Big Blue: In The Pink....
It's software business is thundering along, but is that a bit of gray showing on the services side..?
IBM, that hoary 90-something giant of the computer industry, has been through it all. After pioneering the 3rd generation of mainframe computing with its stupendously successful IBM System 360, it strode the computing world like a colossus thru the 1960s and 70s. Then, when the world went the PC way - a revolution IBM itself helped trigger - it appeared IBM's heyday was over. Until the 1990s brought a marvelous transition under the leadership of Lou Gerstner - to being a services company.
Challenges to its software business also continued - for example, in the key relational database market, Oracle grew strongly thru the 1990s to match (or overtake, depending on whom you ask!) IBM's sales of its flagship DB2 product. The services business received a further fillip when it bought PriceWaterhouseCoopers (PWC)'s consulting unit in 2004 for $3.5 Billion*.
Then in a surprise move towards the end of 2004, they jettisoned the PC business, citing a desire to focus on high margin businesses such as software and services. During this period, they also became the largest technology services provider in the world.
Now, IBM is poised at an interesting juncture - there are indications that services growth has tapered off. The latest quarter (June 2006) results show revenues from software sales are growing faster, and are also contributing more to profits, says Business Week.
Of course, IBM's official position is that portraying their business focus as software vs. services is a false dichotomy - in reality, both businesses reinforce each other. While that is undoubtedly correct, here's something intriguing that I found myself dwelling on for a bit: IBM has added its latest purchase - Internet Security Systems (ISS), a security software company it has bought last week - to its services business rather than to its software group! This departure from the norm suggests that they feel they could use the extra revenues to boost services performance!
Perhaps IBM's services group will come back with renewed vigor to overtake software sales again, or perhaps it will cease to matter as hardware, software and services increasingly meld into one unified technology solution offering. Any which way, it will be interesting to watch the continued march of IBM, in the third century of it's existence**.
P.S. By the way, if you've been in the industry for a couple of decades, you will recall the constant cries of the impending death of the mainframe. Listen to this: said Mark Loughridge, the IBM CFO while announcing the results for the June quarter of 2006, "The most profitable business segments in the second quarter were software, microelectronics and IBM's System z mainframe computers". And so the mainframe lives.
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*incidentally, a song compared to what others had tried to buy the same unit for earlier. How much was that, you ask? Hold your hat - Hewlett Packard (HP) had bid $18 Billion for PwC !! Talk about the Winner's curse!.
** the company was founded in 1888 (although it was incorporated only in 1911 - hence the "90-something" reference earlier!).
IBM, that hoary 90-something giant of the computer industry, has been through it all. After pioneering the 3rd generation of mainframe computing with its stupendously successful IBM System 360, it strode the computing world like a colossus thru the 1960s and 70s. Then, when the world went the PC way - a revolution IBM itself helped trigger - it appeared IBM's heyday was over. Until the 1990s brought a marvelous transition under the leadership of Lou Gerstner - to being a services company.
Challenges to its software business also continued - for example, in the key relational database market, Oracle grew strongly thru the 1990s to match (or overtake, depending on whom you ask!) IBM's sales of its flagship DB2 product. The services business received a further fillip when it bought PriceWaterhouseCoopers (PWC)'s consulting unit in 2004 for $3.5 Billion*.
Then in a surprise move towards the end of 2004, they jettisoned the PC business, citing a desire to focus on high margin businesses such as software and services. During this period, they also became the largest technology services provider in the world.
Now, IBM is poised at an interesting juncture - there are indications that services growth has tapered off. The latest quarter (June 2006) results show revenues from software sales are growing faster, and are also contributing more to profits, says Business Week.
Of course, IBM's official position is that portraying their business focus as software vs. services is a false dichotomy - in reality, both businesses reinforce each other. While that is undoubtedly correct, here's something intriguing that I found myself dwelling on for a bit: IBM has added its latest purchase - Internet Security Systems (ISS), a security software company it has bought last week - to its services business rather than to its software group! This departure from the norm suggests that they feel they could use the extra revenues to boost services performance!
Perhaps IBM's services group will come back with renewed vigor to overtake software sales again, or perhaps it will cease to matter as hardware, software and services increasingly meld into one unified technology solution offering. Any which way, it will be interesting to watch the continued march of IBM, in the third century of it's existence**.
P.S. By the way, if you've been in the industry for a couple of decades, you will recall the constant cries of the impending death of the mainframe. Listen to this: said Mark Loughridge, the IBM CFO while announcing the results for the June quarter of 2006, "The most profitable business segments in the second quarter were software, microelectronics and IBM's System z mainframe computers". And so the mainframe lives.
__________________________________________________________________
*incidentally, a song compared to what others had tried to buy the same unit for earlier. How much was that, you ask? Hold your hat - Hewlett Packard (HP) had bid $18 Billion for PwC !! Talk about the Winner's curse!.
** the company was founded in 1888 (although it was incorporated only in 1911 - hence the "90-something" reference earlier!).
posted by Vivek Pai Kochikar at 10:54 PM
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