International Business Machines Corporation (IBM)

Date Founded: 1911

Industry: Information technology

Corporate Headquarters: Armonk, New York

Type: Public

International Business Machines, better known as IBM and nicknamed Big Blue, is one of the world’s leading computer manufacturers and specialized software companies. Formed in 1911 as the Computer-Tabulating-Recording Company, the corporation took off in 1914 under the leadership of Thomas J. Watson, whose son, Thomas J. Watson Jr., became president in 1952. The senior Watson made the company a leader in the industry by making punch-card tabulating machines, the precursors to electronic computers. His son led the push into mainframe computers and software. During the younger Watson’s tenure, the company moved its headquarters from New York City to the suburb of Armonk and adopted the logo with eight horizontal stripes making up the letters IBM.

IBM entered the personal computer (PC) field in 1981 with the IBM Personal Computer. The high status that IBM enjoyed in the business world made its PC the microcomputer of choice for many businesses entering this new area of computing, although IBM was eventually overcome by competitors in this market. Later, the company focused again on mainframes, along with supercomputers, artificial intelligence, and customized services. However, it struggled in the 2010s with its relatively late start in new businesses such as cloud computing. By the 2020s, it had undergone a significant shift in an attempt to remain competitive in the fast-changing information technology industry.

With revenue of $57.4 billion in 2021, a slight amount of growth from the previous year, IBM ranked forty-second in the Forbes list of the world's biggest public companies, trailing Apple and Alphabet (parent company of Google) in the computer and software industry. In 2022, IBM's annual revenue had increased to $60.5 billion. The company employed nearly 345,000 people worldwide in mid-2023.

History

On June 11, 1911, the Tabulating Machine Company, the International Time Recording Company, and the Computing Scale Company of America merged to form the Computing-Tabulating-Recording Company (CTR), which was based in New York City. Three years later, Thomas Watson Sr. became general manager of the company—he became president the following year—and launched its first period of growth.

Watson wanted to build a multinational corporation, and the company’s name was changed to International Business Machines in 1924 to reflect that goal. He launched operations in Brazil, South Africa, Japan, and other countries. In 1933 IBM bought Electromatic Typewriters, entering the electric typewriter market. Later in the decade, the company developed the machines needed to process information for the government’s new Social Security System.

IBM entered the mainframe computer market relatively late, offering its first machine in 1952. Thomas Watson Jr. poured money into research and development, however, and the company became the world’s leading computer maker. In 1957 IBM engineers developed the FORTRAN computer language, which would become highly influential as the first widely accepted high-level programming language. In the 1960s, IBM made 70 percent of the computers used worldwide and 80 percent of those used in the United States.

In the 1980s, IBM entered a new field—personal computing. While the IBM PC quickly became an industry standard, it had built-in vulnerabilities. With architecture built around Intel’s microprocessors that ran on a Microsoft-owned operating system and with a machine that used performance software from a host of suppliers, the IBM PC became the target for competitors, which built machines that were less expensive, faster, and more innovative than IBM’s products, dooming IBM to a small share of PC sales.

The company tried to combat this competition by designing the PS/2 with a proprietary operating system that could not be cloned. The new machine never took hold, however, and IBM eventually abandoned the PS/2. In an attempt to remain competitive, IBM and major rival Apple agreed to make their computers compatible with each other, forming what became known as the AIM alliance together with chip manufacturer Motorola in 1991. It was soon clear, however, that IBM was in serious trouble. In 1993 the company posted an $8 billion net loss, a corporate record at the time. That year, the board hired Louis V. Gerstner Jr. as chair and CEO to turn things around.

Along with initiating the first layoffs in company history, Gerstner pushed the company to sell networking and related services. He also began to push the company into emphasizing computer services. These moves boosted revenues and profits. At about this time, IBM purchased Lotus Development Corporation, an important software company and developer of the early spreadsheet program Lotus 1-2-3.

IBM began to shift its focus to mainframes and supercomputers as well. In 1997 its Deep Blue supercomputer won a six-game match with Garry Kasparov, the world-champion chess player, a first for a computer. The achievement helped draw attention to IBM's success in repositioning itself as a leader in cutting-edge technology development.

IBM continued to evolve in the twenty-first century. In 2002 the company sold its facilities for manufacturing hard drives to Hitachi of Japan. In 2005 it sold its PC business to Lenovo, a Chinese company. While it maintained some of its hardware businesses, for instance, developing powerful microprocessor chips used in many popular videogame systems, IBM began concentrating on several other potential growth areas. These included cloud computing, big data analytics, cybersecurity, and artificial intelligence.

In 2011 IBM's Watson supercomputer soundly defeated the two most successful players of the game-show Jeopardy, showcasing the machine’s ability to synthesize information. The contest was part marketing ploy for IBM, which began promoting Watson services based on its processing power.

Nevertheless, IBM once again struggled through much of the 2010s. Sales fell for twenty-two consecutive quarters, going from an annual high of $106 billion in 2011 to just over $79.9 billion in 2017. Meanwhile, the company sold its server business to Lenovo for over $2 billion and indicated new directions with acquisitions, including The Weather Company's digital operations, Merge Healthcare, and video conference provider Ustream. IBM finally reported revenue growth again in January 2018; that year, the company also purchased Red Hat, which had gained a reputation for providing open-source software and other tools for cloud computing developers.

By the 2020s, IBM had shifted considerably from its legacy products and deepened its commitment to cloud computing and other growing sectors. In 2020 the company split its IT and technology services business into Kyndryl Holdings Inc., a new public company. This divestment, the largest in IBM's history up to that point, allowed the company to focus its efforts on cloud computing while maintaining other aspects of its business, including hardware, software, and consulting. IBM also became more involved in quantum computing, providing operational quantum computers to both Germany and Japan in 2021. In 2023, IBM launched QRadarSecurity Suite, a product in the cybersecurity market.

Impact

IBM innovations have had a major impact on the modern era. IBM machines were critical in the launch of the Social Security System in the 1930s. In the 1940s, IBM pioneered the use of vacuum tubes instead of electrical relays in its machines, thus speeding processing operations. In the 1950s, the development of FORTRAN shaped the future of computer programming. The Selectric typewriter, an electronic model introduced in 1961, became a dominant office machine. Starting in the 1960s, the company’s computers were used in the US space program. While IBM was unable to dominate the personal computer market, the widespread Windows-based machines of the late twentieth and early twenty-first centuries are descendants of the first IBM PC. The company set a record as the first company to receive over three thousand patents in a single year in 2001 and then surpassed four thousand patents in a single year in 2008; it remained a prolific filer of patents into the 2020s. These and other achievements helped make and sustain IBM's image as an iconic company associated with technological advancement.

IBM long held a reputation as an exemplary, if rigid, place to work. Employment was for life—until 1993, when the company issued layoffs—and its benefits, including health insurance and a pension plan, were generous. Watson Sr.’s motto, "THINK," and his corporate principles—respect, service, and excellence—set high standards. Still, the organization had flaws. Competition between divisions was fierce, and IBM was not always responsive to customer needs. Salespeople had quotas that effectively capped their earnings—famously, Ross Perot (later a successful entrepreneur and failed presidential candidate) hit his annual quota in January one year and promptly quit because he knew company rules would prevent him from selling any more. A heavy management structure discouraged innovation and quick decisions. That slow pace plagued company efforts to adapt successfully to several industry changes.

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