Opinion
What turned IBM from tech titan to cautionary tale
Summary
- Having birthed the personal computer in 1981, the company refused to put its might behind it and used chips and operating system software from two small companies – Intel and Microsoft. It never recovered from that mistake.
In the heated battle between Microsoft, Google and a clutch of startups for early leadership in artificial intelligence, one name that’s conspicuously missing is IBM’s. Indeed, its absence from all major technological developments of the past two decades belies its status as a tech titan of a previous age and the most admired corporation in America for years. No company could come within sniffing distance of Big Blue’s 80% market share in computers.
But as the cliche goes, the higher you rise, the harder you fall. In February 1992, at the height of its power, IBM shocked investors when it reported revenues of $64.8 billion for 1991, down 6%. This was its first annual sales decline since 1946. With it came a $2.8 billion annual loss, the first in the company’s 80-year history. Coming just a year after General Motors’s $5.6 billion loss, it signalled the end of the American megacorp. Management guru Peter Drucker put it succinctly: “The Fortune 500 is over."
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Many of those Fortune 500 companies did eventually recover, but for IBM It was the beginning of the end. Despite major changes, including the unceremonious sacking of CEO John Akers, and layoffs, IBM (US) suffered a net loss of almost $16 billion from 1991 to 1993. The exit of Akers, a quintessential IBM-er, was a clear sign that the days of stability and continuity were over.
Big Blue’s big mistake
Abrupt though it seemed, IBM’s decline had started long before that. Despite having birthed the personal computer in 1981, the company refused to put its might behind it on the grounds that it couldn’t possibly carry out the tasks performed by a mainframe. Its initial sales estimate for PCs was a peak of 400,000. Since the big boys at the company held the tiny machine in disdain, the company violated its own policy and used chips and operating system software from two small companies – Intel and Microsoft, respectively.
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But in an instance of either madness or arrogance, it didn’t prevent Intel and Microsoft from selling similar products to other companies. The future would prove that it had ceded the most profitable parts of the business to these two companies while keeping the least profitable portions for itself.
The decision resulted in a rash of PC clones, as they were called, from hundreds of smaller companies. These had the same features as the IBM PC but cost less. The PC market, which IBM was sure would fall to it just as mainframes had in an earlier era, proved to be its downfall. By 1993, IBM’s market share in the most important computing device of the age was just about 20%. Apple, which was hardly seen as worthy of being a rival, refused to allow anyone else to make the Mac. Today Apple’s market cap is more than $3.3 trillion while IBM’s is $176 billion.
Ripples in India
The fall of IBM had an unfortunate echo in distant India, where a fledgling hardware industry was starting to take shape. The global recession that bled Big Blue’s books also took a toll on the Indian market, with GDP dropping in the fourth quarter of 1992 and the first quarter of 1993. A collapse in demand pushed leading IT companies into losses – in most cases for the last time.
The calamitous year served a useful purpose by convincing most Indian IT business leaders that assembling computers was a commodity play that required little skill and didn’t bestow a competitive advantage. With hundreds of PC makers dotting the country, any slip in demand would spark a race to the bottom. It was this realisation that caused hardware makers such as HCL and Wipro to enter software services, a trend that would peak by the end of the decade.
IBM, meanwhile, teetered from one disaster to another. After a brief recovery in 2005, 24 years after it had launched the PC age, IBM sold its PC division to Lenovo for $1.75 billion in cash, stock and debt.
