenue. Did the 2017 fourth quarter signal a turnaround?

IBM thinks indicators are pointing in the right direction and that its investments in cognitive computing, cloud, security, big data, and analytics are beginning to pay off. Together, these helped IBM's Cognitive Solutions business generate more than $18 billion in revenue in 2017. The company highlighted a 24% increase in cloud revenue to $17 billion. Contributions from the Watson platform including its health initiative boosted Cognitive Solutions revenue to about $18 billion.

The company continues to invest in those areas and in emerging technologies such as blockchain, as well as technologies in research stages such as quantum computing.

In cloud computing, the company is competing with Amazon, Google (a unit of Alphabet), and Microsoft in offering cloud-based computing infrastructure services. The company focuses on hybrid cloud, the mixture of keeping data on IBM computers and the customer's own systems. Other areas IBM has identified are security and mobility. In 2017, the company introduced a Z series mainframe with encryption capabilities.

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.

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. Many of the acquisitions have been made to provide data and services for the Watson system. IBM has earmarked $100 million to acquire startups that could expand Watson's capabilities.

The company's acquisition activity slowed in 2017 to five deals for a total of $134 million. In 2016 IBM bought spent about $6 billion in 15 companies. The 2017 transactions were for smaller companies that filled in niches in IBM cognitive and cloud businesses.

In 2016 the company made nearly 15 acquisitions. The biggest acquisition of 2016 was of Truven Health Analytics, which provides data and analysis technologies, for $2.6 billion. IBM seeks to put data and analysis together with Watson's cognitive capabilities to help health care professionals accomplish better patient outcomes.

In another Watson-related acquisition that closed in 2016 was of the Weather Company. IBM bought the company's business-to-business, mobile and cloud-based web-properties, weather.com, Weather Underground, The Weather Company brand and WSI, its global business-to-business brand. The transaction did not include the Weather Channel, but it licenses weather forecast data and analytics from IBM under a long-term contract. The deal provides a wealth of data for processing through Watson to help companies make better decisions that are affected by the weather.

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International Business Machines Corporation

1 New Orchard Rd
Armonk, NY 10504-1722
Phone: 1 (914) 499-1900
Fax: 1 (914) 765-7382

Stats

  • Employer Type: Public
  • Stock Symbol: IBM
  • Stock Exchange: NYSE
  • Chairman, President and CEO: Virginia M. Rometty
  • CIO: Fletcher Previn
  • Chairman, President and CEO: Virginia M. Rometty
  • 2016 Employees: 380,300

Major Office Locations

  • Armonk, NY

Other Locations

  • Huntsville, AL
  • Bentonville, AR
  • Tempe, AZ
  • Tucson, AZ
  • Agoura Hills, CA
  • Costa Mesa, CA
  • Emeryville, CA
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  • Koramangala, Bangalore - 56009, India
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  • Akita, Japan
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  • Eindhoven, The Netherlands
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