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IBM CORPORATE

Updating IBM’s 92-Year Business Record with 2004 Results

2004: Shot in the Arm

Latest IBM Figures Boost Palmisano’s Record as CEO

PHOENIX, Feb 5 – IBM’s 2004 results were a shot in the arm for Sam Palmisano’s record as CEO, and an overall boost to Big Blue’s 92-year business performance.  But as with most things big, change comes in small increments.  And so do such improvements…

Despite having reported the highest revenue ($96.5 billion) and profit ($8.4 billion) figures in the company’s 92-year history, IBM’s latest five-year revenue growth is still only 2%, the lowest it has ever been.  Its five-year profit growth of 5.1% is nothing to write home about, either, especially compared to IBM’s Gold Era’s (1950s through 1970s) 14% to 19% annual earnings increases.  But it represents a vast improvement over the meager 2.7% compound profit rise during the 1990s, IBM’s worst decade almost by any performance measure.

There are other signs of improvement that are equally important.  IBM’s 8.8% net margin, for example, up from 8.5% in 2003, is now approaching the best of Gerstner years (2000-2001) when it topped 9% for the first time since 1988.  And if such improvements continue in 2005-2006, after the sale of its low-no margin PC business to Lenovo, this may be the first time in over 20 years that Big Blue might achieve double-digit net margins.

(The last time IBM did it was in 1985, with a 13.1% net margin.  But the company was then almost half the size it is today, with $50 billion in revenues. And its profitability was still being boosted by the “great IBM lease base sale”).

IBM’s 2004 results pushed the company’s aggregate sales during its 92-year history to over $1.8 trillion, and its cumulative earnings to over $126 billion.  Both figures represent a compound annual growth of over 11% during more than nine decades of its existence; nearly double the U.S. Gross Domestic Product’s (GDP) growth rate during the same period (6%).

The two revenue dips discernible on the above chart came at the end of the two last IBM CEO’s eras – John Akers’ in 1991-1992, and Lou Gerstner’s in 2001-2002.

Prior to that, the only other revenue declines in Big Blue’s history came in 1929 and 1933, when the company felt the effects of “the great depression,” along with millions of Americans at the time.

What is the reason for such an unenviable, if not mind-boggling, sustained revenue and profit growth over more than nine decades?  

Ability to change, is our answer.  

Through recessions and depressions; through two world wars and dozens of minor conflicts; through communism’s rise and fall; through capitalism’s triumph and decline; through 16 presidents - Democratic and Republican; through three major antitrust lawsuits launched against it; through nine CEOs and dozens of technological wars and breakthroughs… IBM kept growing.

There is only way that that could have been accomplished… willingness and ability to change with the changing times.  The few times IBM stopped changing, such as in the waning years of the Akers’ and Gerstner’s eras, the marketplace punished the company for it.  Now that the company is changing and adapting again to the new market forces, it is also starting to reap the benefits of it.

“The more things change, the more they are the same” (Alphonse Karr, 1809-1890).

Happy bargain hunting

Bob Djurdjevic

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