Not invented there
IBM, once was the home of steadfast refusal to deal with products "not invented here," has over the past five years turned into one of the most avid serial acquirers in the computer business. This month, for example, IBM announced the purchase of two software firms: US-based Watchfire Corp. (price not announced), which develops security and compliance testing software, and Sweden-based Telelogic AB ($750 million), a company that specializes development and testing software for telecom, automotive and aerospace.
According to a Reuters story ("IBM Sees Software Acquisitions Key to Profit Rise ", 6/18/2007), this is IBM's 44th and 45th software acquisition since 2001. In 2006, it bought 13 companies for almost $5 billion,
Why software? Because that has become the most profitable section of IBM's business, far more profitable than hardware and even services.
IBM is, after Microsoft, the #2 software company in the world. As the article states, for IBM software "accounts for 20 percent of revenue but generates 40 percent of pretax earnings, to lift overall profitability of a company that spans computer hardware, services and software." Gross profit margins for software are at over 80% this year.
IBM has realized its strength is not in innovation, but in the sales force and the extensive list of major corporate and industry customers.
