When Facebook surpassed IBM by market capitalization, it was significant. Market valuation plays a part a company’s worth, but one thing is clear: Enterprise growth in legacy markets is much slower than that involved in social media. Facebook’s earnings rely on attracting advertising, but IBM has the potential to grow more meaningfully in the enterprise.
Security and Commerce
IBM recognizes there is a new breed of customers that dictate the dynamic between buyers and sellers. The company needs more contract wins in supply chain, procurement, and partner integration. Solutions touting Software as a Service (“SaaS”) are growing very quickly. For IBM, not all of those solutions are in the cloud. IBM’s focus is still at the customer. It puts the customer at the center of the business process. From there, the firm looks at the whole picture when it recommends solutions.
Global business service
Consulting is another core for IBM’s growth, but last quarter, back office implementations weakened. Pricing pressures led to weaker growth for IBM. Customers may have opted for Accenture’s services instead. IBM is still a big player in the IT consulting business, but it needs to offer more for customers. Sales in SaaS grew well for IBM. If the business service division promotes SaaS more readily, that might re-ignite IBM’s software sales and consulting activity.
Software
WebSphere remains IBM’s core strength. Its customers like the commerce, mobile solutions, and business integration offerings from WebSphere. On-premise offerings and SaaS are positive factors contributing to WebSphere’s demand.
Tivoli provides Integrated Service Management software to help manage a customer’s business value of IT infrastructure. Thanks to demand for security and storage software demand, Tivoli supports IBM’s sales growth.
Watson is a newly created offering from IBM. IBM is committing a billion dollars developing cognitive capabilities to the enterprise. If successful, Watson could lead in offering solutions related to a higher level of business analytics.
One software title that’s weakening for IBM is Rational Software. It is described by IBM as “helping you collaborate more effectively, develop flexibly, and control risk and change, leading to successful project delivery. “
Hardware
IBM is backing down on offering hardware solutions. It sold its chip manufacturing business to GlobalFoundries. IBM paid GlobalFoundries $1.5 billion to close this deal. IBM’s focus will now be in high-end chips, servers, and supercomputers. IBM may now spend more time matching high-end hardware to software offerings like Watson.
Customer expectations
IBM’s overall growth is waning at this time, but the company is refocusing its efforts on core capabilities. Divesting itself from expensive hardware manufacturing is good for IBM. The software divisions have potential for much more growth. SaaS performed nicely, but revenue still depends on other software titles. If IBM spends its R&D efforts improving its software titles, demand will improve. Consulting is an important aspect of IBM’s business. This, too, should improve as IBM spends more effort improving the pool of consulting talent.
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