IBM SWOT Analysis (2024)

Company: IBM
CEO: Arvind Krishna
Founder: Charles Ranlett Flint
Year founded: 1911
Headquarter: Armonk, New York, United States
Employees (2021): 282,100
Type: Public
Ticker Symbol: IBM
Annual Revenue ( FY 2021): $57.35B
Profit | Net income (FY 2021): $5.74B

Did you know? Very few people know that the initial IBM means International Business Machines, which doesn’t sound quite right.

Table of Contents

IBM Strengths

1. Pioneer of cloud technologies

IBM holds the proud title of being one of the first companies to develop cloud technologies. In 2007 IBM launched the Blue Cloud program that aimed at offering software and hardware solutions for companies willing to move to the cloud by using shared infrastructure.

The company has made significant progress in this area, with the most recent achievement of being world’s first developer of 2-nanometer chips. Unlike most companies stepping into the cloud space, IBM has the broadest range of software services under one roof.

2. Strong brand reputation/ value

The brand name IBM attracts respect worldwide because of the high-quality technologies the company invents and provides. IBM has a brand value of $33.25 billion.

It has earned several awards, including the most admired company, green company worldwide, company for leaders, and most respected company. These and many other awards have collectively made IBM gain a significant brand reputation. The company is able to leverage its brand image to influence consumer decisions.

3. Diversified businesses

IBM operates in such a way that if one part of its business fails, it still stands a chance to continue running in other sectors. That’s because it has four business divisions comprising financing, software, infrastructure, and consulting services.

The software business is the largest segment and accounts for around 42% of total revenue, followed by consulting services (31% of total revenue), infrastructure (25% of total revenue), and financing and other (2% of total revenue).

4. Geographical diversification

As IBM diversifies its business model, it is also expanding its geographical reach. The company aims to establish geographical independence in such a way that if one region had trouble, the business would still grow in other countries.

Around 50% of total revenue is generated in Americas, 30% in the Europe/Middle East/Africa region, and 20% in Asia Pacific.

5. Upper hand in acquisitions

IBM has strong cash flow generation capabilities and a healthy balance sheet to support acquisition activities. In the last 13 years, the company has acquired over 100 firms operating in strategic areas such as commerce, cloud, security, and analytics.

The most recent acquisition is that of Dialexa in September 2022, a digital transformation services company. The acquisitions have significantly contributed to the growth of IBM in consulting and software solutions.

6. Three-market structure

IBM moved to a three-market structure that is billed to streamline its operations. The new approach entails merging Korea, ASEAN, New Zealand, and Australia into a large market known as ASEANZK. The approach gives the company a competitive advantage as the world starts pivoting around Asia.

7. Inter-related products

Even though IBM operates its divisions independently, they have achieved product and service integration. That is, services (datacenters, software, cloud), software (information management, enterprise content), and hardware (storages, servers) all integrate with each other, which allows IBM to generate more profit by doing up-selling and cross-selling.

8. Investment in research and development

IBM has made massive investments in research and development, which is on average 12% of previous year’s revenue. In doing so, the company gets to understand changing dynamics of the tech industry and better ways to approach emerging problems. Thanks to the investment in research, the company manages to stay up to date with new technologies and consumer trends.

9. Commitment to employee training

IBM has established a learning culture that makes employees gain new skills depending on market demands. The sales staff learn about existing products and better ways to market them, while technical teams enhance their innovation through ongoing learning.

IBM spends more than US$574 million annually on its internal training program, with a total number of 28.6 million hours of training registered.

IBM Weaknesses

1. Mainly focuses on product customization

IBM’s core area of operation entails providing large and medium enterprises with customized solutions. Even though this is a highly profitable business model, it attracts a smaller market share. The remaining market may be fine with off-the-shelf solutions.

2. Generic products

IBM suffers the weakness of the imitability of its products, which means other technology companies have a low barrier of entry to develop products that are similar to IBM’s.

For the moment IBM remains profitable thanks to its large scale which allows the operations to have minimized costs, but things might get difficult if its competitors decide to start a price-war.

3. Declining popularity

Even though IBM still rides on its strong brand reputation, the company’s popularity has declined in recent times. For instance, last year, they ranked 22^nd in brand value, while this year, they are at 18^th.

The firm is losing brand value. If the company fails to keep up with its market, it may eventually give in to the competition.

4. Stiff competition

Anyone operating in the tech industry must be ready to deal with one of the fiercest competitions. IBM is not an exemption.

IBM has been losing market share to best-in-class competitors such as Google and Amazon Web Services despite sector tailwinds – this something that does not invoke investor confidence.

That forces the company to set aside a bigger budget for marketing in an effort to wade off competition. Emerging IT firms also take away a sizeable chunk of IBM’s potential client base.

5. Legal challenges

IBM has faced several lawsuits in the past that cut across diverse issues. One of the most recent lawsuits touches on the company firing as many as 100,000 employees in the last few years. The lawsuits claim that IBM targeted older workers who have been instrumental in re-inventing the firm.

6. Expensive solutions

The solutions that IBM offers are too costly for most businesses. Companies would need high investment for them to consume some of these software solutions and services. That locks out some key customers that would have increased revenue collected.

IBM Opportunities

1. Expand software divisions

IBM has developed several solutions cutting across cloud, security, and infrastructure. Even though its initial focus was on hardware, the software has gradually proven to be an area that would give it more revenue and higher profitability.

Software revenue has increased from 23% to 42% of total revenue from 2010-2021 and has a high gross margin of around 79% vs. hardware’s 55% Thus, the company can dedicate most of its resources to this area to become a leading software provider.

2. Growing demand for cloud services

The cloud industry is growing rapidly. It is currently worth $368.7 billion and is expected to grow at around 15% CAGR for the next five years. The company can make a major break in this area now that most sectors are looking into investing in cloud services and further strengthen its market leading position.

3. Accelerated digital transformation

Digital transformation has drastically accelerated due to the global pandemic, although this process faces multiple obstacles such as increased system complexity, extracting valuable information from huge datasets, and defending against cybercrime.

IBM, with its cutting-edge technology such as hybrid cloud and Artificial Intelligence and established scale, is well-poised to lead this transformation and is expected to greatly benefit from the secular growth.

4. More expansions and acquisitions

The size of IBM gives it an upper hand in getting more acquisitions and expanding the business. Since previous acquisitions have benefited the company, progressing with the trend can take it to the next level.

IBM Threats

1. Failure of innovation

IBM has been actively expanding its business into disruptive technology sectors such as hybrid cloud, blockchain, and artificial intelligence. If IBM fails to keep innovating cutting-edge technologies, it will fall behind in the competition in these highly profitable yet ever-shifting sectors.

2. A market recession that reduces businesses’ investment in technology

IBM has constantly invested heavily in its research and development to keep up with the competition. A recession could harm the firm’s ability to do so by reducing the availability of funds, which will put IBM in a disadvantageous situation.

3. Predicting market trends and changeability

IBM invests heavily in key strategic areas to drive market share gain and revenue growth; thus, the failure of industry trend recognition and client adoption in emerging businesses will unfavorably impact the firm’s operations and profitability.

This happened once in the early 1990s, when IBM’s market share plummeted from 70% to 26% due to missed market trends.

4. Unfavorable laws and regulations

The company has a strong global presence across all regions, which makes its business and operations vulnerable to changes in the local legal, political, and economic environment.

References & more information