IBM’s Big Blues

January 21, 2015 at 5:18 PM UTC

There’s no better case study than IBM when it comes to showing how a company can keep ahead of the ever-changing technology business. Big Blue brought computing to the corporate world with its mainframes in the 1960s and 1970s. Its desktop personal computer, introduced in 1981, set the standard for the machine that’s now almost ubiquitous in offices and homes. Up-and-coming computer makers pushed the company to the edge of bankruptcy in the 1990s before it adapted again, learning to sell services and software to help companies enter the Internet age. Now it faces new threats from cloud-services rivals and hasn’t figured out how to make much money from selling technical services to support the burgeoning corporate use of smartphones and tablets. Its shares fell 14.5 percent in 2014 versus an 18.2 percent gain for the S&P index of tech-company stocks. A new CEO is faced with trying to change IBM’s spots again.

After 20 years of steady sales growth and envied profits, IBM has struggled. Earnings fell in 2014 for the first time in more than a decade. In October, the company abandoned a 2015 profit forecast when it became clear that its push into services could no longer mask problems with its hardware units. The company introduced the latest generation of its 50-year-old line of mainframes, the z13, which it hopes will give it a role the cloud economy. In recent years, many companies that used IBM consultants to help set up in-house computer systems have begun renting server space from Amazon.com and signing up for sales-tracking software from Salesforce.com with a few clicks of a mouse. Now, IBM hopes these companies will use the z13 to rapidly crunch internet data to help cloud companies analyze sales and other trends. Still, other than its Jeopardy-playing supercomputer, Watson, IBM’s once-overflowing cupboards of innovation are looking bare. Financial engineering techniques such as buybacks and dividend increases did not sustain the stock. IBM was the only stock in the Dow Jones Industrial Average to drop in both 2013 and 2014.