International Business Machines (IBM) began as the Computing-Tabulating-Recording Company, a floundering office machine firm rescued by National Cash Register salesman Thomas Watson in 1914. Watson turned the company around by securing government contracts during World War I; by 1920, annual revenue had tripled. Four years later, the company took its present moniker and quickly established its dominance in the office machine market, selling its tabulators, time clocks, and electric typewriters domestically and abroad. IBM introduced its first computer in 1952 and maintained control of about 80 percent of the market throughout the 1960s and 1970s.

The PC revolution

The subsequent "PC revolution," however, found IBM unable to compete in the face of the shift to smaller, more open systems. To adapt to the new market, the company changed its focus to big computers, semiconductors, software, and professional services in order to maintain its leading spot in the computer world.

Just a few years ago, IBM was floundering. When crafty CEO Louis Gerstner took the helm of the firm in 1993, IBM was lumbering toward an $8 billion loss. Many observers were clamoring for the firm to split up. Instead, Gerstner turned IBM's focus to meeting customer needs. Big Blue's acquisition of Lotus in 1995 and Tivoli Systems in 1996 both upped sales and allowed IBM to supply a wide variety of software, instead of just software for mainframes and other proprietary software.

The software game

IBM has jumped into the software market full force. Software now accounts for about 18 percent of all IBM sales. IBM has more developers working in Java than Sun Microsystems, which wrote the language in the first place. The increased focus on software, including voice recognition technology, has made IBM more flexible; the firm no longer writes software solely for its own hardware. The company is also moving ahead with its encryption technology that will allow companies to verify customers purchasing products online.

IBM formed new alliances in July 2000 in an attempt to push the company into global Internet-based supply-chain management, customer-relationship management, enterprise resource planning and logistics software. Aspen Technology, Swedish ERP vendors Intentia International and Industrial and Financial Systems, Mincom of Australia and public-sector ERP vendor IT Design are the five new partners. The company also made a deal with an Irish public-sector ERP vendor whose customers includes the U.S. Social Security Administration.

Don't forget about the hardware

Once-costly IBM is even delving into the sub-$1000 PC market, introducing a personal computer that sells for $999. IBM sells computers directly to customers, but, unlike its nimbler rivals Gateway and Dell, also sells computers through distributors or "middlemen" who take a slice of the profits and demand compensation when surplus inventory sits in warehouses. Recently, IBM has secured contracts to sell hardware to Bell Microproducts; the company has also allied with Bell Atlantic to provide networks for households.

While ordinary home-computing may only take a PC, there are still plenty of uses for heavy-duty computing. IBM's new mainframe, S/390 G5, is expected to be 15 percent more powerful than what analysts were expecting in May 1998. In efforts to better compete in the server business, IBM has purchased Sequent Computer Systems for $810 million. IBM is also hoping to strengthen its position as an innovator of computing power with the 1999 unveiling of its $29 million Deep Computing Institute.

No big deal

Big Blue has been humming along in 1999, signing some large contracts with major players. One of these deals was a licensing agreement with 3Com that has been predicted to drum up over $1 billion in sales. The August 1999 move entailed IBM licensing out some of its many patents. Experts believed that IBM would make further use of its stockpile of patents in the future. Also in August 1999, Cisco agreed to buy $2 billion of equipment from IBM as part of a larger partnership agreement between the two companies. These arrangements followed on the heels of several large transactions, including a June 1999 deal with Acer worth $8 billion, an earlier deal with Dell worth $16 billion, and a $3 billion purchase by EMC. In addition, in September 1999 IBM agreed to sell its network technology division to Cisco for $300 million. In return Cisco agreed to buy $2 billion in parts from IBM over the next five years. In September 1999, IBM also acquired Dascom Inc., an Internet security firm, to bolster its e-commmerce business.

IT too

Although IBM remains at its core a hardware and software company, Big Blue is also becoming an IT services giant. In 1998, customers paid IBM $23 billion for services. Today, it is the number one computer services firm. Because Gerstner chose to keep Big Blue together instead of breaking it up, he can now offer the widest range of products and experts in the business. The GartnerGroup predicts that services will represent 46 percent of IBM's revenues by 2003. I.B.M. also decided to throw its hat into the wireless marketplace with the signing of agreements with no less than nine Internet consulting companies in the Month of May, 2000 alone. The deals are part of Big Blue's effort to shore up its position in the consulting services area and establish itself in the wireless Internet marketplace. The companies will work with IBM and use IBM software to create content and services for wireless internet services.

We can go toe to toe in the middle of a cell

In September 1999 IBM announced plans to supply chips to the communications industry, putting them in direct competition with Intel. Big Blue unveiled a range of programmable network processors that differ from most network chips in that they can be reprogrammed to fit changing needs rather than replaced entirely. The April 2000 announcement of a technological breakthrough in chip manufacturing provided reason for optimism. IBM wants to become an indispensable chip-supplier to premier electronics companies and they have already taken steps in this direction by snaring Nortel, and Alcatel as customers.

Throwing in the towel

In October 1999 IBM announced it would cease selling PC's through retailers in January 2000. IBM would continue to sell PC's to consumers online, and laptops would still be sold in stores. The move would save the seventh-largest consumer PC seller, money in the form of distribution costs. The move was an attempt by Big Blue to save money and play to its strengths. IBM's mainstay has always been the corporate market while consumer sales have historically been poor. IBM's personal systems unit generates $15 billion in sales annually; a scant $700 million of these sales are generated by purchases of desktop computers by consumers. In the meantime, IBM will continue its retail operations abroad and will "conduct sales experiments in about 30 OfficeMax stores" according to The Wall Street Journal.

Oops!

Chief financial officer, Douglas L. Maine, was demoted to an operational job after IBM reported shockingly low third-quarter revenue figures. The disappointing numbers were linked to Maine's failure to foresee slumps in sales due to Y2K fears. John Joyce took over as CFO, vacating his job as head of sales in Asia. Joyce had long been expected to fill the CFO position at one point or another. Temporary disappointing results did not affect IBM's commitment to its employees, however; the company awarded $1.6 billion -- 25 percent of its 1998 profits -- in performance-based bonuses to its employees in February 1999; and 500 workers were added to the database software department in mid-2000, with IBM promising to add an additional 500 to the department in 2001.