Edit Metric
|
||||||||||||||||||||
Details
|
||||||||||||||
International Business Machines (IBM)Stock (Manufacturing Industry, Diversified Computer Systems Industry, Computer Software Industry)
 International Business Machines (NYSE: IBM) is a leading global technology firm that offers a variety of products and services in the information technology industry. In 2006 IBM lost its position as the number one IT company to Hewlett-Packard. In 2007 that lead widened as HP generated $104.3 billion in revenue while IBM's revenue came in at $98.8 billion. However, IBM is the worldwide leader in servers and IT services. Although IBM lost its first place rank to Hewlett-Packard, IBM is a far more profitable business (boasting a gross profit rate of 42.2% and a 13.6% operating margin) than Hewlett-Packard (24.3% gross profit rate and 8.3% operating margin) or most of IBM's other competitors, including Dell and Accenture. There are several underlying factors that contribute to IBM's high profitability which has increased significantly in recent years. One of the reasons is that IBM has a product/service mix that is optimally profitable compared to the offerings of its competitors. In particular, IBM sold its PC business to Lenovo in 2005 as the PC industry is becoming increasingly commoditized, driving down prices and margins on PCs. Since selling off its PC line, IBM has re-focused its business around high-margin areas like software and IT services. IBM hopes to have software account for 50% of revenues by 2010. IBM does continue to remain dominant in the server market with a 36.7% market share, compared to HP's 27.7% market share. In addition to focusing on high-margin ventures, IBM has made efforts to integrate its supply chain and strive to stay on the cutting edge of innovation in the technology industry.
[edit] Business OverviewIBM was founded in 1911 when the company produced commercial scales and tabulators. Today, the company produces software, servers and other storage devices, and provides IT services. IBM employs over 350,000 people in 170 countries across the globe, and about 60% of total revenue comes from outside of the U.S. IBM serves clients in a variety of industries, with the largest revenue generating industries being financial markets and small- and medium-sized businesses. [edit] Business Segments 
[edit] Sale of PC BusinessIn 2005 IBM sold its PC business to Lenovo, China's top PC supplier, in a $1.7 billion deal. Prices and margins on PCs had been falling as the PC market continues to become commoditized, so IBM divested itself of this business halfway through 2005. Since 2004 (the last full year of IBM PC production) IBM's gross profit rate has increased 5 percentage points and its operating margin has increased approximately 3.5 percentage points. IBM's hardware segment, which formerly included PCs, saw an increase of 3.5 points in its gross profit margin due to the sale of IBM's PC business. Also, if one excludes sales of PCs from IBM's 2005 revenue, total revenue increased 3.8% while revenue from the Hardware segment increased 4.8%. [edit] Acquiring GrowthIn 2006, IBM acquired over 10 companies in order to enhance its Software and Services segments. These companies ranged from software developers to service-oriented companies that offer business and technology solutions to clients. Specifically, IBM acquired several companies that specialize in developing information and systems management. IBM also acquired six companies in Q1 2008 alone. These companies included the data duplication software developer, Diligent Technologies, as well as, the storage software company, FilesX. [edit] Integration of Supply ChainThrough the Global Services segment IBM help its clients increase the efficiency and flexibility of their supply chains through integration. In the same fashion, IBM has been working to integrate and optimize its own supply chain. Every year IBM spends approximately $36 billion through its supply chain to purchase products, materials and services across the globe. In recent years IBM has transformed its own supply chain to incorporate the company's supply, manufacturing, logistics, and customer fulfillment operations into one operating system in order to reduce inventories, convert fixed costs to variable costs, and improve the company's ability to respond to changes in the market. Much of the savings IBM realizes as it integrates and optimizes its own supply chain turn into lower prices for clients, but some of the savings from lower costs lead to higher profitability for IBM. As IBM continues to develop new ways to help its client's optimize their own operations and supply chains, IBM will be able to apply these methods to its own operations and not only see higher demand for their innovative services but also realize lower costs. [edit] Trends and Forces[edit] Contributions to Open SourceIBM is the largest contributor to open-source software (including Linux) projects, serving these projects with funds and resources through the IBM Linux Technology Center. This center employs over 600 engineers across the globe which work towards enhancing Linux and other types of open-source software. Currently IBM is working towards improving Linux's core functionality in order to serve a wider range of customers with varying demands more efficiently. [edit] Going beyond LinuxIn 2006 IBM created 8 open-source software initiatives that go beyond Linux's current capabilities. IBM hopes these initiatives will allow IBM to provide better products for its current customers and to create new products to attract new customers. These new initiatives are based on open-source projects other than Linux such as the Eclipse Rich Client Platform project and Apache's Geronimo and Derby projects. The initiatives include ventures into middleware, web application servers, data servers, systems management, open hardware architectures, and grid computing. [edit] Military contractsIBM is currently working with the United States military on two separate, but similar, projects. One is the Global Autonomous Language Exploitation (GALE) project and the other is the Multilingual Automatic Speech-To-Speech Translator (MASTOR) software project. [edit] GALEGALE is a project funded by the Defense Department's new technology-centered sector, the Defense Advanced Research Projects Agency (DARPA). IBM is working on GALE with two other companies: SRI International and BBN Technologies. The goal of GALE is to develop technology to monitor, translate, and summarize various media presentations across the globe from Arabic and Chinese into English. The technology would be used to monitor television broadcasts, phone conversations, Websites and other types of communications. [edit] MASTORThe second military contract IBM is working on is the MASTOR project. The MASTOR project is designed to use technology to make up for the lack of translators in Iraq. The project's vision is to create technology that would allow an American medic or soldier to have a conversation with an Iraqi using MASTOR technology that would instantly translate each side of the conversation. For example, a US soldier trying to assist an Iraqi civilian could speak English into a microphone plugged into a computer or handheld that contained MASTOR technology which would replay the words of the soldier in Arabic. Then the Iraqi civilian could respond into the microphone and his words would be translated and played in English. The MASTOR project's technology is currently being tested in Iraq by the military. [edit] Dependence on emerging markets Emerging markets are important to IBM, as more than 60% of IBM's revenue comes from outside of the U.S. The markets that IBM is specifically targeting are India, China, Russia, and Brazil. In total, revenue from these markets grew approximately 21% in 2006. IBM wants to double revenues from emerging markets by 2010.
[edit] PC line divestureIn recent years the IT hardware industry has started to become commoditized, leading to falling prices and profits on most IT hardware products. PCs have been most affected by this commoditization, but other products that may soon face widely falling prices and profits include servers and other IT storage and networking devices. IBM has dealt with the commoditization trend by divesting its PC line and focusing its business on high-margin sectors like services and software. Also, IBM is still experiencing high margins in its servers and storage segment, boasting a gross profit margin close to 40% for its Systems and Technology Group in 2007. The company is protecting itself from possible server and storage commoditization however by putting an increased emphasis on developing new products and services as well as focusing on currently offered high margin products. [edit] Investing in innovationThrough its Global Innovation Outlook (GIO), IBM has dedicated itself to being at the forefront of innovation in the technology industry. In 2007 IBM spent over $6 billion on research, development and engineering. One of the most unique and potentially lucrative methods IBM is using to develop new products and services is the InnovationJam that IBM hosted in 2006. During two sessions totaling 72-hours over 150,000 people from across the world came together to discuss over 46,000 ideas for IBM to explore to address current-day problems and upcoming business opportunities. After the discussions ended, IBM's engineers and employees selected the top 10 ideas and IBM assigned a top management officials to each idea and set aside $100 million to start researching and developing the ideas. Some of the selected ideas include real time translation services, integrated mass transit information systems, and healthcare payment smart cards. As many of the ideas are researched and potentially developed they could lead to significant industry breakthroughs and major sources of revenue for IBM. [edit] CompetitionAlthough IBM's main competitors are Hewlett-Packard Company (HPQ) and Dell (DELL), each of these companies has a different focus area. Dell makes most of its money on PC and server hardware, while Hewlett-Packard is more diversified as the leader in PCs and Imaging & Printing as well as offering IT services. Since IBM relies heavily on its Software and Services segment, it mainly competes with Hewlett-Packard in the servers and IT services markets and with Dell in the servers and software markets. Despite falling behind HP in 2006 in terms of revenue, IBM is the leader in servers, IT services, and software. Also IBM leads HP and Dell in all measures of profitability, largely because IBM is focused on high-margin sectors such as services and software and has gotten out of the thin-margin PC business, in which HP and Dell are still heavily involved. In addition to HP and Dell, IBM also competes with smaller IT consulting firms such as Accenture (ACN). However, IBM leads these companies by a large margin in terms of revenue, profitability, and scale. For example, in 2006 Accenture generated $18.2 billion in revenue and $1.8 billion in operating income, whereas IBM generated $48.2 billion in revenue and $13.3 billion in gross margins for its Global Services business unit.
 International Business Machines2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] References |
The Shelf
|
Edit
History
Bookmark
