Global CIO: Sam Palmisano's Grand Strategy For IBM Revealed In $5B Global Financing Plan

The company is offering billions to help customers "mind the gap" until so-called stimulus money begins to flow around the globe. And it expects much of that funding will be used to purchase its very own products and services.

Bob Evans, Contributor

May 29, 2009

4 Min Read

And in so doing, he was setting up IBM to become the world's largest cash machine. "Now with all that going on we always had the mosaic that we were gonna have a financial guidepost -- a very straightforward financial guidepost. We were gonna get margin expansion, cash generation, and return it to the shareholder. We weren't into PR campaigns: We're the biggest, we're the smartest, we're the this, we're the that, we're into this trend, right? We're not running fashion; we're not running fashion. It was gonna be that simple: margin expansion, cash generation, and give it back to you. Very, very simple model."

Palmisano then ticked off some of the financial-performance highlights across his nine years as CEO that have put IBM in the position to redefine the value proposition it can offer to clients and prospects. Palmisano said that in those nine years, IBM has:

-- generated $84 billion in cash from operations;

-- gave about $86 billion back to shareholders in share repurchases and dividend repayments;

-- invested $20 billion in acquisitions;

-- pumped $60 billion into the business via capital investments; and

-- spent about $50 billion on R&D.

In that context, the $5 billion financing play for IT projects related to forthcoming government spending on stimulus projects maps perfectly to the new IBM, according to Palmisano's vision for the company, which is attempting to underscore the differences between it and other tech companies for two reasons: because Palmisano wants to do that, and because IBM can do it. And it can do it, he maintains in language that's as clear and unambiguous as you'll ever hear from the CEO of a publicly traded company, because IBM has made itself into a type of company unlike any other, one that's capable of delivering to customers and shareholders levels of value that, he maintains, competitors simply can't match.

"Now again, I'm just repeating comments other people have made, and I said it once before: 'You guys are defying gravity -- you're fighting physics -- how can you sit there and say, "At least $9-$10 per share this year, and how can you even give a projection in this environment?" Ya-ya-ya-ya-ya-ya-ya.'

"Now look: We got it all. Why? Since nobody is asking us why -- 'No one expects you to, so why would you do it?' Because you need to keep things in perspective: We are not like the other companies in the IT industry. We're not. We've completely transformed the IBM company. We're not."

It's a powerful argument because the numbers back him up, particularly in this rotten global economy. And now IBM is looking to get out ahead of these massive government spending plans and not only compete to grab a huge portion of those dollars but also grab a lead on those opportunities by using its financial muscle to get customers to sign up on the IBM team before this crazy game even begins!

That's about as audacious and brilliant a strategy as I've seen in this business in a long time. Of course, IBM's competitors are likely to choose some terms different from "audacious and brilliant" in meaning but probably equally strong in gut-level feeling. And, of course, revenue's not revenue until it's in the cash register, so the customers have to be convinced before Palmisano's latest gambit is fully vindicated. But here's why he thinks it will be:

"So the end of this, I guess, is we feel we have the financial flexibility, we are comfortable where we are, we don't think we're being overly exuberant -- we don't think we're overcaffeinated and all those kinds of things, y'know, we just have the basic fundamentals of an economic model that aren't great but are better than others in this environment that will allow us to stay on track through 2010. That's really all we're saying."

Well, that and $5 billion will get you a lot of attention. Especially if you're confident that, as Palmisano certainly is, you can do you can do you can do.

About the Author(s)

Bob Evans


Bob Evans is senior VP, communications, for Oracle Corp. He is a former InformationWeek editor.

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