International Business Machines Corporation, better known as IBM (IBM) or affectionately as "Big Blue," is an American multinational computer and technology company with a history dating back to 1911. Some of IBM's earliest products included computing scales, tabulators and time recorders. For the past several decades, however, IBM has been primarily focused on computers and related products. Now, IBM's offerings run the gamut from hardware and software to hosting services and more. Additionally, IBM is the company behind many of the most commonly-used inventions of the last century, including the UPC barcode, the hard disk drive and automated teller machines.
Since January of 2012, IBM has been led by Chairman, President, and CEO Ginni Rometty. Other members of IBM's executive leadership team include Simon Beaumont (Vice President, Tax and Treasurer), Michelle Browdy (Senior Vice President, Legal and Regulatory Affairs, and General Counsel), and Erich Clementi (Senior Vice President).
In recent years, IBM has struggled to keep pace with rapid changes in mobile and cloud computing. Indeed, the company has seen its stock price fall by about 24% over the past five years, while the S&P 500 has returned more than 50% for the same period. Recently, IBM has moved its assets around in order to attempt to best take advantage of areas that are growing quickly, including artificial intelligence, data analytics and cloud computing. Late in 2018, IBM made a major play in the last of these areas when it announced it would purchase Red Hat, a cloud services provider.
IBM's Revenue Growth
According to IBM's 2017 Form 10-K, the company posted revenue for 2017 of $79.1 billion, as well as total assets of $125.36 billion. These compare with $79.9 billion in revenue for 2016 and total assets of $117.47 billion for that year.
Below, we'll take a closer look at some of the most significant mergers and acquisitions in IBM's recent history.
1. Red Hat
In late October of 2018, IBM revealed that it would acquire Red Hat for $34 billion, in one of the largest tech deals to ever reach completion. Before the acquisition, Red Hat's market cap was about $20.5 billion. Red Hat is a distributor of open-source software which began in 1993. One of Red Hat's most popular products is Red Hat Enterprise Linux, a particular version of the well-known operating system. The company is based in Raleigh, North Carolina and generated revenue of $2.9 billion in 2017. As part of the acquisition, Red Hat joins IBM's Hybrid Cloud division, and the smaller company's former CEO Jim Whitehurst takes a spot on IBM's executive management team.
2. Truven Health Analytics
IBM acquired Truven Health Analytics in February of 2016 for a reported fee of $2.6 billion. Truven has since been IBM's Watson Health division, where it offers data analytics and management services related to healthcare. Before IBM purchased Truven, it was previously a part of the Thomson Corporation before being sold to Veritas Capital for $1.25 billion in 2012.
Before Red Hat and Truven, one of IBM's most recent acquisitions was Cleversafe. IBM purchased Cleversafe on November 6, 2015 for $1.3 billion. This Chicago-based company was founded in 2004 and rose to prominence when it developed an object storage system. This service was originally called Dispersed Storage Network but has been rebranded post-acquisition as the IBM Cloud Object Storage service. This acquisition was another important step in IBM's movement toward cloud services.
4. Lotus Software
The maker of the popular Lotus 1-2-3 spreadsheet application, one of the first user-friendly and accessible applications in the earliest days of IBM personal computers, Lotus Software was purchased by IBM in 1995 for the price of $3.5 billion. A major impetus for the acquisition was Lotus Notes, a popular application Lotus had developed prior to the purchase. IBM also bought the company as a means of accessing the client-server computing world, which threatened to make host-based software a thing of the past.
IBM investors and customers will likely have encountered the company's line of business intelligence and performance management tools branded as Cognos products. The name of these products is tied to a company of the same name that the computer maker acquired in 2007 for $4.9 billion. The deal was seen as a major step toward IBM becoming a top-level competitor of companies like Microsoft, with an extensive range of both hardware and software products.
As part of IBM's intensive efforts to reinvent itself in light of developments in data management and storage in recent years, the company has purchased dozens of companies. In 2016 alone, for instance, IBM bought more than 10 different companies, including The Weather Company's product and technology businesses. In 2018, other acquisitions besides Red Hat include Armanta, Inc., a developer of analytics software for financial firms, and Oniqua Holdings, a Maintenance Repair and Operations Inventory Optimization solutions and services company with a focus on the utilities, oil & gas and mining industries.
IBM's revenue and free cash flow have stagnated in recent years, not showing significant growth in about a decade. One primary reason for this has been the company's aggressive expansion into cloud computing, data analytics and other up-and-coming areas. While the company has seen its cloud computing branch grow quite quickly, it has faced a difficult challenge in keeping up with newer names in tech like Alphabet and Amazon. At some point, IBM may need to slow down its acquisitions strategy in order to account for financials which have prompted some investors to exercise caution. If IBM continues along the same path it has been on in recent years, though, expect many more acquisitions to come.