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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 5IBM’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%).

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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

For additional Annex Research reports, check out... 

2005 IT:  IBM Historical Update: 2004 Shot in the Arm (Feb 2005); New HeadTurners Series #1 (Feb 2005); IBM: A Crescendo Finale! (Jan 2005); Accenture: Strong Finish, Better Start (Jan 2005); Annex Coverage 2004: IT Services Dominate (Jan 2005);

2004 IT: EDS: The Titanium Stock (and other Wall Street tales) (Dec 2004); IBM PC: Good Riddance (Dec 2004); Fujitsu: Recovery Continues (Nov 2004);  IBM Server Renaissance (Nov 2004);  HP Hits Home Run (Nov 2004); Capgemini: Revenue, Stock Soars (Nov 2004); EDS: Jordan's Swan Song? (Nov 2004);  To Russia with Love and $ (Oct 2004); IBM: Slow Quarter No Longer (Oct 2004); Accenture: Revenues, Profits Up, Stock Down (Oct 2004); Capgemini: A Takeover Target? (Oct 2004); Sellout of America (Oct 2004); Spy Wars (Sep 2004); Outsourcing Boomerang (Sep 2004); EDS to Cut Up to 20,000 More Jobs (Sep 2004); Capgemini Stock Plummets on Unexpected Loss (Sep 2004); HP Savaged by Wall Street (Aug 2004); Moody's Lowers the Boon on EDS (July 2004); HP: Delivering Value Horizontally (June 2004); Accenture: Revving Up a Notch (June 2004); Beware Your CFO! (May 2004)IBM: Changing of the Guard (May 2004); Capgemini: Texas-size Home Run (May 2004); Following the Money (May 2004);  EDS: On a Wink and a Prayer (Apr 2004); HPS Wins by a Nose! (Octathlon 2004); Accenture: Burning the Track (Mar 2004);  IGS: "Crown Jewel" Restored? (Mar 2004); HP: Still No Cigar (Feb 2004); Cap Gemini: Another, Smaller Loss (Feb 2004); CSC: Good Quarter Gets Boos (Feb 2004); EDS: "Hot Air Jordan" Flaunts Flop as Feat (Feb 2004); IT Industry: Whither Goeth It? (Jan 2004); Cronyism Is Alive and Well at EDS" (Jan 2004)

A selection from prior years (IBM): Is IBM Cheating on Taxes, Annex Bulletin 99-17 (May 1999),  IBM 5-year Forecast 2001: An Unenviable Legacy (June 2001) "Break Up IBM!" (Mar. 1996), Fortune on IBM (June 15, 2000), “Smoke and Mirrors Galore,” July 2000), "Slam Dunk of Bunk" (Jan 2000), Annex Bulletin 98-14 ("Wag the Big Blue Dog"), Armonk's Fudge Factory (Apr. 9, 1999)Where Armonk Meets Wall Street, Greed Breeds Incest (November 1998)Stock Buybacks Questioned: Is IBM Mortgaging Its Future Again?, 97-18 (4/29/97),  "Some Insiders Cashed In On IBM Stock's Rise, Buybacks" 97-22, 7/27/97,  Djurdjevic’s Forbes column, "Is Big Blue Back?," 6/10/97;  “Executive Suite: How Sweet!,” (July 1997), "Gerstner: Best Years Are Behind", Aug. 10, 1999), "IBM's Best Years Are 3-4 Decades Behind Us" (July 1999), "Lou's Lair vs. Bill's Loft" (June 1999),  "Corporate Cabbage Patch Dolls," 98-39, 10/31/98; Djurdjevic’s Chronicles magazine October 1998 column, "Wall Street Boom; Main Street Doom", “Louis XIX of Armonk,” (Aug. 1996), "Mountain Shook, Mouse Was Born" (Mar. 25, 1994), “A Nice Guy Who Lost His Compass” (Jan 26, 1993), “Akers: The Last Emperor?” June 1991), Industry Stratification Trend (Mar. 30, 1990) etc.]

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Volume XXI, Annex Bulletin 2005-02
February 5, 2005

Bob Djurdjevic, Editor
(c) Copyright 2005 by Annex Research, Inc. All rights reserved.
e-mail: annex@djurdjevic.com

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