It's a remarkable achievement for any company, and only more so for a tech company. IBM (NYSE: IBM) celebrates its 100th birthday this month. It is one of the largest and most profitable technology companies in the world. And it is one of just a few tech stocks that could be worth owning for the next 100 years.
Moving beyond the buggy whip business
Perhaps IBM learned by watching buggy makers suffer from the shift to automobiles. Survival is not about your product. It is about solving customers' problems. IBM focuses on using technology to solve business problems. It stands in stark contrast to most tech companies, which typically focus on a particular technology.
Technology is a moving target, and that has been the downfall of many a company. Examples include IBM-compatible PC pioneer Compaq, networking pioneer 3Com, and IT outsourcing pioneer EDS. All three focused on a technology, stumbled, and were ultimately purchased by Hewlett-Packard (NYSE: HPQ). Ironically, HP is now scrambling to catch up in the current technology shift to cloud computing, as is database purveyor Oracle (Nasdaq: ORCL). Likewise, PC stalwarts Microsoft (Nasdaq: MSFT), Intel (Nasdaq: INTC), and Dell are struggling for mobile device relevance as PC growth slows.
Nice bench
Another secret to IBM's success is its deep management bench. The company did not visibly miss a beat when Robert Moffat, a senior vice president, resigned after being arrested in conjunction with the Galleon insider trading case. Moffat was considered a leading contender to ultimately replace Sam Palmisano, IBM's eighth CEO.
Palmisano celebrates his 60th birthday this year and is reportedly working on succession planning. That might include appointing a president or COO in the next 12 to 18 months, a likely heir to the CEO job. For this choice, he has an embarrassment of riches on his management team. Contenders include three proven IBM veterans: sales, marketing, and strategy head Virginia Rometty; services head Michael Daniels; and hardware head Rodney Adkins. All three are well-versed in IBM's businesses and culture.
That is a stark contrast to Apple (Nasdaq: AAPL). Its stock rises and falls on news of CEO Steve Jobs' health. IBM also stands out in comparison to HP, which has brought a series of outsiders into the CEO seat and other senior positions over the past decade, with mixed results. HP continues to shuffle its senior management this month. Dell continued to flounder for years after founder Michael Dell replaced the CEO in January 2007 and then brought a series of outsiders into senior management positions.
The outlook
IBM is well-positioned for a slow-growth economy. It is no wonder Wall Street has recently rediscovered the stock. Through 2015, management expects EPS to grow by at least 12% annualized, helped by acquisitions, growth initiatives, ongoing productivity gains, share buybacks, and an ongoing shift to higher-value products and services. Four growth initiatives already have traction: cloud computing, growth markets (e.g., BRIC countries), business analytics, and smarter planet. For example, IBM expects emerging markets will account for 30% of its revenue in 2015, compared to 21% exiting 2010. Despite all this and a dividend yield of 1.8%, IBM's P/E ratio is a mere 13.8.
Foolish takeaway
IBM's unique focus on solving business problems is essential to long-term success in technology, but rare. Companies that share it include Accenture (NYSE: ACN), which focuses on solving business problems with consulting and IT services; Apple, which focuses on making technology attractive and user-friendly; Amazon, which focuses on making shopping easier; and Google, which focuses on organizing information and making it accessible. Among these companies, only IBM and Accenture enjoy the kind of deep management bench that can help lead their companies through the inevitable challenges ahead.
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