IBM, the (non) Computer Company

Posted by: Steve Hamm on January 21, 2009

It struck me hard when I was listening to IBM’s quarterly earnings conference call yesterday: Computer hardware has become a tiny piece of this giant company. Big Blue reported $5.4 billion in computer, storage, and microelectronics sales in the 4th quarter, about 20% of overall sales. Sales of Wintel servers declined by a shocking 32 percent. Even more jolting: Hardware contributed just 9% of the company’s profits.

Over the past decade, IBM has exited one commodity hardware business after another, including PCs, disk drives, and printers. As a result, the company's profit margins have improved dramatically. Indeed, IBM is becoming quite the efficient company. Even while overall revenues declined 6 percent last quarter, profits were up 12 percent to $4.4 billion.

So, the provocative question is: Will IBM ever get out of hardware entirely? When I put that question to PR man Michael Fay this morning, he answered: "We have a very valuable position in hardware, particularly at the high end which allows us to get much of the profit in the industry that doesn't go to Intel and Microsoft. Our high ground position in servers is where we have IBM unique technology. Certain parts of the portfolio that are not as efficiency oriented as System Z and Power are taking a hit right now. And Storage is in a bit of a transition. But if you look at our position in analytics and storage management software there's a lot to work with in terms of margin."

That makes sense. But it might get out of pieces of the hardware business. Maybe it exits the Wintel server business. Or maybe it will stop making chips and farm out the manufacturing to TSMC or another highly capable Asian contract manufacturer. These things are possible.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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