IBM Finances, Founded in 1981 as a small, five-person IBM subsidiary, IBM (r) Credit Corporation has grown to be one of the world’s largest IT asset finance companies. With more than 125,000 clients across 50 countries, IBM finances over US$36 billion in IT assets. Read on to learn more about the growth of IBM’s services business and its impact on IBM finances. And don’t forget to subscribe to our mailing list for the latest updates and insights!
Y2K caused financial difficulties for IBM
The Y2K bug has affected the computer industry. While it’s not a direct cause of the company’s financial difficulties, it’s certainly a contributing factor. IBM’s largest server computers, mainframes, often contain large databases, so problems with them can have a far bigger impact on a company’s bottom line than problems with smaller servers. However, if the Y2K bug doesn’t affect sales as much as it worried, IBM’s servers could regain some of the lost momentum later this year.
The Y2K problem originated as a temporary fix to high memory costs in the 1950s. IBM’s core memory cost one penny per byte in the early 1960s, while semiconductor memory costs a dollar per million bytes today. IBM had a strong economic incentive to reduce its memory requirements as much as possible. But in the process, they ran into financial difficulties, and the company’s stock fell.
The Y2K problem impacted many parts of people’s lives, including escalators and elevators. It could also affect power systems and even loose nuclear weapons. Regardless of the type of system affected, financial institutions are likely to experience significant problems with Y2K. A Y2K short-cut can result in a significant amount of financial trouble for any business. And the damage does not stop there.
The Y2K issue also led to the creation of the District of Columbia’s Y2K Project. The District’s Control Board began a Y2K-related project in June 1998. Although the City of Washington has made no public statements on the situation, it does appear to follow a tight schedule, but at times has fallen behind. This is because Y2K was a global crisis.
The Federal Reserve and banks recognized that their operations were dependent on many utilities. A joint workgroup was formed and chaired by the Federal Reserve. The workgroup works with the utilities to ensure reliable operations. Large vendors of electronic products and services are expected to maintain reliable operations, but smaller carriers and rural areas are less likely to have this luxury. So, it’s not surprising that the financial sector would take such measures.
IBM’s financing arm developed offerings to meet client needs
As the IBM Corporation approaches its first century, the financing arm of the company continues to expand its business in emerging markets. With 35 billion dollars under management, IBM’s finance arm is poised to grow as a key enabler for client success. In China, IBM’s financing arm provides financing solutions for clients, including banks such as China Minsheng Banking, Bank of Communications, and Agricultural Bank of China.
The company’s global footprint includes more than 175 countries and has a strong geographic distribution of revenue. The Global Markets organization manages IBM’s global footprint and works with dedicated country-based operating units to meet the needs of clients in their local market. Each country team has a client relationship manager who leads an integrated team of delivery professionals and consultants. These experts are there to help clients build and manage their businesses.
IBM’s history is rich in innovation. Invented in 1911, it was associated with the punched card, which made its name more familiar. This invention was created by Herman Hollerith and the Computing-Tabulating-Recording (CTR) Company. It was joined by Thomas J. Watson in 1914, who had joined the CTR Company, which was a merger of three companies. Watson was determined to create the business machine company of the future. After all, IBM was one of the pioneers of the personal computer industrial revolution. The company’s focus now is on the development of new software platforms and hardware infrastructure.
The partnership between IBM and the Guangdong Development Bank comes amid reports of a $225,000 payment by IBM to a sales agent who helped bribe a former chairman of the China Construction Bank. Neither company would comment on the payments. As a result, the alliance could help IBM land lucrative contracts with Chinese banks to upgrade their computer systems. However, the Chinese banking industry must improve their information technology capabilities to stay competitive in the global marketplace.
In recent years, IBM’s financing arm developed offerings to meet clients’ needs. By leveraging its global presence and expertise, IBM has become a key player in the global technology sector. Its recent restructuring is one of the company’s most successful in history. But it has also made mistakes in its business model. The company’s business model is based on skill, availability, and integrity. Further, IBM is increasingly dependent on the skills of its employees, which makes it more vulnerable to disruption and competition.
Impact of stronger dollar on IBM finances
The strong dollar has impacted IBM’s financial position. While the company’s third quarter results were solid, the company’s outlook for the fourth quarter is less certain. Nonetheless, the company’s quarterly earnings report is worth looking over for shareholders, customers, and anyone else involved in the Big Blue ecosystem. While the company’s financial health has been a concern in recent quarters, there are a few things investors can do to mitigate their worries.
IBM’s quarterly earnings report exceeded expectations, but the company warned that a stronger dollar would impact its results. The company had previously estimated a 3%-4% foreign exchange hit. The strong dollar has led to the company’s downward revision in its revenue outlook for the remainder of the year. Even so, the company still expects to grow its revenue in the mid-single digits this year, at constant currency.
The strong dollar is hurting IBM’s Global Financing business, which provides financing for assets owned by other companies or under contract with IBM’s other units. The company’s Global Services business generates stable long-term revenue streams. This is one of the key areas IBM’s finance unit relies on. Its financial results are closely tied to interest rates, which increase or decrease its financing revenue.
While IBM’s financial results have been mixed this quarter, the company is confident in the long-term success of its strategy. Despite lower-than-expected fourth-quarter revenue and profit, IBM is still ahead of analyst estimates and is on track to meet its 2020 goals. The company expects free cash flow of $10 billion this year, which is still far above estimates for its current fiscal year. In the near-term, the company expects to experience a two-to-three-point headwind in foreign exchange rates at mid-April 2022.
Growth of IBM’s services business
The IBM centennial celebration is more about focusing on the company’s growth in the services business than its quarterly results. During its centennial celebration, IBM is also focusing on the growth of its consulting, software and infrastructure businesses. During that time, IBM has successfully transitioned from being a hardware company to a software, global services and infrastructure company. Its growth in all three segments is strong, but it has been slow to develop new products. To achieve this goal, IBM executives have set internal mandates for its product development teams.
IBM’s services business growth continues to be fueled by its software and consulting divisions. Both divisions are growing at about the same pace. Software services grew 8.2% year over year, while consulting revenue rose 13 percent. IBM’s infrastructure business grew at the same pace, at $3.2 billion. While hybrid and distributed infrastructure grew 8 percent year over year, the zSystems business shrank 18 percent.
Analysts at Credit Suisse praised IBM’s first quarter performance, and argued that the company should focus more on the hybrid cloud, a cloud combining private and public clouds. Separation of Managed Infrastructure Services is expected to complete by the fourth quarter and be a catalyst for revenue growth. Argus Research reiterated its $155 price target for IBM shares. In addition, the company recently sold its Watson health division to Francisco Partners. This spin-off was an important step in IBM’s strategy in the cloud, and Krishna said he would continue to focus on the hybrid cloud.
IBM’s hybrid cloud focus is paying off. Hybrid cloud revenues in the fourth quarter of 2017 jumped 16 percent. The company also announced an alliance with Samsung to develop vertical semiconductor transistor architecture. IBM’s revenue from these three segments combined will reach USD 20.2 billion by 2020. IBM’s overall software and consulting revenue will increase 8%, and the services business will grow by 13 percent. These growths are expected to continue into 2020.
IBM’s first-quarter revenue growth was encouraging, and the company reiterated that it will continue to increase its revenues in the next quarter. Arvind Krishna, CEO of IBM, attributed the growth in the services business to its international footprint and its integration of Red Hat. These initiatives will help IBM’s services business grow in the future. And with the increasing dollar, it will be more profitable than ever. If it continues to grow, investors should be delighted. We continue to produce content for you. You can search through the Google search engine. If you’re interested in related finance topics, you can check our recent article Harvest Finance Price Prediction or you can find the relative posts right below.