Although, IBM was incorporated at the early stage of this century in New York State, its origins can be found back to 1890. At the late 1910s, IBM had expanded its operations to Europe, South America, Asia and Australia producing custom-built tabulating solutions for businesses. Until the beginning of 1980s, IBM had brought incredible innovation in computer industry and grown tremendously using effective marketing strategy that was offering the unbundled-components for sale individually. Moreover, a breakthrough occurred in 1981 when IBM started producing IBM Personal Computer, or PC. Personal computer users could begin to appreciate the new technology that allowed sharing peripheral devices trough the connection to network systems.

Despite these advanced, during the 1980s and early 1990s was a period that IBM experienced a harsh struggle because of the changes of consumer purchasing decisions that were not put in the IBM’s hands but in individuals and departments. To overcome this hard situation, Louis V. Gerstner Jr. was named as IBM’s chairman and CEO on April 1, 1993. He carried out dramatic shift in IBM business line concentrating on integrated business solutions, which is a key IBM strength that combined the company’s expertise in solutions, services, products and technologies ("IBM History").

Products related to computer industry have so many categories, however, they can be categorized in three major parts; hardware, software and service. IBM has engaged all of these categories as the top vendor in the world. Depending on how the users use computers, the customers also have broad categories from a single PC user in his home to high-end server users in the firm. Therefore, the market includes not only the domestic market, but also the international market where people use computers as one of the essential or convenient tools to live, work and communicate. This computer market can be categorized in business, home, government and education segments (Figure 1). Since the computer industry is relatively new one compared to matured industry like automobile, its life cycle turnovers rapid, especially in the software industry.

There are more than tens of thousands firms engaged in computer industry including hardware, software and service. Some of them can survive today’s extremely competitive market condition, whereas, some of them have been merged or withdrew, due to the fast life cycle of computer products, or to the change of consumer taste. These computer-related firms can take any kind of business forms from sole proprietorship t#034;JUSTIFY">The company furnishes Aptiva series as its desktop business line both for the under $1,000 market and for those seeking the power and performance of a 450 MHz processor and DVD multimedia. ThinkPad series, mobile business line, has become the company’s fastest-selling notebook ever, trying to get the market share from Toshiba. Personal segment revenue declined 10.9 percent in 1998 from 1997, following an increase of 3.3 percent in 1997 versus 1996. This decline could imply the beginning of so-called "Post-PC Era." Paul Horn, a senior vice president for research at IBM, said, "The trend is pretty clear toward a proliferation of different computing devices at the individual level being fed specialized information from powerful networks." This trend is not implying that PC is going to dry up, but the way to connect to the Net is going to be diversified with using variety of information appliances (Lohr, Markoff).

The technology segment produces peripheral equipment for use in general purpose computer systems including storage and networking devices, advanced function printers and display devices. In addition, the segment provides components such as semiconductors and hard disk drives for use in the company’s products and for sale to original equipment manufacturers (OEM). Total OEM hardware revenue is growing constantly for the past five consecutive years, having recorded 8.3 percent of the total revenue in 1998 (Figure 15) (IBM Annual Report). As mentioned above, a couple companies are trying to produce copper-based microprocessors, however, IBM is the only vendor that is actually shipping them in computer industry. Intel, the giant semiconductor maker, is expected to start using copper for its circuitry from late 2000 or 2001, leaving IBM as the only major manufacture field. IBM has completely seized the initiative in this new technology, which will in turn accelerate its revenue as its lucrative business (Moltzen, Savage 5).

The global services segment is the world’s largest and most versatile information technology (IT) service provider, providing specialized consultants to design and implement new applications such as Enterprise Resource Planning and the Net systems. As customers want to concentrate on their core businesses and downsizing personnel, they will continue to outsource their IT infrastructure to some services professionals, moreover, they want complete vertical integration of existing IT systems. This is where IBM can get in using its well-sophisticated strategy solutions. Global services segment is one of the most growing businesses for IBM that IBM has been regarding as a crucial business segment and shifting its business style to more like a service company (Figure 16) (Kraemer 7).

The software segment delivers operating systems for the company’s servers and middleware for IBM and non-IBM platforms. In addition to its own development, product and marketing effort, the segment supports more than 29,000 independent software vendors to ensure that the company’s software and hardware offerings are included in those partners solution. Software segment revenue increased 6.3 percent in 1998 from 1997, following a decline of 2.3 percent from 1996. This increase was primarily derived from the strong AS/400 revenue and the software companies that IBM merged (IBM Annual Report).

IBM continues to invest significantly in its rapidly growing services business, principally in the management of customers information technology, and in manufacturing capacity for hard disk drives and microelectronics. Furthermore, the company’s aggressive investment can be seen in server and enterprise software lines by recent acquisition (Figure 17). In 1996, the company bought spreadsheet software pioneer Lotus, which has more than nine million users in the world, for approximately $3.2 billion. In 1996, the company acquired all outstanding shares of Tivoli for approximately $800 million to fill a void in its software strategy. In 1997, the company purchased the majority stake in NetObjects, a leading provider of website development tools for designers and intranet developers, to expand its web presence. In the same year, the company also acquired Technology Service Solutions, comprehensive services solutions provider, and Union Software, a leading developer of workload management. In 1998, the company acquired Software Artistry, a leading provider for both consolidated service desk and customer relationship management solutions for distributed enterprise environment (IBM Annual Report). As a result of these acquisition activities, IBM has become to provide the customers with sophisticated and best fitted integrate IT solution using most advanced technologies.

IBM’s current ratio and quick ratio are calculated to be 1.2 and 1.1 in 1997 respectively, while the industry averages are 1.8 and 1.2 (Industry Norms and Key Business Ratios 96). The current ratio is much lower than the industry average, which could indicate the company would face difficulty to remain solvent in the next year due to the lack of enough current assets. This picture will be the different one in terms of leverage, which follows next.

The company’s debt ratio is calculated to be 0.76, which is much higher than the industry average of 0.55 (Industry Norms and Key Business Ratios 96). Essentially, the more leverage a firm has, the riskier its situation and more fixed payment of interest it has. In terms of interest payment, IBM has times interest earned of 13.40 that is enough to serve its interest obligation. Accordingly, Standard & Poor’s rated the company’s long-term debt as A+, and Moody’s Investors Service rated as A1 (IBM Annual Report).

The company’s average collection period is calculated to be 109.3 in 1997, which is much higher than the industry average of 53.3. Although, the trend of decline on average collection period can be seen in the past four years, the number is still higher than the industry average, indicating that IBM is not performing well in its collection of receivables. On the other hand, there is a trend in increasing inventory turnover, recording 9.3 in 1997. Nevertheless, it is still below the industry average of 12.0 (Industry Norms and Key Business Ratios 96). IBM is managing its inventory well, not to let them obsolete or overstock in this rapid changing computer market.

The company’s gross margin has been declining for the past three years since 1995. This is primarily due to the growing service business that has lower gross margin. However, because of efficiently managed expenditures, net profit margin has consecutively increased each year (Figure 18). Moreover, ROA and ROE have increased for the past five consecutive years, having recorded 7.5% and 30.7% in 1997. These numbers are much higher than the industry average of 5.0% and 16.9%, showing the company’s better performance compared to each previous year (Industry Norms and Key Business Ratios 96).

The company’s share price at the year-end has been tremendously surging along with the constant growth in revenue and net income. In addition, the company’s earning per share has recorded 6.18 in 1997, having been growing constantly for the past four years. The company is performing good enough to meet its shareholders expectation through the dividends and capital gain from stock performance (Figure 19,20).

The company’s number of employee has been growing since 1994. When Louis V. Gerstner Jr. came to IBM in 1993, he took drastic action to rebuild robust infrastructure. He cut the workforce and the expenditure of R&D in great amount ("IBM" 786). The number of employee declined in 1994, however, it bounced along with the company’s growth, particularly in the service business segment. Currently, 291,067 employee are working for the company, and approximately 43% (126,000) of them are working as service professionals. Although, R&D expense to sales is in the trend of increase, it is still being kept below the 1993 level, which indicates IBM is utilizing the expense efficiently to product and invest new technologies.

Recently, the company has been performing incredibly well in terms of the growth of sales, gross profit, operating profit, net profit and common dividends paid. There are still great demands in IT market where IBM can contributes comprehensively, utilizing its high technologies with integrate systems and professional knowledge. Consequently, IBM still has tremendous potential to penetrate the market more profoundly, particularly in service segment, which will keep its high growth for a couple years (Figure 21).

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