The IBM Difference
We have entered 2008 with strong momentum—but can we sustain it? This is a legitimate question, especially given the current economic indicators in the United States and other parts of the developed world. A number of companies aren’t sounding very optimistic. At IBM, we have a different view. The reason why is best understood in terms of five key factors that differentiate our company today.
1. Our global reach and scale. IBM’s global operations are accelerating our company’s growth. IBM today does business in 170 countries and enjoys an increasingly broad-based geographic distribution of revenue. In 2007, 63 percent of our revenue came from outside the United States.
Many people think of “emerging markets” as the so-called BRIC countries of Brazil, Russia, India and China—and last year our revenue increased 26 percent in those markets. But our global footprint extends much farther. Consider more than 50 countries—including Czech Republic, Poland, Malaysia, Singapore, South Africa, Venezuela and Mexico—in each of which we grew more than 10 percent in local currency in 2007. In aggregate, IBM’s business in this group grew at a rate of more than 20 percent in local currency last year and comprised 15 percent of our geographic revenues.
2. Our infrastructure leadership. IBM arguably invented the concept of the data center, and today our solutions provide a foundation for more of the world’s IT infrastructure than any other company. So we are well positioned to serve businesses across the world’s emerging markets that are installing their first data centers—as well as those in the developed world that are upgrading and transforming their existing infrastructure.
However, today’s opportunity is not simply about replicating or upgrading what already exists. The data center itself is going through its most significant transformation in decades. According to one IT analyst firm, more than 70 percent of Global 1000 companies will have to modify their data centers significantly during the next five years. This is driven not only by new technology but by new business imperatives: constraints on power and real estate; systems that are grossly underutilized; and the need for greater flexibility to innovate business processes and models.
These needs have shaped our transformed portfolio. Our green data center solutions dramatically impact energy efficiency and physical space constraints, while also helping our planet. Demand is climbing for these solutions, and we hit more than $400 million in signings last year, after introducing the offering in the third quarter. Virtualization, which significantly improves system utilization, generated about $200 million in incremental gross profit for us in 2007. And our industry-leading solutions in SOA enable clients to reinvent their entire business model.
Clients in both the developed and developing worlds will be migrating to this new data center model, and IBM is very well positioned.
3. Our technology leadership. IBM’s leadership position in IT infrastructure is underpinned by a superior technology base. In 2007, for the 15th consecutive year, IBM was issued more U.S. patents (3,125) than any other company. And our offerings in the year ahead look especially promising. Major IBM product launches will include our next-generation System z mainframe; System p servers, which bring POWER6 innovation to the entry level; and POWER-based virtualization offerings, which improve energy and space efficiency for UNIX customers. We are also introducing a new BladeCenter offering and a highly innovative storage architecture, thanks to our acquisition of XIV. Finally, we expect to see continued strong growth in strategic middleware fueled by organic investment and strategic software acquisitions—such as FileNet and Cognos, which have augmented our information on demand capabilities.
4. Our delivery of unique client value. As we head into uncertain economic times in some parts of the world, one fact remains constant: Businesses continue to invest in IT. It saves them money and manages business-critical needs—such as enterprise security, real-time analytics, risk management, business intelligence, business optimization and transformation, as well as how a company expands its client base in order to gain share. Companies are seeking to identify and classify security risks and protect their data from all forms of attack. They face regulatory demands and pressure to increase productivity without buying more “stuff.” They need to use both structured and unstructured data—such as the information contained in memos, reports and phone calls—to generate reports to their customers in minutes, not days.
In addition, we are seeing multiple areas of investment growth within particular industries. For example, telecommunications companies continue to upgrade their infrastructure to broadband. Also, utilities face outdated systems, the transformation from analog to digital and new regulatory requirements. Across the world, businesses and institutions are continuing to make investments that save them money, preserve capital and address issues they simply may not defer.
5. Our financial strength and flexibility. As I’ve described, our focus on higher-value offerings helps drive profitable growth and strong cash generation, which have enabled IBM to return value to shareholders and to invest opportunistically for growth. We also possess the financial capacity to adjust to changes in near-term business conditions, thanks to a business model in which about 50 percent of the company’s revenues are recurring streams—far less subject to volatility in uncertain economic conditions.
We believe these differentiating capabilities—our global presence and integration; preeminence in the data center; technology leadership; and the ability to deliver measurable client value—will be drivers of profitable growth in both good times and bad. As a result, we believe that IBM has excellent opportunities in 2008 and beyond—in an environment that presents significant challenges for our competitors. They are not as global, as strong in high-growth segments or as able to deliver complete solutions, nor do many have the experience and discipline to adjust their economic models as conditions require.
So we will pursue growth, while at the same time remaining prudent and disciplined about expenses and productivity. That is, we will operate ambidextrously—seizing the new opportunities that the external marketplace presents, while never ceasing to reexamine our own operations or to transform our organization. This is difficult; not every workforce has the focus and maturity to do it. But IBM has been here before, and we know what to do. Historically, this is when we have gone on offense.
