Following a decade of consolidating its portfolio to counter commoditization of its services and focus on more value-added solutions, IBM (NYSE: IBM) has an aggressive acquisition plan that includes investing $20 billion through 2015 in buying companies around the globe.
The company noted that most of the acquisition will be in the software area, where IBM has been focusing a significant portion of its efforts. In 2010, software accounted for for 22% of IBM’s total revenues and 44% of total profits. IBM said it expects that segment to account for 50% of profits by 2015.
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Over the last decade, a significant majority of IBM’s acquisitions have been in the software sector. “We acquire and internalize the knowledge. We do not buy the customers base,” Marcelo Spaziani, VP for Latin America of IBM’s software group, told RCR Wireless News in an interview.
>>> Listen to how IBM works at integrating acquired companies in its portfolio .
IBM’s most recent purchase was of Israeli-based Worklight, a provider of mobile software for smartphones and tablets. IBM cited plans to expand its operations in mobile application development, integration security and management as reasons for the deal.
The purchase looks to be an example of how IBM has worked for the past decade to build growth pillars – reaching the enterprise market and seeking differentiation from its competitors. IBM sold its commodity area of personal computers (such as its notebooks unit to Lenovo, and print unit); acquired the consultation firm from PricewaterhouseCoopers; and started purchasing software companies, including Cognos.
Rival Hewlett-Packard looks to be going through the same process, though Spaziani told RCR Wireless News that the process IBM went thru was different. “On the other hand, HP has foundation in personal computer,” Spaziani said.
>>> Listen to the comment on HP’s strategy .
The move toward software delivered nearly $10 billion of pre-tax profit to IBM in 2011, with a revenue growth of 11%. In the fourth quarter, software accounted for $7.6 billion in revenues, up 9%.
In addition to its acquisition plans, IBM is focusing on emerging markets as a key pillar of growth. In 2008, IBM changed its corporate structure so it was no longer divided by geographic regions, but instead by growth (GMU) and mature markets. The impact of growth markets has increased from 16% of revenues in 2008 to 22% in 2011. The goal is for that segment to reach 30% by 2015. In the last quarter of 2011, growth markets outpaced major markets by 8 points of revenue growth.
IBM’s operations across Brazil, Russia, India and China also posted a good quarter; combined they were up 11%, though nearly two-thirds of business in growth markets comes from outside the BRIC region. IBM noted it posted double-digit increases across 40 growth markets and that those sectors outpaced major markets by 10 points in 2011.
