IBM Wants a Smarter World

When the going gets tough, the tough get going.

That's effectively what IBM (NYSE: IBM  ) CEO Sam Palmisano says in this year's letter to shareholders. "We will not simply ride out the storm," Palmisano writes. "Rather we will take a long-term view, and go on offense." Damn the torpedoes, the recession, and everything else!

Palmisano points out that IBM is going into this tumultuous time firing on all cylinders. Earnings per share soared by 24% year over year in 2008, sales improved by 5% to $103.6 billion, and IBM's $14.3 billion of free cash flow (excluding a change in global financing receivables) was the highest in the company's long, blue history. Big Blue has nearly $13 billion of cash equivalents, and it remains profitable any way you slice the numbers.

That sets IBM up to jump on the hottest opportunities out there. To Palmisano, that means investing in a new world order. The Internet has grown up and shrunk our planet in many ways, and it's time to start using that interconnectedness to run everything "smarter." That means tackling problems "like wasting too much energy. Like spending too much time in traffic. Like producing food too expensively, and wasting too much of what we produce." All can be ameliorated with smart use of technology, Palmisano says. And IBM wants to be the company that makes it all happen.

IBM's early efforts in "smart" infrastructure technology around the world have already decongested Stockholm, improved water management in Brazil, and started work on an automated power grid in Malta. IBM has also partnered up with Google (Nasdaq: GOOG  ) for smarter electronic storage of health records.

With such a large war chest and a well-defined plan of attack, IBM seems poised to make this "smart world" vision a reality, but that's not to say there won't be competition. Fellow technology giant Cisco Systems (Nasdaq: CSCO  ) is having similar dreams with its "sustainable city" initiative, and it also has the resources to race IBM to the top of this summit. Microsoft (Nasdaq: MSFT  ) and Intel (Nasdaq: INTC  ) seem like the next logical competitors to enter this new landscape. Even Oracle (Nasdaq: ORCL  ) could share this vision -- it certainly has the required assets. These wounded giants are all ready to encapsulate this moment in history and remake their futures, armed with cash-rich balance sheets and visionary leaders.

If there ever were a time to invest in blue-chip tech stocks, this would be it. And IBM is about as blue as they come.

Further forward-looking Foolishness:

Intel and Microsoft are Motley Fool Inside Value selections. The Fool owns shares and covered calls of Intel. Google is a Motley Fool Rule Breakers pick. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.


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