IBM Performance - Research Paper Example

However, in terms of gross profit, IBM is still in the lead with a gross profit of $43.8 for FY09 as compared to Hewlett-Packard’s $28.4 for FY08. IBM’s profitability has been on the increase annually since 2005. One of the major factors that have contributed to this is the indefatigable efforts directed towards raising the standards of services and software sectors rather than concentrating on cyclical and commoditizing business.

As much as IBM’s main competitors are Hewlett-Packard and Dell, each one of them has a different area of specialization. This means that IBM’s competitors’ products are not so close to those produced by IBM. Dell, for instance, generates its money mainly from the sale of personal machines (PC) and server hardware. Hewlett-Packard on the other hand, being more diversified, leads in the sale of Personal Computers, offering of IT services, Imaging & Printing. IBM competes with both companies in their specific areas of specialization. It competes with Hewlett –Packard in the markets when it comes to Servers and services in Information Technology. It competes with Dell in the marketing of servers and software. As of 2009, IBM has retained its title of being the leader in software, Information Technology Services, and Servers.

Of the areas of specialization of IBM, the leading segments are servers, software, and IT services. This is even after being overtaken in terms of revenue by HP; IBM remains at the top in terms of IT services, servers, and software. In addition to that, it is ahead of both HP and Dell in all profitability measures. This is due to its involvement in high-margin sectors. This gives a good reason why its brand loyalty remains high not only now but in years to come unless the competitors abandon their focus on the thin-margin PC business in which they are still heavily involved.

There is greater trade leverage in IBM. Its customers represent a stable income source, since they find IBM’s products to be less cost-sensitive, they purchase them at high frequency, in large quantities, and they most probably buy additional goods and services, thus contributing to more profit in this business. The equity value of IBM with loyal brands is often greater than competitors with similar profit figures and sales, given that brand loyalty is the engine of future growth. Walker Information, a research firm reported in 2007 that IBM was one of the firms with a high percentage of brand loyalty and a low proportion of high-risk customers. IBM’s earnings increment per share for more than ten years (1997-2007) was higher than that of Intel, Apple, and Hewlett-Packard, all of which were not ranked as loyal brand leaders.

Due to the income generated from the business of computer manufacturing companies, many business ventures would wish to start the same. However, the capital needed to enter and remain competitive with the big names in this technological market is ridiculous. Considering that IBM spent more than three Billions on development and research last year only makes an individual or group think twice about entering the market. New ideas and components are often being developed by large Brand names, which only few can compete. Moreover, the brand name products sold by Dell, HP, and Apple are household names. On the other hand, if an individual or business is technologically confident and can come up with a new language or a kind of innovativeness, they can sell the concept to large firms. This would be the most significant step when trying to create some profit within the PC industry. In a nutshell, the ease of starting a computer manufacturing firm is uncertain, depending on one's expectations for the potential business. This means, how much one expects to be generating after a given period, which can be a day, week, month, or even a year or years.