International Business Machines

Corporation
I INTRODUCTION

IBM System/360 Mainframe Computer

In 1964 International Business Machines Corporation (IBM) introduced its revolutionary System/360, the first
mainframe computer that used interchangeable software and equipment. During the 1960s and 1970s IBM
dominated the world market for mainframe computers.
Charles E. Rot/Corbis

International Business Machines Corporation (IBM), one of the world’s largest manufacturers of
computers and a leading provider of computer-related products and services worldwide. IBM makes
computer hardware, software, microprocessors, communications systems, servers, and workstations.
Its products are used in business, government, science, defense, education, medicine, and space
exploration. IBM has its headquarters in Armonk, New York.

II ORIGINS
The company was incorporated in 1911 as Computing-Tabulating-Recording Company in a merger of
three smaller companies. After further acquisitions, it absorbed the International Business Machines
Corporation in 1924 and assumed that company’s name. Thomas Watson arrived that same year and
began to build the floundering company into an industrial giant. IBM soon became the country’s
largest manufacturer of time clocks and punch-card tabulators. It also developed and marketed the
first electric typewriter.

III DIGITAL COMPUTERS

IBM entered the market for digital computers in the early 1950s, after the introduction of the UNIVAC
computer by rival Remington Rand in 1951. The development of IBM’s computer technology was
largely funded by contracts with the U.S. government’s Atomic Energy Commission, and close parallels
existed between products made for government use and those introduced by IBM into the public
marketplace. In the late 1950s IBM distinguished itself with two innovations: the concept of a family of
computers (its 360 family) in which the same software could be run across the entire family; and a
corporate policy dictating that no customer would be allowed to fail in implementing an IBM system.
This policy spawned enormous loyalty to “Big Blue,” as IBM came to be known.

IBM’s dominant position in the computer industry led the U.S. Department of Justice to file several
antitrust suits against the company. IBM lost an antitrust case in 1936, when the Supreme Court of the
United States ruled that IBM and Remington Rand were unfairly controlling the punch-card market and
illegally forcing customers to buy their products. In 1956 IBM settled another lawsuit filed by the
Department of Justice. IBM agreed to sell its tabulating machines rather than just leasing them, to
establish a competitive market for used machines. In 1982 the Justice Department abandoned a
federal antitrust suit against IBM after 13 years of litigation.

From the 1960s until the 1980s IBM dominated the global market for mainframe computers, although
in the 1980s IBM lost market share to other manufacturers in specialty areas such as high-performance
computing. When minicomputers were introduced in the 1970s IBM viewed them as a threat to the
mainframe market and failed to recognize their potential, opening the door for such competitors as
Digital Equipment Corporation, Hewlett-Packard Company, and Data General.

IV IBM PC
In 1981 IBM introduced its first personal computer, the IBM PC, which was rapidly adopted in
businesses and homes. The computer was based on the 8088 microprocessor made by Intel
Corporation and the MS-DOS operating system made by Microsoft Corporation. The PC’s enormous
success led to other models, including the XT and AT lines. Seeking to capture a share of the personal
computer market, other companies developed clones of the PC, known as IBM-compatibles, that could
run the same software as the IBM PC. By the mid-1980s these clone computers far outsold IBM
personal computers.

In the mid-1980s IBM collaborated with Microsoft to develop an operating system called OS/2 to
replace the aging MS-DOS. OS/2 ran older applications written for MS-DOS and newer, OS/2-specific
applications that could run concurrently with each other in a process called multitasking. IBM and
Microsoft released the first version of OS/2 in 1987. In 1991 Microsoft and IBM ended their
collaboration on OS/2. IBM released several new versions of the operating system throughout the
1990s, while Microsoft developed its Windows operating systems.

In the late 1980s IBM was the world’s largest producer of a full line of computers and a leading
producer of office equipment, including typewriters and photocopiers. The company was also the
largest manufacturer of integrated circuits. The sale of mainframe computers and related software and
peripherals accounted for nearly half of IBM’s business and about 70 to 80 percent of its profits.

V RECENT DEVELOPMENTS
In the early 1990s, amid a recession in the U.S. economy, IBM reorganized itself into autonomous
business units more closely aligned to the company’s markets. The company suffered record losses in
1992 and, for the first time in its history, IBM cut stock dividends (to less than half of their previous
value). In 1995 IBM paid $3.5 billion to acquire Lotus Development Corporation, a software company,
expanding its presence in the software industry. Beginning in 1996, IBM began increasing its stock
dividends as the company returned to profitability. In 1997 an IBM supercomputer known as Deep Blue
defeated world chess champion Garry Kasparov in a six-game chess match. The victory was hailed as a
milestone in the development of artificial intelligence.

In 1998 IBM built the world’s fastest supercomputer for the Department of Energy at the Lawrence
Livermore National Laboratory. The computer is capable of 3.9 trillion calculations per second, and was
developed to simulate nuclear-weapons tests. In 1999 IBM announced a $16-billion, seven-year
agreement to provide Dell Computer Corporation with storage, networking, and display peripherals—
the largest agreement of its kind ever. IBM also announced plans to develop products and provide
support for Linux, a free version of the UNIX operating system.

In 2004 IBM decided to get out of the PC business, which had become only occasionally and marginally
profitable. IBM sold the majority share of its PC division to Lenovo Group Ltd., China’s largest
manufacturer of PCs, retaining only an 18.9 percent minority share. The sale, which amounted to $1.75
billion in cash, stock, and acquisition of debt, meant that Lenovo became the third largest PC maker in
the world, after Dell Computer Corporation and Hewlett-Packard Company. Under the terms of the deal,
Lenovo was allowed to retain the IBM brand name for five years.

In 2005 IBM reached a settlement with Microsoft relating to judicial findings that Microsoft had abused
its monopoly power in its relationship with IBM. In 2000 a federal district court found that Microsoft had
violated antitrust laws. In the court’s findings of fact, Judge Thomas Penfield Jackson wrote that “from
1994 to 1997, Microsoft consistently pressured IBM to reduce its support for software products that
competed with Microsoft’s offerings, and it used its monopoly power in the market for Intel-compatible
PC operating systems to punish IBM for its refusal to cooperate.” IBM did not sue Microsoft but sought
restitution based on these findings. Without admitting liability, Microsoft agreed to pay IBM $775
million in cash and $75 million in software.