In its most recent quarter, software accounted for a fifth of IBM’s revenue and, surprisingly, for the bulk of its earnings — some 40%, up from 29% five years ago. Under Palmisano, IBM is reinventing itself again. It’s shed its disk-drive and personal-computer businesses to focus on less volatile operations with fatter margins, and has boosted productivity by slashing costs and spreading facilities around the globe.
Welcome to the New Big Blue, the world’s second-largest software company — quite a change from the hardware giant that invented the disk drive 50 years ago and lived high on the mainframe, or the service outfit it successfully morphed into under Gerstner — one whose revenues had stalled in recent years. “We have globally integrated the supply chain, software development, services delivery,” says Palmisano. “I would say we’re just two or three years into a multi-year journey, with ongoing productivity gains to be had. As a result of all this work, IBM today is much more focused than we were four years ago.”