2. IT
industry
• Most robust industry
• Key driver of global economic growth
• Global IT services predicted to grow at a CAGR of 5% to reach a
market value of $1147 billions by 2017
Indian
Scenario
• Large dependency on the IT and ITES service providers to make
business processes efficient and streamlined
• NASSCOM predicts the IT services sector to increase to grow by
13-14%
Penetrati
on
• Indian manufacturing sector has the highest IT spending, followed
by automotive, chemicals and consumer product industries
• India’s total IT industry’s share in the global market stands at 7%
• Large integrated players consisting of both Indian and international
service providers dominate the industry.
INDUSTRY OVERVIEW
3. 1960s 1980s 1990s 2000s
PRODUC
T
Mainframe S/360 5000 hardware
and 20000
software products
Expansion into
services
Business IT
solutions
MARKET Large
Companies;
International
Expansion
Expansion to
Consumers &
SME
“Bear Hug”
customers
Everywhere,
Everyone
CHANNE
L
Key Account
Sales people to
Technical Buyer
VAR & Retailers Executive A/c
Leaders,
Partners with
enterprise
software
Consultants sell
to business
buyers, Flexible
Financing and
Delivery
Exhibit I
COMPANY BACKGROUND (HISTORY)
5. MOST ADMIRED DINOSAUR / HAS-BEEN
•Internal structural Problems
•Earnings dropped to -$2.8 billion - a plummet of
146%
•Expense to Revenue ratio = 42% (1993)
•Cost cutting measures taken
PROBLEMS
PRODUCT LIFECYCLE The need for Mainframes shrank as networked computing was
adopted
MARKETING MYOPIA IBM failed to foresee the growing market of PCs. they left
microprocessors to Intel and software to Microsoft, preferring to
concentrate on other issues.
DEEP HIERARCHY Executives were isolated from ground realities by layers of
corporate staff.
CONSENSUS -DRIVEN
DECISION MAKING
IBM was steered by lengthy committee meetings in which any one
member could overrule general agreement.
REPLICATION OF
EFFORTS
The 1990s followed on decades of untrammelled growth. The
result was product complexity and organization silos.
CUSTOMER TOUCH Blinded by hubris, IBM was out of touch with its customers.
DECLINE
6. YEAR STEPS RESULTS
1993 • Louis Gerstner came in 1993
• Structural reforms to fight with huge
operational costs in IT departments
• ThinkPad - marketing team, one
development team, shared synergies,
and an executive team
• Cost reduction of $7
billion
•IBM posted a small
profit of $382 million
in the 4th quarter
1994 - 1997 • Cost of operating and running IT
operations was cut in half
• IT leadership was centralized, 128
CIOs were reduced to 1
• Networks converted to one common
protocol (TCP/IP)
• Company decreased internal
applications from 16,000 to 5,200
•Increased component reuse by 34%
• Generated over $2
billion in cost savings
• Profits rose to $5
billion on revenues of
$64 billion
TURNAROUND
7. STRUCTURAL CHANGES – ONE IBM
Executive Committee (CEC)
Worldwide Management Council (WMC)
Global sales teams
Customer relationship manager and a dedicated sales and service
team Product specialists
8. IBM 2001- 2010
Opportunities
Capture growth
in Emerging
countries
Tap skilled
talent
Identify the imminent change
Remix the business to move to higher
value products
Extensive global integration to improve
productivity
Higher performing IBM today
Enabled them to invest in resources for the future
and provide a record return to investors and focus
on long term financial goals
Key Features
Deliver value to enterprise clients through
integrated business and IT innovation
Build/expand strong positions in growth
initiatives
Shift the business mix to higher-value software
and services
Become the premier globally integrated
enterprise
Key Features
Step 1: Focus on high value
technologies and open
solutions
Step 2: Deliver Integration and
innovation to clients
Step 3: Globally leading and
integrated enterprise
10. COMPETITOR ANALYSIS
100
78
112
16.5 22 5
IBM MICROSOFT HP-COMPAQ
Revenue - Income in billion USD
Revenue Net income
IBM
Systems
Technology
services
Business
services
Software
Manufacturin
g
IBM
Microsof
t
HP
11. Key Drivers
Revenue Growth Operating leverage Share Repurchase
ROAD MAP 2015
Growth Market
• Attain 30% of IBM
Revenue by 2015
• Focus on
Geographic
Expansion and
creating new
markets
• Invested more than $
1Billion
Cloud
• Generate $ 7 Billion
in revenue in 2015
• Clients such as
banking, health
care, government
• Cloud based
infrastructure, integr
ation services and
security
Business
Analytics
• Generate $ 16
Billion revenue in
2015
• Helps clients see
patterns and
trends, understand
exposure to risk
• Acquisition of over
25 companies
Smarter planet
• Generate $ 10
Billion revenue in
2015
• Use of digital
intelligence
• It highlighted
company’s
differentiated
capabilities
•Software services contributes about half of the segment revenues
•Growth initiatives deliver about $20 billion in revenue growth
•Growth markets revenue approaches 30 per cent of IBM’s
geographic total
•Enterprise productivity delivers $8 billion in gross earnings
•$20 billion in spending on acquisitions
•$100 billion in cash flows
•Return $70 billion to shareholders over the roadmap
12. 3.32
1.81
11.67
13.44
15.25 16.28
20
0
5
10
15
20
25
2000 2002 2010 2011 2012 2013 2015F
Operating EPS ($)
Changes business mix to provide higher value and more profitable
technologies
Focus not just Hardware but also on Software, particularly on cloud
based offerings
Generate significant amount of cash and profit – invest in other sources
and markets
Net acquisition worth $32 billion ; Dividends worth $30 billion ; Share
repurchases worth $123 billion
STRATEGY TO ATTAIN $20 EPS
15. FINANCIALS
Fiscal Period Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13
Revenue per Share ($) 68.1 74.67 71.39 77.58 88.09 90.45 90.43
EBITDA per Share ($) 14 16.46 17.54 19.36 21.61 23.4 22.31
EBIT per Share ($) 9.32 11.48 12.68 14.1 16.71 17.69 17.02
Earnings per Share
(diluted) ($)
7.18 8.89 10.01 11.52 13.06 14.37 14.94
Free Cashflow per Share
($)
7.9 10.55 12.92 11.49 12.97 12.87 12.1
Dividends Per Share 1.5 1.9 2.15 2.5 2.9 3.3 3.7
Book Value Per Share ($) 20.57 10.06 17.34 18.77 17.31 16.88 20.99
Month End Stock Price ($) 108.1 84.16 130.9 146.76 183.88 191.55 187.57
16. REASONS OF DECLINE
Decline in Performance in Growth Markets
Revenue from this segment declined by 9 per cent
China accounted for almost half of the revenue decline
IBM missed its revenue expectation by $1 billion
The decreased hardware sales are cited as the main reason behind the
decreased revenues.
The Systems and Technology segment generated $3.2 billion in
revenue, down by 17% from 2012.
Much of the hardware decline came from China as the government
waited for the new economic policy. Even the revenues in other parts of
the world in all other segments also decreased slightly.
IBM started looking at the cloud for its growth. And started laying off a
part of the workforce especially from the Systems and Technology
segment to concentrate on Cloud and analytics.
Growth Markets
Hardware
17. FUTURE
Investors should still trust IBM management and Business
model?
Ambitious goals
Strategic initiatives of $20 EPS by 2015
Clear roadmap to 2015
