Valuation of Ibm
Company & Industry Overview
IBM is an international technology and consulting company, specializing in manufacturing and marketing computer hardware, software, infrastructure hosting and consulting services. It is the 2nd largest firm in the United States in terms of employees, 4th largest in terms of market cap, and 9th largest in terms of profitability. Yahoo! Finance lists their industry as the diversified computer systems industry. The main purpose of companies in this industry is to create innovative computer-related products and processes for businesses and end consumers. Other members of this industry, whom IBM considers their competition, include Microsoft, Oracle, Cisco, Hewlett-Packard, Intel, Google, and others. The computer systems industry is considered a growth industry, as opposed to a mature industry such as pharmaceuticals or a declining industry such as bookstores. Therefore, IBMs growth should in general be higher than a company who is not in the industry.
SWOT Analysis
Strengths – Brand name: IBM is one of the largest computer companies in the world. Because of this, their brand is extremely recognizable in the computer industry. A strong brand name like IBM also allows the company to charge a premium for their products because of the view perceived quality improvement of name-brand companies. They also have locations across the globe, which provide synergies and economies of scale throughout the company.
Weaknesses – IBM has had tons of acquisitions: According to IBMs annual report, since 1999, IBM has acquired over 120 companies. This could be a red flag due to the fact that it may show that IBM is not very good at organically growing, and therefore resorts to acquiring businesses in order to grow.
Opportunities – Emerging Markets: IBM already has a strong international presence, and with new economies growing quickly in places such as Latin America and China, IBM should be able to tap into these new markets for new industries starving for technological advancement.
Threats – The bad global economy means less consumer and business spending for IBM products. This is not only a threat for IBM, but almost every company as well. The threat of bad economies in the United States and Europe is more support or IBM to try and tap into emerging markets.
Barriers to entry in the industry
Barriers to entry in the computer technology industry include their high capital requirements, strong brand name recognition, advanced technologies that are required, requirements for some economies of scale, and the fact that patents limit new competition from creating imitation products.
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