How Is IBM Even Still Around?

Summary

This script narrates the dramatic rise, fall, and resurgence of IBM, once the world's leading computer manufacturer. From its 1800s roots in data processing to its dominance in the PC market with the IBM 5150, the company faced challenges with emerging competitors and market shifts. Despite selling its PC division to Lenovo, IBM reinvented itself, focusing on commercial services, servers, databases, and cloud computing, demonstrating resilience but currently facing a new downtrend in revenue and net income.

Takeaways

• 🏢 IBM was once the leading computer manufacturer globally but has since transitioned away from selling consumer computers.
• 📈 Despite being a pioneer in the PC industry with the launch of their first PC in 1981, IBM lost market share to competitors like Dell and Compaq in the late 1980s.
• 💡 The company's name, International Business Machine, reflects its historical focus on business solutions, not just consumer products.
• 📉 In the 1990s, IBM experienced significant financial struggles, including a record corporate loss of $4.96 billion in a single quarter.
• 🛑 The dotcom bubble's collapse led to IBM offloading their PC business to Lenovo, marking the end of their consumer electronics venture.
• 🚀 Post-PC, IBM's revenue, earnings, and market cap soared, even surpassing Microsoft temporarily before Microsoft's resurgence.
• 🌱 IBM's origins date back to the 1800s with a focus on data processing machines for punch cards, evolving into a major player in the industry under Thomas J Watson's leadership.
• 🌐 IBM's early success was bolstered by government contracts, including for the 1935 Social Security Act and extensive use during World War II.
• 🛑 The company faced a painful decline in the consumer PC market due to a lack of brand loyalty and intense competition on price.
• 💼 IBM's pivot away from consumer products led to a focus on commercial customers and the successful entry into servers, databases, and cloud computing.
• 🌪️ However, IBM now faces challenges in the crowded cloud computing market, with revenue and net income significantly declining over the past decade.

Q & A

What was the significance of IBM's first PC launch in 1981?

IBM's first PC launch in 1981 was significant because it marked their entry into the personal computer market, making PCs more affordable for the first time and allowing IBM to dominate the market throughout the early 1980s.

Why did IBM lose market share to newcomers like Dell and Compaq in the late 1980s?

IBM lost market share because newcomers like Dell and Compaq, which were essentially computer assemblers sourcing cheap parts, could undercut IBM's prices significantly due to their lower overhead and R&D expenses.

What event in the 1990s had a significant negative impact on IBM's financial performance?

IBM posted the worst quarter in corporate history in the 1990s, losing $4.96 billion, which led to their market cap halving in value while the S&P 500 nearly doubled.

How did IBM's business strategy change after the dotcom bubble burst?

After the dotcom bubble burst, IBM decided to offload their underperforming PC business to Lenovo and focus on their commercial customers, leading them into new areas like servers, databases, and cloud computing.

What was the original focus of the Tabulating Machine Company, which later became part of IBM?

The Tabulating Machine Company originally focused on creating data processing machines for punch cards, which were essential for manufacturing plants and factories.

What role did Thomas J Watson play in the early success of IBM?

Thomas J Watson played a crucial role by expanding the company's scope, hiring salesmen, teaching them enterprise sales, and instilling company pride, unbeatable customer service, and professionalism.

Why did IBM change its name from CTR to International Business Machine in 1924?

IBM changed its name from CTR because Watson felt that CTR was clunky and confining, and he wanted a name that better reflected the company's expanding scope and international presence.

What was the impact of the Social Security Act on IBM's growth during the Great Depression?

The Social Security Act required tabulating employment records for 26 million people, and IBM was the only company that bid on this contract, which helped them evolve from a mid-size company to an industry leader.

How did IBM's involvement in WW2 contribute to its dominance in the industry?

IBM's tabulating equipment was instrumental in the war for mobile record units, ballistics, accounting, and logistics, leading to exponential growth in manufacturing capacity and solidifying their industry dominance.

What was the key feature of the IBM System 360 that set it apart from previous computers?

The key feature of the IBM System 360 was that the hardware and software were no longer bundled, allowing for software upgrades and swaps, which was instrumental for clients like NASA.

What challenges has IBM faced in the cloud computing market, and how have they impacted its performance?

IBM faced increased competition in the cloud computing market as companies like Apple, Google, Dell, Oracle, and Microsoft entered the space, leading to IBM shedding much of its cloud gains and experiencing a significant downtrend in revenue and net income.

Outlines

00:00

🌐 The Rise and Fall of IBM's PC Dominance

This paragraph outlines the evolution of IBM from a leading computer manufacturer to a company that no longer sells personal computers. It starts with IBM's prominence in the 1980s, launching the first PC in 1981, and its initial success due to being a first mover in the industry. However, the narrative shifts to the late 1980s and 1990s, where IBM faced stiff competition from newcomers like Dell and Compaq, losing market share and eventually posting the worst corporate quarter in history with a loss of $4.96 billion. Despite these setbacks, IBM managed to diversify and grow in other areas, leading to a resurgence in revenue, earnings, and market cap, even surpassing Microsoft for a time. The paragraph concludes with IBM's current status as the world's 90th largest company with a market cap of $133 billion, illustrating its resilience and transformation beyond the PC market.

05:05

🏭 Founding and Early Successes of IBM

This section delves into the origins of IBM, tracing back to the 1800s with four companies, most notably the Tabulating Machine Company, which focused on data processing machines for punch cards. The company's founder, Herman Hollerith, gained recognition for his work on the 1900 US census, but faced challenges with sporadic revenue. After selling the company to Charles Flint, who merged it with others to form CTR, the company saw significant growth under the leadership of Thomas J. Watson. Watson expanded the company's scope, emphasized sales and customer service, and rebranded the company as IBM in 1924. Despite the challenges of the Great Depression, Watson's strategic hiring and benefits for employees, along with the opportunity provided by the Social Security Act, positioned IBM as an industry leader by the end of the depression. IBM's role in World War II further solidified its dominance, setting the stage for its future pivot into the computer market.

10:07

🛠️ IBM's Pivot to Computers and the Challenges of Consumer Markets

The paragraph discusses IBM's transition into the computer industry following the leadership of Thomas J. Watson. It highlights the introduction of the programming language Fortran and the development of various computers, culminating in the groundbreaking IBM System 360 in 1964. This computer allowed for separate hardware and software, which was a significant advantage for clients like NASA. However, the government's reduced spending after the space race forced IBM to look towards the public sector. The launch of the IBM 5150 in 1981 marked the company's entry into the personal computer market, which was initially successful due to its relative affordability. Yet, the lack of unique features or brand loyalty led to a decline in IBM's market share as cheaper competitors like Dell emerged. This section ends with IBM's eventual decision to sell its PC business to Lenovo, marking the end of its consumer product line.

🔄 Resurrection and Ongoing Challenges for IBM

This final paragraph examines IBM's strategic shift away from consumer PCs to focus on commercial customers, leading to success in servers, databases, and cloud computing. Despite initial success, IBM faced increased competition in the cloud market as tech giants like Apple, Google, and Microsoft entered the space. The paragraph details a significant downturn in IBM's revenue and net income over the past decade, questioning the company's future prospects. It concludes with a call to action for viewers to share their thoughts on IBM's future and to engage with the content creator's community.

Keywords

💡IBM

International Business Machines Corporation (IBM) is an American multinational technology and consulting company with a history dating back to the early 20th century. It is central to the video's narrative as it discusses the company's rise, fall, and transformation within the technology industry. The script mentions IBM's shift from a household name in computer manufacturing to a company that sold its PC division to Lenovo, reflecting its strategic pivot.

💡PC (Personal Computer)

A personal computer, or PC, is a device used for various computing tasks in a personal or professional setting. In the video, IBM's entry into the PC market with the IBM 5150 in 1981 is highlighted as a significant milestone. However, the script also discusses how IBM faced competition from companies like Dell and Compaq, which eventually led to IBM selling its PC business.

💡Market Share

Market share refers to the percentage of an industry's total sales that a company controls. The video describes how IBM rapidly lost market share in the PC industry to newcomers like Dell and Compaq during the late 1980s, which was a critical factor in its eventual exit from the PC market.

💡Operating System

An operating system is the software that manages computer hardware and software resources. The script notes that IBM funded the development of an operating system that later became Microsoft, illustrating the shift in control over a critical component of the PC ecosystem.

💡Dotcom Bubble

The dotcom bubble refers to the period of excessive speculation in the late 1990s during which the stock prices of many internet-based companies soared to unsustainable levels before crashing. The video mentions this period as a time when IBM had some respite from the pressure of its underperformance in the PC market.

💡Offloading

In a business context, offloading refers to the act of selling or getting rid of a part of a business. The script discusses how IBM offloaded its recognizable PC business to Lenovo, marking a significant shift in the company's strategy.

💡Market Cap

Market capitalization, or market cap, is the total market value of a company's outstanding shares of stock. The video uses IBM's market cap as an indicator of its financial performance, noting its growth after the sale of its PC business and comparing it to the performance of other companies like Microsoft.

💡Cloud Computing

Cloud computing is the delivery of computing services, including storage, databases, networking, software, and analytics, over the internet. The script describes IBM's pivot towards cloud computing as part of its strategy to recover from its decline in the PC market, although it later faced increased competition in this space.

💡Fortran

FORTRAN is a general-purpose, procedural, imperative programming language that is particularly suited to numeric computation and scientific computing. The video mentions IBM's introduction of the Fortran programming language as a part of its innovation history in the computer industry.

💡System 360

The IBM System/360 is a mainframe computer system that was announced by IBM in 1964 and delivered in 1965. It was a significant innovation because it allowed for the separation of hardware and software, enabling users to upgrade and swap software independently of the hardware. The video highlights this as a breakthrough for IBM and a key factor in its dominance during the 1960s.

💡Consumer Electronics

Consumer electronics are electronic devices intended for everyday use, typically sold to individuals for personal or family use. The script discusses IBM's foray into the consumer electronics market with its PC business and how it struggled to compete with companies that had lower overheads and could offer products at more competitive prices.

Highlights

IBM was once the most well-known computer manufacturer globally.

IBM sold its computer business to Lenovo nearly 20 years ago.

Despite being a first mover in the PC industry, IBM lost market share to newcomers like Dell and Compaq in the late 1980s.

IBM's operating system investment evolved into Microsoft.

IBM posted the worst corporate quarter in history with a $4.96 billion loss in the 1990s.

IBM's market cap halved while the S&P 500 nearly doubled during the 1990s.

The dotcom bubble provided temporary relief for IBM's financial struggles.

IBM offloaded its recognizable PC business after the dotcom bubble burst.

IBM's revenue, earnings, and market cap skyrocketed post-PC business sale.

IBM's market cap stands at $133 billion, making it the world's 90th largest company.

IBM's roots date back to the 1800s with four different companies, including the Tabulating Machine Company.

Thomas J Watson expanded IBM's scope and sales force, doubling the company's revenue in 4 years.

IBM's branding efforts included the creation of the THINK slogan.

IBM's name change to International Business Machine in 1924 preceded the Great Depression.

IBM's growth during the Great Depression was due to government contracts, such as the Social Security Act.

IBM's equipment was instrumental in WWII, leading to exponential manufacturing growth.

IBM introduced the programming language Fortran and the IBM 1401, setting the stage for the PC market.

The IBM System 360, introduced in 1964, was a breakthrough with unbundled hardware and software.

IBM's first personal computer, the IBM 5150, was affordable and dominated the early 1980s market.

IBM's PC market share declined due to competition from assemblers like Dell, which offered cheaper alternatives.

IBM's exit from the consumer PC market led to a focus on commercial customers and new opportunities in servers, databases, and cloud computing.

IBM's revenue and net income have significantly declined in the past decade due to increased competition in the cloud market.

IBM's future remains uncertain as it faces ongoing challenges in a competitive cloud computing market.

Transcripts

THE STATE OF IBM: Once upon a time, IBM was a household name.

They were the most well known computer manufacturer in the world period.

But, today, while people still recognize the name, virtually no one buys computers from

IBM.

In fact, you can’t buy an IBM computer today even if you wanted given that they sold the

business to Lenovo nearly 20 years ago.

This is quite surprising given that by all accounts, IBM was very much a first mover

within the PC industry.

They launched their first PC way back in 1981 and I mean the company’s name itself is

International Business Machine.

Yet, by the late 1980s, IBM was rapidly losing marketshare to newcomers like Dell and Compaq.

Heck, even the operating system that they funded had turned into Microsoft.

This downtrend only got worse in the 1990s as IBM would go onto post the worst quarter

in corporate history having lost $4.96 billion.

IBM’s market cap would halve in value while the S&P 500 nearly doubled.

Fortunately for IBM, the dotcom bubble would give them some room to breathe as investors

were lenient to say the least.

But, as the dotcom bubble collapsed in the early 2000s, focus shifted back to IBM’s

underperformance within the PC market.

And this eventually led to IBM offloading their most recognizable business.

Considering the situation, you would think that IBM was headed towards bankruptcy or

at the very least a painful decline.

But, the exact opposite would actually take place.

IBM’s revenue, earnings, and market cap would all skyrocket.

And IBM would even overtake Microsoft for a couple of years until Microsoft had their

own resurgence.

Today, IBM stands at a marketcap of a $133 billion which makes them the world’s 90th

largest company.

Clearly, losing within the PC industry hasn’t killed off IBM altogether.

So, here’s the rise, fall, and resurrection of one of the most iconic brands of all time.

FOUNDING IBM: Taking a look back, the roots of IBM actually

date back to the 1800s to 4 different companies which included the Bundy Manufacturing Company,

the Tabulating Machine Company, the International Time Recording Company, and the Computing

Scale Company of America.

By far the most important of these was the Tabulating Machine Company.

This company focused on creating data processing machines for punch cards.

This proved to be relatively successful given that it was a must have at manufacturing plants

and factories.

But the problem was that revenue from this business was sporadic and unreliable.

I mean, how many times are prominent factories going to need to buy punch card machines?

Maybe, once every few years if that.

So, the founder of the company, Herman Hollerith, would shift his focus to a larger project,

the 1900 US census.

The census challenged his machines like never before due to the raw volume and scale, but

Herman would successfully complete the project which gave him some notoriety within the industry.

Despite this though, it didn’t take him long to fall back to ground zero.

You see, the US only conducts a census once every 10 years, so revenue became sporadic

and unreliable once again.

While Herman very much wanted to turn this around, he was getting into his 50s and his

health wasn’t quite holding up.

So, he decided to sell the company to a man named Charles Flint for $2.3 million.

Flint would combine this with a few other businesses and create a new company called

CTR.

And very quickly, it became obvious that Flint was no rookie at business.

He didn’t change anything technical about the company.

Instead, he simply focused on expanding the use cases and the sales force.

He would hire an executive named Thomas J Watson, and Watson would basically become

the father of IBM.

The first thing that Watson did was hire a bunch of salesmen and teach them the intricacies

of enterprise sales.

He instilled the values of company pride, unbeatable customer service, and professionalism.

Watson also expanded the scope of the company from just selling punch card machines to providing

corporations with large scale tabulating solutions.

This turned out to be extremely successful and Watson would end up doubling the company’s

revenue within just 4 years of taking over.

Very soon, CTR would begin expanding internationally to Europe, South America, Asia, and Australia.

Watson would also hone in on the companies branding and public image.

One of his first branding efforts was creating a company slogan, and for this, he would just

reuse a slogan that he thought at his last job: THINK.

You might recognize this slogan today with the Lenovo Thinkpad.

Anyway, Watson now had a company slogan, but there was still something that was really

erking him.

Watson hated the name CTR.

He felt that it was clunky and confining, so in 1924, he would change the name of the

company to IBM or International Business Machine.

It seems like this name change may have been a bit unlucky though as the Great Depression

would role around not much later.

INDUSTRY LEADER: The great depression would hit IBM hard.

Given that businesses were collapsing left and right and given that IBM was a B2B business,

they had an extremely tough time keeping clients.

Nonetheless, Watson didn’t panic.

He was a strong believer in the idea that if you had a great team that was building

useful products, demand would follow.

Watson would not only hire more employees during the great depression, but he would

even increase their benefits.

IBM was one of the first companies to provide group life insurance, survivor benefits, and

paid vacations.

But, despite Watson’s positive approach, the effects of the great depression were very

much evident throughout IBM.

IBM was building up a massive inventory of tabulating equipment with no market to sell

to.

But, as Watson was hoping, an opportunity would eventually arise and it was massive.

In 1935, FDR would sign into effect the social security act which required tabulating employment

records for 26 million people.

IBM was the only company that bid on this contract and by the end of the depression,

IBM would evolve from being a mid size company to being an industry leader.

And their dominance would only grow with the onset of WW2 as IBM’s tabulating equipment

would prove instrumental in the war.

The allied forces widely used IBM’s equipment for mobile record units, ballistics, accounting

and logistics, and of course punch cards.

To keep up with all this demand, IBM would grow their manufacturing capacity exponentially,

opening factories all across the North East and California.

Despite all this growth, Watson had a fear in the back of his mind.

What would happen when the war came to an end and government spending was cut substantially?

Watson began addressing this issue early on to prepare as much as possible.

He increased IBM’s international presence and played a major role in the formation of

the World Trade Corporation.

But, it turned out that none of this preparation was even required.

As soon as WW2 came to an end, the US would get knees deep into the Cold War.

The government no longer needed tabulating equipment per se though.

What they wanted was a highly intelligent machine also known as a computer, and this

is what got IBM into the PC game.

Unfortunately, Watson never got to see this evolution as he would pass away in 1956, but

he very much laid the foundation for IBM’s pivot into the PC market.

Just one year after Watson passed away, IBM would introduce the programming language Fortran.

IBM would follow this up with a slew of computers such as the IBM 1401 and the IBM 1403, but

the breakthrough didn’t happen till 1964 when they introduced the IBM system 360.

The feature that set apart this computer was the fact that the hardware and software were

no longer bundled.

In other words, you could upgrade and swap software.

This proved to be instrumental for NASA and NASA would end up using IBM computers to land

the first humans on the moon in 1969.

This was no doubt the golden age for IBM, but Watson’s fears from 25 years ago would

start coming to fruition as the government heavily pulled back spending after winning

the space race.

PAINFUL FAILURE: While the govenrment pulled back their contracts,

IBM was by no means in any distress.

Over the past 30 years, IBM had built an international brand and had major companies as clients.

So, they were by no means going to die.

But, given that they had maxed out the corporate and government side of things, IBM was forced

to look for new ways to grow and this led to the public sector.

The only problem was that IBM had virtually no experience selling to everyday consumers

and it would show.

IBM didn’t know it at the time though and they would launch project SCAMP in 1973.

This project is what would eventually lead to the introduction of IBM’s first personal

computer in 1981: the IBM 5150.

This computer actually turned out to be a massive success because it made PCs relatively

affordable for the first time.

The 5150 launched for a price of $1,600.

And while that was by no means cheap as it translates to $5200 today, it was way cheaper

than everything else on the market.

The Xerox Star, for example, came in at an eyewatering $16,500.

Meanwhile, the Apple Macintosh came in at $2,500, so for budget oriented customers,

which is most customers, the 5150 was the top choice.

This would allow for IBM to dominate the market throughout the early 1980s, but there was

just major problem.

People weren’t buying IBM computers because there was some sort of unique feature to them

or because people loved the brand.

Rather, much of IBM’s popularity could be explained by their price, and this is never

a good thing as it almost always leads in a race to the bottom, and that’s exactly

what happened.

Dozens of new computer manufacturers like Dell popped up, but there was one key difference

between manufacturers like IBM and manufacturers like Dell.

The difference was that companies like Dell weren’t computer manufacturers at all really,

they were computer assemblers.

They didn’t create new architectures or put together software or any of that.

They just sourced the cheapest parts on the market, installed MS Dos, and called it a

day.

This allowed them to undercut IBM by significant margins.

The Dell Turbo for example costed a mere $795 which was half of IBM.

And given that IBM hadn’t built any brand loyalty, people switched to these cheaper

computers in a heartbeat.

And the truth was that IBM simply couldn’t compete at those prices.

They simply had far more overhead and R&D expenses.

IBM didn’t want to call it quits either though.

So, they just stuck around as their PC marketshare waned year after year after year.

And, it wasn’t till after the dotcom bubble that they would finally decide to pull the

plus and sell their PC business to Lenovo.

And that marked the end of IBM’s foray into consumer products.

RESURRECTION: While IBM had gotten destroyed in the consumer

PC market, their commercial business was still doing alright.

So they decided to double down on commercial customers, and this led them to a new goldmine

which was servers, databases, and of course cloud computing.

Pretty soon, IBM was starting to turn things around and it seemed like IBM was very much

resurrected.

But, it’s not all sunshines and rainbows for IBM because their freedom within the cloud

market didn’t last all that long.

Since then, basically every company under the sun has jumped onto the market whether

it be Apple, Google, Dell, Oracle, or Microsoft.

They all want a piece of the pie and this has led to IBM shedding much of it’s cloud

gains.

In fact, IBM is very much in a downtrend once again.

In the past 10 years, IBM’s revenue has nearly halved from over $100 billion to barely

$60 billion.

A similar story can be seen with their net income as well which has shrunk from over

$15 billion to just $1.2 billion.

It seems like investors are still giving IBM a good amount of credit as they’ve been

able to maintain a pe ratio of over a 100.

But, if IBM continues to put up lackluster performance, it’s not clear how much longer

investors will give them leeway, but that’s just what I think.

Do you think IBM has a future?

Comment that down below.

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