The 10 Biggest IBM Stories Of 2009

It had been 15 years since IBM last updated the charter that governs its relations with its 100,000 solution provider partners. So when IBM debuted a revised charter in March, the company trumpeted the move as a sign of its continued commitment to the channel.



The updated document included changes that reflect IBM's "Smarter Planet" initiative and the company's renewed emphasis on the channel to reach mid-market customers.



But aside from the specific revisions, the new charter was most important because it served as a demonstration of how much importance IBM attaches to the channel at a time when some IT vendors seem to be taking their channel partners for granted.



Solution providers seemed to appreciate the move. "I think it's going to help foster good partner relations," said Bob Verola, CEO of Vicom Computer Service, a Farmingdale, N.Y.-based IBM channel partner, in an interview after the new charter was disclosed. "It's a renewing, a revitalization of IBM's commitment back to the partners. I think that's huge."

More controversial than the new charter were rigorous technical and sales certification requirements that IBM said in February it would impose on its software channel partners under the "Growth Through Skills" initiative.



Under the uncontrolled distribution plan IBM previously used, solution providers only had to register as a reseller in order to carry IBM software products. That, IBM concluded, resulted in too many companies selling its products without adding sufficient value. Under "Growth Through Skills" resellers are required to become certified in selling, implementing and supporting specific IBM software products. The certification requirements are effective January 1.



Reseller reaction was decidedly mixed. Many partners agreed with IBM's contention that by requiring resellers to upgrade their skills, solution providers would be better able to distinguish themselves in the marketplace, in the process weeding out resellers that simply distributed products and hurt margins for everyone. Others, however, complained bitterly that the cost of training and certifying their staff was a financial burden at a time when many solution providers were already struggling with the recession.

IBM found itself in the harsh spotlight of the law when Bob Moffat, senior vice president and group executive, IBM Systems and Technology Group (pictured), was among a handful of people arrested on Oct. 16 on insider trading charges stemming from a federal investigation. Also arrested were an Intel executive and several financial industry executives, including hedge fund billionaire Raj Rajaratnam.



Moffat, who has declared his innocence, allegedly disclosed inside information on IBM partners and competitors, including Sun Microsystems, Advanced Micro Devices and Akamai.



IBM quickly placed Moffat, a 31-year IBM veteran, on leave and named long-time IBM executive Rod Adkins, head of the company's system development and manufacturing operations, to take over Moffat's duties. Grappling with one of the biggest corporate scandals in its history, IBM even pulled Moffat's picture and biography from its Web site. IBM channel partners who knew Moffat found his arrest hard to believe.

IBM was far from immune from the recession. While the company remained profitable in 2009, that was largely the result of some serious cost-cutting, including several rounds of layoffs that some IBM observers say totaled some 10,000 workers or more. But IBM never disclosed the actual number of workers who were "RAed" -- IBM-speak for "resource action."

The pink slips started flying in January at the height of the recession, right after the company reported a 6 percent drop in sales and a 12 percent drop in profitability in the final quarter of 2008. That first round of layoffs was believed to be concentrated in the company's Software Group. In March, layoffs hit IBM's Global Technology Services operations, followed by layoffs in the company's Western Europe facilities in April, and in Global Business Services in August.



IBM spokesmen would only acknowledge that IBM, in the words of one, was "reallocating our skills and resources." Said one employee laid off from the company's Silicon Valley lab on an employee Web site: "IBM used to be [a] good place to work, not any longer. Last few years, every time I think it can't get any worse, it would get a lot worse. Actually relieved that it's finally over."

The irony of the layoffs within IBM in 2009 is that they were concentrated within its software and service operations even as the company seemed to be evolving away from being a computer hardware supplier and increasingly relying on its software products and IT services for growth and profitability.



In the first three quarters of 2009, sales of servers and storage hardware generated by IBM's Systems and Technology Group totaled $11.0 billion -- down more than 20 percent from the $13.9 billion in hardware sales the company recorded in the first nine months of 2008.



While much of that drop was the result of the recession, hardware is becoming less and less of a profitable business for IBM. In the third quarter that closed Oct. 31, IBM Global Business and Global Technology services earned a pre-tax profit margin of around 15 percent while software generated pre-tax margins of more than 32 percent -- both up from the same period in 2008. In the third quarter Systems and Technology only generated pre-tax margins of 5.4 percent -- down 0.7 points from one year earlier. In the first quarter of this year, hardware effectively contributed nothing to IBM's bottom line.



IBM executives denied any intention of exiting the IT hardware business in the same way it did with low-margin PCs and printers. But one has to wonder just what IBM will look like five years from now.

IBM, in 2009, made it very clear that it's serious about cloud computing. Throughout the year the company kept up a steady drumbeat of cloud-related technology announcements that spanned many of the IT giant's businesses and product lines. Early on the company debuted its LotusLive portfolio, making its Lotus collaboration and communications applications available through the cloud. That was followed up with a cloud-computing appliance incorporating the WebSphere application server for customers building private clouds, then a version of the Rational toolset for developing and implementing cloud-computing software.



In October, IBM announced that it was getting into the cloud data storage business with its IBM Smart Business Storage Cloud service. And last month the company said it would develop commercial cloud-based business intelligence technology and services for customers based on "Blue Insight," a private cloud business analytics system the company created for its own 200,000 employees.

In February President Barack Obama signed the $787 billion stimulus bill (officially the American Recovery and Reinvestment Act) into law. IBM, perhaps more than any other IT vendor, worked aggressively to win a piece of that funding for itself and for its channel partners.





Most audacious was IBM's offer of $2 billion in financing for business and government customers with IT projects that might be governed by the stimulus spending, including IT for healthcare, smart electric grids and broadband Internet access. The idea was that customers could get low-cost, upfront financing for projects that would be covered by ARRA. IBM offered the financing, which it later increased to $5 billion, through direct sales and channel partners.



Throughout the year the company provided channel partners with stimulus funding guidance, holding education and networking events for solution providers about opportunities created by the funding. The fact that ARRA dovetailed nicely with IBM's "Smarter Planet" and "Dynamic Infrastructure" initiatives didn't hurt.

In 2008 IBM bought 14 companies, including spending $5 billion to acquire business intelligence software vendor Cognos. IBM was less of a shopaholic in 2009, acquiring only six companies as of early December. But while fewer in number, the acquisitions this year were no less strategic.



IBM's biggest purchase came in July when it shelled out $1.2 billion to buy SPSS, a developer of advanced statistical analysis software, in a move that will help IBM expand its portfolio of business intelligence applications.



Other notable acquisitions included the assets of Outblaze, a Hong Kong-based developer of online messaging and collaboration services IBM used to boost its Lotus Live initiative; source code analysis tool vendor Ounce Labs; and Guardium, a supplier of database monitoring and protection software.

On April 20, Oracle announced that it would acquire Sun Microsystems for $7.4 billion. That price tag was apparently too rich for IBM, which until just two weeks prior had been negotiating to acquire Sun. Word of IBM's efforts to buy Sun began leaking out in mid-March with IBM reportedly offering $6.5 billion for the struggling computer maker. Such an acquisition would net IBM a huge collection of software technology, including the Java programming language.



But observers pointed out that it also would saddle IBM with another line of computer servers and storage systems that were incompatible with what it already owned. Did IBM really need more computer hardware (see slide 5)?



As the negotiations dragged on and Sun's financial situation worsened, IBM reportedly lowered its offering price before ultimately walking away from the deal. Oracle quickly stepped into the breach with its own offer. But with the Oracle-Sun deal hung up by European Commission objections and Sun's ongoing deterioration, one has to wonder which company was the real winner here.

Oh sure, IBM rolled out its share of new software, servers and storage systems in 2009. But the company also announced the results of more "out there" development projects that reminded us that IBM, unlike most IT vendors today, still conducts real technology research using real scientists.



Some of the work was very leading edge, such as a prototype of what IBM called the world's fastest options trading system that used advanced "stream processing software" and the company's Blue Gene supercomputer. In August company researchers, working with the California Institute of Technology, said they had developed a new method of manufacturing powerful microchips that used an artificial DNA nanostructure.



And then there were the projects that fell into the "just because we can" category. One development effort resulted in a Q&A computer program called "Watson" that could compete with humans on the popular TV game show "Jeopardy." Another was the use of a supercomputer with 147,000 CPUs to replicate the cerebral cortex of an average house cat -- minus fur balls and the attitude.