IBM Strategic Analysis (PDF) by sanghaviharshil

VIEWS: 165 PAGES: 21

									            University of Jordan
             Faculty of Business
            Strategic Management



       “International Business Machines”


             Strategic Ananlysist




Prepared by Fathi Salem Mohammed Abdullah




                   2009
                                 Table of Contents

      Topics                                              Page
      Introduction and brief history of IBM                3

      Vision, Mission, Value                               4

      Porter’s Five Forces Framework                       5
      PESTEL Framework                                     6
      External Audit                                       7

      CPM-Competitive Profile Matrix                       7

      External Factor Evaluation (EFE) Matrix              8

      Financial Ratio Analysis                             9

      Internal Audit                                       11
      Internal Factor Evaluation (IFE) Matrix              12

      SWOT Matrix                                          13

      SPACE Matrix                                         15

      Grand Strategy Matrix                                16

      The Boston Consulting Group (BCG) Matrix             17

      The Internal-External (IE) Matrix                    17
      The Quantitative Strategic Planning Matrix (QSPM)    18

      Recommendations                                      21

      References                                           22




Introduction: Brief History of IBM:




                                        2
In 1886 Herman Hollerith, a statistician for the US Bureau of Census formed the Tabulating
Machine Company and Thomas J. Watson became its leader in 1915 and made the company
slogan “Think”. It changed its name to International Business Machines (IBM) in 1924. It was
taken by the US government at the beginning of World War II in the war effort and given a one
percent profit, which it used to fund war victims and orphans.


During the period between 1910 and 1960, it developed products from punch-card tabulating
machines to room-sized calculators to mainframe computing systems for large enterprises and
changed the nature of accounting, calculation and basic back-office business processes.


In the 1970s and 80s, IBM product lines expanded from its traditional mainframes to
minicomputer and personal computers and applications moved from backend operations to
departmental operation. In 1981, the company introduced the IBM Personal Computer or PC,
allowing the use of computers in schools, homes and businesses. Components for the computer
were sourced from outside the company. The processor chip came from Intel and the operating
system, called DOS (Disk Operating System), came from Microsoft.


IBM introduced the ThinkPad in 1992, the first in a series of notebook computers to be
manufactured by the company. In 1995, IBM acquired Lotus Development Corporation and
Tivoli Systems. In 1997, IBM demonstrated computing’s potential with Deep Blue, a 32-node
IBM RS/6000 SP computer programmed to play chess on a world class level.


During the nineties, with the Internet and open standards, IBM embraced the network
computing model and coined “ebusiness” to describe how network computing can transform
core businesses and transactions.
In October 2002, IBM acquired PwC Consulting, the global management consulting
and technology services unit of PriceWaterhouseCoopers. IBM sold most of its hard
disk drive operations to Hitachi in December 2002. The sale involved the creation of a
joint venture called Hitachi Global Storage Technologies, which was 70%-owned by
Hitachi.
In 2003, IBM Research launched On Demand Innovation services, which teamed customers
with a team of researchers who specialize in business transformation and technology
                                               3
consulting. Over one billion will be spent over the next three years and will be staffed with
200 IBM research consultants.
Today, IBM is by far the largest information technology in the world and the eighth largest
company in the world. In 2003, it had revenues of US $89.1 billion, a net income of 4.32,
more than 366,000 employees in 170 countries with approximately sixty percent of revenues
generated outside the United States.

Vision

Breakthrough microprocessor architecture that puts broadband communications
right on the chip.1

Mission

At IBM, we strive to operate in the invention, development and manufacture of
the industry's most advanced information technologies, including computer
systems, software, storage systems and microelectronics.


Values

We translate these advanced technologies into value for our customers through
our professional solutions, services and consulting businesses worldwide.2




Porter’s Five Forces Framework:


The Threat of Entrants:

The threat of entry is low because the costs of R&D, support products and
services, manufacturing, and distribution are very high.

1
    www-304.ibm.com
2
    manonamission.blogspot.com
                                               4
Bargaining Power of Buyers:

The power of buyers is high because the switching costs for buyers are low; there
are also many product choices for the buyers.

Bargaining power of suppliers:

There are two biggest processor suppliers in the world who have very strong
power on the chip supplying.

However, the power of supplier for other low required materials and parts is
lower than the main suppliers.

Threat of Substitutes

The web hosting business of other companies and some advanced devices and
computers could cause threat of substitutes.

Competitive Rivalry:

The strength of competition in this industry is very high; the main rivals are
HP, Microsoft, Dell, and Fujitsu Siemens Computers, they compete with
international, national, regional, and local




PESTEL Framework:
Political:
       -     In general international operations are highly influenced by the
             governmental policies and their laws, but in this case there is little effect
             because most of countries are looking for developments and new
             technologies.

                                                   5
         -   Heavy taxes in some countries make IBM increase its products price.

Economic:
         -   National growth rates.
         -   Fuel Prices.


Social:
         -   Positive customers' perception toward new technology around the world.
         -   Increase in population and internet users.


Technological
         -    Advanced technology development.
         -   Internet
         -   Increase numbers of companies that need ERP systems

Environmental:
         -    IBM made the some of the major technologies like to trace weather
              throughout the world.

Legal:
         -   Cyber protection and the chemical the use in making hardware; like
             carbon, germanium, and silicon
         -   Currency exchange
         -   Legal registration for their business outsourcing facilities.




External Audit
               Opportunities                                 Threats




                                               6
   1.   Video game console market revenue               1.   Competitors are strong.
        is projected to reach $12 billion in
        2008 and $66 billion in 2012.                   2.   Economic fluctuation could crimp
                                                             consumers’ spending.
   2.   The IT market in Russia, India,
        Brazil, and China are expected to               3. Small & Medium business demand
        grow twice as fast as in the rest of the           fails to accelerate.
        world.

   3.   Mobile phone markets are expected
        to grow by 9% in 2008*.

   4.   Handheld computers markets are
        expected to grow by 32% in 2008.




CPM-Competitive Profile Matrix
                                 IBM                         MSFT                  HPQ               EDS


Critical          Weight     Rating     Weight      Rating       Weight     Rating     Weight   Rating   Weight
Success                                 ed                       ed                    ed                ed
Factors                                 Score                    Score                 Score             Score

Price             0.12       3          0.36        3            0.36       4          0.48     3        0.36

Financial         0.15       3          0.45        3            0.45       2          0.30     2        0.30
Position

Advertising       0.09       2          0.20        3            0.30       4          0.40     2        0.20

Innovation        0.22       4          0.88        3            0.66       3          0.66     2        0.44

Market            0. 22      3          0.66        4            0.88       2          0.44     2        0.44
Share

Manageme          0.10       4          0.40        4            0.40       3          0.30     3        0.30
nt

Global            0.10       3          0.30        3            0.30       3          0.30     3        0.30
Expansion

Total             1.00                  3.25                     3.35                  2.88              2.34




External Factor Evaluation (EFE) Matrix

 Key External Factors                              Weight               Rating          Weighted
                                                    7
                                                Score
Opportunities
   1. Video game console market     0.20    3   0.60
      revenue is projected to reach
      $12 billion in 2008 and $66
      billion in 2012

   2. The IT market in Russia,       0.10   4   0.40
      India, Brazil, and China are
      expected to grow twice as
      fast as in the rest of the
      world

   3. Mobile phone markets are       0.15   3   0.45
      expected to grow by 9% in
      2008

   4. Handheld computers             0.15   3   0.45
      markets are expected to
      grow by 32% in 2008

Threats
   1. Competitors are strong         0.20   2   0.40

   2. Economic fluctuation could     0.10   2   0.20
      crimp consumers’ spending
   3. Small & Medium business        0.10   3   0.30
      demand fails to accelerate
Total                                1.00       2.80




Financial Ratio Analysis 12/2006

                                       8
Growth Rates %                     IBM     Industry   SP-500
Sales (Qtr vs year ago qtr)         9.90     11.70      9.00
Net Income (YTD vs YTD)            10.50     29.90     15.40
Net Income (Qtr vs year ago qtr)   14.00     22.40      0.90
Sales (5-Year Annual Avg.)          4.00      7.63     13.05
Net Income (5-Year Annual Avg.)    14.33      7.68     19.88
Dividends (5-Year Annual Avg.)     20.52     10.99     10.03
Price Ratios
Current P/E Ratio                  15.1      16.1      22.9
P/E Ratio 5-Year High              26.6      22.3      22.7
P/E Ratio 5-Year Low               13.6       8.1       6.7
Price/Sales Ratio                  1.52      1.32      2.49
Price/Book Value                   5.30      4.19      3.53
Price/Cash Flow Ratio              NA        5.20     10.40
Profit Margins
Gross Margin                       42.2      35.2      33.7
Pre-Tax Margin                     14.7      11.8      17.5
Net Profit Margin                  10.6       8.8      12.4
5Yr Gross Margin (5-Year Avg.)     39.6      33.6      33.4
5Yr PreTax Margin (5-Year Avg.)    12.9       9.3      16.6
5Yr Net Profit Margin (5-Year
                                    9.0      6.6       11.5
Avg.)
Financial Condition
Debt/Equity Ratio                   1.24     0.77      1.24
Current Ratio                        1.1      1.2       0.9
Quick Ratio                          1.1      1.1       0.7
Interest Coverage                   21.6     11.6      42.3
Leverage Ratio                       4.2      3.3       4.2
Book Value/Share                   20.57    17.49     16.50
Investment Returns %
Return On Equity                   36.6      27.8      21.3
Return On Assets                    9.3       8.7       5.8
Return On Capital                  15.3      14.7       7.8
Return On Equity (5-Year Avg.)     28.6      19.5      15.4
Return On Assets (5-Year Avg.)      7.9       6.2       5.0
Return On Capital (5-Year Avg.)
                                   12.4      10.0      6.7
Management Efficiency
Income/Employee                    NA       18,387    52,240

                                    9
   Revenue/Employee                        NA         268,252       424,626
   Receivable Turnover                     3.1          4.9           12.8
   Inventory Turnover                      NA           4.7            5.5
   Asset Turnover                          0.9          1.0            0.6


           Date      Avg. P/E   Price/Sales      Price/Boo    Net Profit Margin
                                                     k              (%)
          12/07       14.70        1.59             5.26            10.5
          12/06       13.70        1.65             5.13            10.3
          12/05       17.00        1.47             3.91             8.8
          12/04       20.70        1.75             5.12             7.8
          12/03       22.70        1.83             5.64             7.4


         Date     Book Value/   Debt/Equity       ROE        ROA     Interest
                    Share                         (%)        (%)    Coverage
         12/07      $20.57          1.24          36.6        8.7      22.1
         12/06      $18.92          0.80          33.0        9.1      42.9
         12/05      $21.03          0.68          24.1        7.6      41.6
         12/04      $19.26          0.72          23.7        6.8      69.2
         12/03      $16.44          0.85          23.6        6.3      59.5


Net Worth Analysis 12/2006 (in millions)

         1.Stockholders' Equity + Goodwill= 28,506+12,854            $41,360
        2. Net income x 5 = 9,492 x 5                                $47,460
        3. Share price = 110/EPS 6.262=$17.57 x 9,492                $166774.4
        4. Number of Shares Outstanding x Share price =              $165712.8
           1,506.48x110
      Method Average                                                 $105,326.8




    Internal Audit

                                           10
               Strength                                  Weakness
  1. IBM revenues increased 7 percent to        1. Declining in revenues of
      69.92$.billion in 2006.                      services and systems
                                                   segments in 2006.
  2. A unique approach to engage their
                                                2. Decline in revenue of public,
      employees in an online intranet using
                                                   industrial, small and medium
      its Jam technology.
                                                   business industries in 2006
  3. Strong strategic planning to be an            by 9.6%.
      innovation-centric globally integrated    3. Decline in revenues in Asia
      corporation.                                 Pacific area by 5.7%.
                                                4. Total assets are gradually
  4. IBM operates in 170 countries with
                                                   decreasing from 109M to
      about 60 percent of its revenues being
                                                   103M in 2006.
      generated outside the US.

  5. IBM concentrated on becoming
      stronger in high value added
      businesses.

  6. IBM ranked number 1 hosted service
      provider in Western Europe.

  7. IBM is supercomputing leader as
      provider of 35 of the world's 100
      most powerful supercomputers.




Internal Factor Evaluation (IFE) Matrix

                                               11
Key Internal Factors                        Weight   Rating   Weighted Score
Strengths
   1. IBM revenues increased 7 percent to   0.10     4        0.40
      69.92$.billion

   2. A unique approach to engage their     0.06     3        0.18
       employees in an online intranet
       using its Jam technology

   3. Strong strategic planning to be an    0.06     3        0.18
       innovation-centric globally
       integrated corporation

   4. IBM operates in 170 countries with    0.10     4        0.40
       about 60 percent of its revenues
       being generated outside the US

   5. IBM concentrated on becoming          0.10     4        0.40
       stronger in high value added
       businesses

   6. IBM ranked number 1 hosted service    0.10     4        0.40
      provider in Western Europe

   7. IBM is supercomputing leader as       0.12     4        0.48
      provider of 35 of the world's 100
      most powerful supercomputers

Weaknesses
   1. Declining in revenues of              0.08     2        0.16
      services and systems segments
      in 2006
   2. Decline in revenue of public,         0.08     2        0.16
      industrial, small and medium
      business industries in 2006 by
      9.6%
   3. Decline in revenues in Asia           0.10     2        0.20
      Pacific area by 5.7%
   4. Total assets are gradually            0.10     2        0.20
      decreasing from 109M to 103M
      in 2006
Total                                       1.00              3.16




                                              12
SWOT Matrix




              13
                                       Strengths                        Weaknesses

                             1. IBM revenues increased 7           1. Declining in revenues of
                                                                      services and systems
                                percent to 69.92$.billion in
                                                                      segments in 2006.
 SPACE Matrix                   2006.                              2. Decline in revenue of
                                                                      public, industrial, small
                             2. A unique approach to engage           and medium business
                                their employees in an online          industries in 2006 by
                                                                      9.6%.
                                intranet using its Jam             3. Decline in revenues in
                                technology.                           Asia Pacific area by
                                                                      5.7%.
                             3. Strong strategic planning to be    4. Total assets are
                                                                      gradually decreasing
                                an innovation-centric globally        from 109M to 103M in
                                integrated corporation.               2006.


                             4. IBM operates in 170 countries
                                with about 60 percent of its
                                revenues being generated
                                outside the US.

                             5. IBM concentrated on becoming
                                stronger in high value added
                                businesses.

                             6. IBM ranked number 1 hosted
                                service provider in Western
                                Europe.

                             7. IBM is supercomputing leader
                                as provider of 35 of the world's
                                100 most powerful
                                supercomputers.



   Opportunities                   S-O Strategies                      W-O Strategies

1. Video game console        1. Entering the video game            1. Increasing marketing
                                console market by produce             efforts into Asia
   market revenue is                                                  Pacific, (W3, O3).
                                video game console, (S5,
   projected to reach $12
                                O1).
   billion in 2008 and $66
                             2. Entering the mobile phone
   billion in 2012.
                                market, (S5, O3).
2. The IT market in
                                          14
                             3. Entering the Handheld
   Russia, India, Brazil,       computers market, (S5,
   and China are                O4).

   expected to grow
Directional vector point is :( 3.167, 1.163)

                                 FS
             Conservativ                  Aggressive
             e




 C                                                              IS
 A


                Defensive                 Competitiv
                                          e

                                  ES


Grand Strategy Matrix

                                 Rapid Market Growth

                   Quadrant II                           Quadrant I



      Weak                                                              Strong
                                                                      Competitiv
 Competitiv
                                                                           e
    e
                                                                       Position
     Position
                      Quadrant III                Quadrant IV


                                 Slow Market Growth


                                          15
        The Boston Consulting Group (BCG) Matrix
                                          Market share position




     Industry
                               IBM
   Sales Growth
                                          Stars                        Question Marks
       Rate




                                        Cash Caw                                  Dogs




        The Internal-External (IE) Matrix

                          The IFE Total Weighted Score

                   Strong 3.0 to 3.99             Medium 2.0 to 2.99          Low 1.0 to 1.99

        High
                 I                       II                             III
        3.0 to 3.99




       Medium IV                              V                        VI
The EFE
       2.0 to     IBM
 Total
Weighted
       2.99
 Score

                                                        16
           VII                             VIII                         IX


Low

1.0 to 1.99




The Quantitative Strategic Planning Matrix (QSPM)


                                                           Strategy 1          Strategy 2

                                                           Enter video          Increasing
                                                           game console        marketing efforts
                                                           market              into Asia and
                                                                               Europe
Key Internal Factors                              Weight   AS       TAS        AS           TAS

Strengths
IBM revenues increased 7 percent to                0.10         4       0.40        2       0.20
69.92$.billion in 2006

A unique approach to engage their employees        0.06         -        -          -         -
in an online intranet using its Jam technology


Strong strategic planning to be an innovation-     0.06         -        -          -         -
centric globally integrated corporation

IBM operates in 170 countries with about 60        0.10         3       0.30        4       0.40
percent of its revenues being generated outside
the US

IBM concentrated on becoming stronger in           0.10         4       0.40        4       0.40
high value added businesses

IBM ranked number 1 hosted service provider        0.10         2       0.20        4       0.40
in Western Europe

IBM is supercomputing leader as provider of 35     0.12         -        -          -         -
of the world's 100 most powerful
supercomputers

Weaknesses
Declining in revenues of services and systems      0.08         2       0.16        4       0.32
segments in 2006

                                                    17
Decline in revenue of public, industrial, small     0.08        3       0.24        4        0.32
and medium business industries in 2006 by
9.6%

Decline in revenues in Asia Pacific area by         0.10        2       0.20        4        0.40
5.7%

Total assets are gradually decreasing from          0.10        3       0.30        3        0.30
109M to 103M in 2006

SUBTOTAL                                          1.00              2.20                    2.42




                                                           Strategy 1          Strategy 2

                                                           Enter video          Increasing
                                                           game console        marketing efforts
                                                           market              into Asia and
                                                                               Europe
Key Internal Factors                              Weight   AS       TAS        AS           TAS

Opportunities

Video game console market revenue                   0.20        4       .80         2        0.60
is projected to reach $12 billion in
2008 and $66 billion in 2012

The IT market in Russia, India, Brazil,             0.10        1       0.10        3        0.30
and China are expected to grow twice
as fast as in the rest of the world

Mobile phone markets are expected                   0.15        -        -          -         -
to grow by 9% in 2008

Handheld computers markets are                      0.15        -        -          -         -
expected to grow by 32% in 2008

Threats

Competitors are strong                              0.20        4       0.80        4        0.80

Economic fluctuation could crimp                    0.10        1       0.10        3        0.30
consumers’ spending

Small & Medium business demand fails to             0.10        1       0.10        4        0.40
accelerate

SUBTOTAL                                                            1.90                    2.40


                                                     18
Recommendation
Enter video game console market by providing new video game console at a cost of $1 billion
and increasing marketing efforts in Asia and Europe at a cost of $200 million.



EPS/EBIT Analysis
$ Amount Needed: $1,200 Million

Stock Price: $110

Tax Rate: 35%

Interest Rate: 7%

# of Shares Outstanding: 1,506.48 Million

                   Common Stock Financing                                    Debt Financing
             Recession    Normal          Boom                 Recession       Normal            Boom
                                                              2,000,000,00
 EBIT       2,000,000,000   4,000,000,000   6,000,000,000           0        4,000,000,000    6,000,000,000
 Interest         0               0               0            140000000       280000000        420000000
                                                              1,860,000,00
 EBT        2,000,000,000   4,000,000,000   6,000,000,000           0        3,720,000,000    5,580,000,000
 Taxes        700000000      1400000000      2100000000        651000000      1302000000       1953000000
                                                              1,209,000,00
 EAT        1,300,000,000   2,600,000,000   3,900,000,000           0        2,418,000,000    3,627,000,000
 #shares     1517389091      1517389091      1517389091       1506480000      1506480000       1506480000
 EPS         0.856734774     1.713469548     2.570204322      0.802533057     1.605066114      2.407599172



            70 percent Stock- 30 Percent Debt                 70 Percent Debt- 30 Percent Stock
             Recession        Normal          Boom              Recession        Normal         Boom
                                                              2,000,000,00
 EBIT       2,000,000,000   4,000,000,000   6,000,000,000           0        4,000,000,000 6,000,000,000
 Interest     42000000        84000000        126000000         98000000       196000000      294000000
                                                              1,902,000,00
 EBT        1,958,000,000   3,916,000,000   5,874,000,000           0        3,804,000,000 5,706,000,000
 Taxes        685300000      1370600000      2055900000        665700000      1331400000     1997100000
                                                              1,236,300,00
 EAT        1,272,700,000   2,545,400,000   3,818,100,000           0        2,472,600,000 3,708,900,000
 #shares     1514116364      1514116364      1514116364        1509752727     1509752727     1509752727
 EPS         0.840556268     1.681112536     2.521668804      0.818875818     1.637751637    2.456627455



                                                19
Reverences



  1.   www.IBM.com

  2. www.304.ibm.com

  3. www.manonamission.blogspot.com

  4.   Euromonitor International, site www.euromonitor.com

  5.   www.moneycentral.msn.com




                                20
21

								
To top