Arik Hesseldahl

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IBM Knows When to Acquire and When to Divest

ginni_rometty_IBM2It always pays to know when and what to buy. It also pays to know when and what to sell.

That was a point that IBM CEO Ginni Rometty made today in remarks at the company’s investors day in San Jose, Calif. IBM is known for making numerous acquisitions over the years, a recent example being StoredIQ.

What does IBM look for in an acquisition? Rometty boiled it down to three questions the company asks before every deal: “Does it extend a capability we have? Does it have scalable intellectual property? Can we extend it to 173 countries around the world?”

In a perhaps not-so-veiled shot at rival Hewlett-Packard, given its combined $16 billion in write-downs on the acquisitions of EDS and Autonomy last year, Rometty said IBM feels strongly that “companies get in trouble when they acquire something that takes them into a new space.”

But just as important to Big Blue’s success in recent years has been its decisions to get out of certain businesses. Examples include the PC business, which it sold to Lenovo in 2004, and, more recently, its retail point-of-sale business, which it sold to Japan’s Toshiba last year.

“Over the last decade, we have divested $15 billion worth of revenue,” Rometty said. “If we had not, we would be a larger company, but we would also be a lesser-margin company, and we would have capabilities that our clients would be less interested in.”

Rometty also said that IBM expects to continue its big bets on technologies like Big Data and analytics. “Data will be the basis of competitive advantage for every company, for every industry in the coming decade.”

To that end, she said that IBM now expects revenue from business analytics to account for as much as $20 billion in annual revenue by fiscal 2015. The prior target was $16 billion. And if Big Blue hits that goal it would amount to a doubling of analytics revenue from 2010.

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