IBM lost its dominance of the computer hardware market when it allowed other companies to clone its PCs. Instead, although it remains a major force in enterprise servers and storage devices, the group reinvented itself very successfully as the world's foremost technology consulting and services business. As a result it was one of the few IT companies to survive the dotcom downturn virtually unscathed, arguably in better shape since 2000 than it was at any time in the two decades before. In a major break with its past, IBM agreed to sell its entire desktop and notebook computer division to Chinese manufacturer Lenovo in 2004. That divestment made barely a scratch on revenues which continued to soar to record levels for 2006 and 2007, bolstered by a series of acquisitions for its substantial software division - which it calls "cognitive solutions" - now its most profitable business. The group celebrated its centenary in 2011, but significant challenges have begun to appear since then as a result of competition from a new generation of technology services providers led by Amazon and Google. IBM has compensated by pushing into new areas, not least cloud computing, artifical intelligence, data security, blockchain and digital marketing. Its extensive global services division also houses IBM iX, now one of the world's three biggest digital development and marketing services agencies. Ad Age estimated global marketing-related revenues over $5bn in 2018. Meanwhile, the wider group has expanded its range with a series of largescale acquisitions, including metereology analyst The Weather Company (also the parent to broadcaster The Weather Channel) and open source software developer Red Hat. The latter, which completed in summer 2019, was IBM's biggest ever acquisition at a cost of $34bn. Yet group revenues have remained under intense pressure since 2012, declining for six consecutive years until a modest uptick in 2018. They were down again in 2019 to $77.1bn, though Red Hat helped deliver a strong final quarter. Net income for the year of $9.4bn was a marked improvement on the previous two periods, but still far below past highs. Virginia "Gini" Rometty became CEO in 2012. Hardware now accounts for only a little over 10% of revenues, while technology outsourcing and consultancy contribute more than half, and software most of the rest.
Capsule checked 9th October 2019
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Adbrands Daily Update 23rd Jan 2019: IBM's 4Q revenues dipped again year-on-year but investors were pleased with better profit performance and a bullish forecast for the current year. Growth remains an issue. In the past 24 quarters, the once-mighty tech group has delivered positive year-on-year growth just three times. CEO Gini Rometty is banking on a push into less traditional areas like cloud computing and data analytics to counter the steady decline in servers, storage and IT services. Full-year revenues edged up 1% to $79.6bn - the first annual increase since 2011 - while net income soared by more than half to $8.7bn. The prior year included a large write-off as a result of Trump's tax cuts.
Adbrands Weekly Update 1st Nov 2018: Struggling with a continuing decline in performance, IBM launched its biggest ever acquisition with a deal to buy software and services company Red Hat for $34bn including debt. It's the biggest ever acquisition of a software company. The target is a leading supplier to large corporations of the Linux operating system and other open source software. Linux itself is free, but Red Hat offers its clients a customised version with additional technical support. The key factor for IBM is that Red Hat has come to specialise in building solutions that allow large corporations to work with multiple cloud-computing providers, for example Amazon and Microsoft (or indeed IBM) for cloud-infrastructure, and Salesforce.com and Workday for applications. "Already they can see what I would call cloud sprawl," said IBM CEO Gini Rometty, "and they have to have a way to manage it." IBM's offer is more than 60% above Red Hat's most recent undisturbed valuation, and over 10 times annual revenues.
Adbrands Weekly Update 10th May 2018: Weber Shandwick was appointed as the new global PR lead for IBM, taking over from multi-year incumbents Text 100 and Ketchum. Weber will oversee a "blended" team that will also incorporate personnel from public affairs specialist SKDKnickerbocker, healthcare agency Spectrum Science and Civic Entertainment Group, the agency owned by TV celebrity host Ryan Seacrest.
Adbrands Weekly Update 25th Jan 2018: Some faint signs of a turnaround at IBM where 4Q revenues rose by 4% year on year, ending an unbroken run of 22 consecutive quarterly declines. The last increase was at the end of 2012, just after Gini Rometty took over as CEO. There was still a decrease for the year, with topline slipping 1% to $79.1bn, and further cause for concern in IBM's services division where profit margins plunged by as much as a third in the final quarter. That slide combined with a mammoth $5.5bn write-off of deferred tax assets to generate a net loss for the quarter. For the year, net income more than halved to $5.8bn.
Adbrands Weekly Update 4th May 2017: Some intriguing soundbites from the article in this week's AdAge about the rise of the consultancies. "We don't believe brands are built from advertising any more," says Accenture Interactive senior managing director Brian Whipple. "They are built from an amalgamation of customer experiences, so that is what we are focused on." And Leo Burnett's new North America CEO Andrew Swinand told AdAge, "I don't see my competition as WPP and Omnicom, I see my competition as the consultancies." That may certainly be the case as far as data analytics and strategic positioning is concerned, or digital services, but we haven't yet seen Leo Burnett lose a major creative pitch to a the likes of Accenture or PwC. However, admittedly, all it would take for the competition to become explicit would be another acquisition similar to Accenture's of Karmarama in the UK. Perhaps the most accurate viewpoint was that expressed by Coca-Cola's SVP strategic marketing Ivan Pollard. "The big consultancies are underestimating the value of creativity and the agencies are underestimating the value of business analytics. Someone's going to crack that soon because data plus creativity is the future." For the first time, four of the major consultancies were listed among AdAge's estimates of the top ten agency companies worldwide. Accenture, PwC, IBM and Deloitte now hold the next four slots below the traditional big five groups, ahead of challengers like Havas and Hakuhodo DY. AdAge placed Accenture as the world's biggest consolidated network, above Young & Rubicam. Agency-side executives suggested that key to the consultancies' growth has been their ability to find alternative routes into corporate marketing budgets. Rather than compete with established marketing groups by pitching to the CMO via traditional channels, they are entering the fold through direct contact with the CEO or IT director or non-executive members of the board. Another advantage, according to R/GA's CSO Barry Wackman, is that "consultant work is much less prone to being scrutinised by procurement".
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