Vijaya Narapareddy University of Denver www.ibm.com In July 2007, International Business Machines (IBM) signed an $84.4 million deal with ‘Spanish utility Tberdrola, one of the world’s largest producers of renewable energy, to open an Tnnovation Center at Iberdrola in Salamanca, Spain to develop new information tech- nologies and provide services forthe utility. Also that month, IBM announced thet itis ere- ating a Global Center of Excellence for Nuclear Power in France to develop software and consulting services for the design, construction, and operation of riuclear power plants. IBM is capitalizing on the global warming triggered revival of interest in nuclear power as an alternative to coal-fired plants. France obtains 80 percent of electricity from nuclear power. “Nuclear power plant license extensions and new plant construction are driving the need for sophisticated risk modeling and information tools,” said Guido Bartels, general Manager for IBM Global Energy and Utilities Industry, in a statement. IBM’s organizational structure is provided in Exhibit 1. Note that CEO/President ‘Samuel Palmisano, Executive VP Nicholas Donofrio, fourteen Senior VPs and three other VPs are repositioning IBM from a computer company to an information technology ser- vices company through a series of aequisitions and divestitures as shown in Exhibit 2. In 2006, 13 acquisitions of approximately $4.8 billion were completed, enabling IBM to expand its software and services business. For the nine months ending September 30, 2007, IBM’s revente's increased 7 percent to $69.92 billion, Net income from continuing operations increased 9 percent to $6.46 billion, Revenues reflect an inerease in income from the company’s Global Technology Services seg- ‘ment and higher sales from both its Software segment and Global Business services segment, Net income also reflects higher gross margin and higher intellectual property income. In July 2007, IBM acquired Watchfire Corporation. A privately held security and ‘compliance testing software company based in Waltham, Massachusetts. In August 2007, IBM acquired WebDialogs, Inc., and then a month later completed the acquisition of DataMirror Corp. Company History Based in Armonk, New York, IBM was founded in 1888 as “Herman Hollerith and the ‘Tabulating Machine Company.” It was incorporated in 1911 as “Computing-Tebulating- Recording Co.” The company later changed its name to International Business Machines (IBM) Corporation in 1924 after becoming a Fortune 500 company. Also known as “Big Blue,” IBM has on several accolades. It is known to have more patents than any other ‘American technology company. In addition to being ranked among the “Worldwide Top 20 Semiconductor Sales Leaders,” to date, IBM boasts of its employees” achievements in the field of science and technology three Nobel Prizes, fous Turing Awards, five National Medals of Technology, and five National Medals of Science. IBMis well-known for its sales-centered business culture as it continues to hire its exec- utives and managers from its sales force. Its current CEO/President, Samuel Palmisano, started his career asa salesman with the company. The company’s traditional culture of wearing a dark sui, white shirt, and te changed in the 1990s under the leadership of then CEO Lou Gerstner. IBM began to chart a new course in 2003 using a very unique approach. It engaged 50,000 employees in an online intranet discussion over a period of three days using its Jam62 VUAYA NARAPAREDDY EXHIBIT 1 IBM's Organizational Structure |, Samuel J. Palmisano, Chairman of the Board, President and CEO 55 2. Nicholas M. Donoftio, Innovation and Technology, Executive VP 61 Senior Vice Presidents: 3. Michael E. Daniels, Global Technology Services 2 4, Douglas. Elix, Group Executive, Sales and Distribution 58 5.J. Bruce Harreld, Marketing and Strategy 56 6. Paul M. Hor, Research 60 7. Jon C. Iwata, Communications “4 8. Jobm Kelly, I, Technology and Intellectual Property 3 9. Mark Loughridge, Chief Financial Officer 33 10. 1. Randall MaeDonald, Human Resources 58 11, Steven A. Mills, Group Executive, Software Group 55 12, Robert W. Moffat, Jc, Integrated Operations 50 13, Virginia M. Rometty, Global Business Services 4 14, Linda S, Sanford, Enterprise On Demand Transformation 54 15, Robert C. Weber, Legal and Regulatory Affairs, and General Counsel 56 16. William M. Zeitle, Group Execative, Systems and Technology Group 9 Vice Presidents: 17. Jesse J. Greene, Je, Treasurer a 18. Daniel E. "Donnell, Secretary 29 19. Timothy S. Shaugbnessy, Controller ‘Source: hitp:fwnw¥.se: gow! Archivesledgat/datal51143/000104746907001434/0001047469-07-001434-indeBIT 2_Recent IBM Acquisitions and Divestitures INDUSTRY LANDSCAPE. ae = wowibm. com; 2006 Anaual Report, p. 16. ology. The content generated during those discussions was then analyzed using fier, a sophisticated text analysis software. Three themes emerged during this 2003 which form the basis for the company’s core values, “Dedication to every Client's »” “Tnnovation that matters for our company and the world,” and “Trust and per- responsibility in all relationships.” Subsequently, a 2004 Jam enabled 52,000 loyees over a period of three days to discuss and select best practices to support the Yalues adopted earlier. The InnovationJam, launched in June and September of 2006, gcd 150,000 employees residing in 104 countries, their families, pariners, customers, universities in two brainstorming sessions spanning 72 hours each, resulting in the pilation of over 46,000 ideas. In November 2006, IBM announced that it will commit ‘million to the ten best ideas generated during the InnovationJams. This is how IBM Strategic planning, transforming itself to a innovation-centric globally integrated cor- ion that focuses on new high-profit high-value-added businesses and services. IBM reports results of its operations in eight industry sectors as listed in Exhibit 3 that the $290 million growth in revenues generated by continuing operations in 2006 sainly fueled by approximately 18 percent growth in the Original Equipment i in turn, is driven by rising demand for 1BM Revenues by Industry Sector (In $ Millions) YR.TOYR, PERCENT YR.TOYR. CHANGE PERCENT CONSTANT THE YEAR ENDED DECEMBER 31 2006 2005* CHANGE CURRENCY istry Sector: nancial Services $ 25,181 S 24,186 41% 38% lic 13,401 14,054 ap 63) ustrial 11,535 11699 (4a) a6 Fibution 9,034 8,959 08 03 ommunications 8,979 3,601 09 06 Small & Medium Business 16981 17597 es Ga) Driginal Equip Manufacturers (OEM) 3,856 aan 19 179 2.756 2.951 00 $ 91424 § 91,134 3% (0.0% sified o conform with 2006 presentation. tpl se. gov Archivestedgar(a/t1431000104746907001434/0001047469-07.001434-indexhim, Exhibit 13, p. 22. CASE7 + INTERNATIONAL BUSINESS MACHINES — 2007——7"_.:.:LmLDLDLDLUmUmUmUmUmUmmt”””” 64 VUAYA NARAPAREDDY game processors in the microelectronics business. Note in Exhibit 3 that ‘sales/revenues declined in 2006 in three of the industry sectors: (2) public, (2) inc and (3) small/medium business. | Global Operations TBM operates in 170 countries, with about 60 peroent of its revenues being generated the United States. About 30 percent of IBM’s employees are in Asia Pacific, 45 percent: the United States, and 35 percent are in other countries IBM's R&D system employs 20,000 software developers in 61 labs located in 15 countries, and 3,000 scientists and nologists work at its Research Centers operating in China, India, Israel, Tapan, Swit ‘and the United States. Tn addition to industry segments, IBM provides results of its operations in geographic segments: (1) Americas, (2) Europe/Middle East/Africa, (3) Asia Pacific (4) OEM. IBM's subsidiaries worldwide are listed in Exhibit 4 with Revenues 2006 Employee Population by Geographic Region Europe, Middle East, and Aftiea Asia Pacific Ameritas Source: wowwiibm.cony2006_jom_annual pdf EXHIBIT 4 IBM's Global Subsidiaries Slate or county of incorporation ‘or organization ‘Company Name IBM Credit LLC ‘USA (Delaware) TBM International Foundation USA (Delaware) IBM International Services Corporation USA (Delaware) TBM Business Transformation Center, Sr] Costa Rica “Tivoli Systems, Ine USA Delaware) TBM World Trade Corporation USA (Delaware) TBM Bahamas Limited Bebamas WIC Insurance Corporation, Ltd Bermuda 18M Canada Limited IBM Canada Limitee Canada TBM Argentina Sociedad Anonima Argentina IBM Cantda Credit Services Company Canada : IBM Canada Holding Company, Limited Parinership Canada IBM Americas Holding Limited Bermuda TBM Brasil—Industuia, Maquina e Servicos Limitada Brazil IBM de Bolivia, SA Bolivia TBM de Chile, SAC Chile IBM del Ecuador, C.A. Bcuador