International Business Machines Corporation (IBM)

International Business Machines Corporation (IBM), leading American computer manufacturer, with a major share of the market both in the United States and abroad. Its headquarters are in Armonk, N.Y.

It was incorporated in 1911 as the Computing-Tabulating-Recording Company in a consolidation of three smaller companies that made punch-card tabulators and other office products. The company assumed its present name in 1924 under the leadership of Thomas Watson, a man of considerable marketing skill who became general manager in 1914 and had gained complete control of the firm by 1924. Watson built the then-floundering company into the leading American manufacturer of punch-card tabulating systems used by governments and private businesses. He also developed a highly disciplined and competitive sales force that adapted the company’s custom-built tabulating systems to the needs of particular customers.

In 1933 IBM purchased Electromatic Typewriters, Inc., and thereby entered the field of electric typewriters, in which it eventually became an industry leader. During World War II, IBM helped construct several high-speed electromechanical calculators that were the precursors of electronic computers. But the firm refrained from producing these electronic data-processing systems until Watson’s son, Thomas Watson, Jr., became president of the company in 1952 and sponsored an all-out push into that field. Having entered the computer field, IBM’s size allowed it to invest heavily in development. This investment capability, added to its dominance in office-calculating machines, its marketing expertise, and its commitment to repair and service its own equipment, allowed IBM to quickly assume the predominant position in the American computer market. By the 1960s it was producing 70 percent of the world’s computers and 80 percent of those used in the United States.

IBM’s specialty was mainframe computers—i.e., expensive medium- to large-scale computers that could process numerical data at great speeds. The company did not enter the growing market for personal computers until 1981, when it introduced the IBM Personal Computer. This product achieved a major share of the market, but IBM was nevertheless unable to exercise its accustomed dominance as a maker of personal computers. New semiconductor-chip–based technologies were making computers smaller and easier to manufacture, allowing smaller companies to enter the field and exploit new developments such as workstations, computer networks, and computer graphics. IBM’s enormous size hindered it from responding rapidly to these accelerating rates of technological change, and by the 1990s the company had downsized considerably. In 1995 IBM purchased Lotus Development Corporation, a major software manufacturer.

In 2002 IBM sold its magnetic hard drive business for $2.05 billion to the Japanese electronics firm of Hitachi, Ltd. Under the terms of the sale, IBM agreed to continue producing hard drives with Hitachi for three years in a joint venture known as Hitachi Global Storage Technologies. In 2005 Hitachi took full control of the joint venture and IBM stopped building a device that it had invented in 1956. In December 2005 IBM sold its personal computer division to the Lenovo Group, a major Chinese manufacturer. In addition to cash, securities, and debt restructuring, IBM acquired an 18.9 percent stake in Lenovo, which acquired the right to market its personal computers under the IBM label through 2010. With these divestitures, IBM shifted away from manufacturing so-called commodity products in order to concentrate on its computer services, software, supercomputer, and scientific research divisions.

Since 2000, IBM has placed one of its supercomputers consistently at or near the top of the industry’s list of most powerful machines as measured by standardized computation tests. In addition to producing supercomputers for governments and large corporations, IBM’s supercomputer division, in cooperation with the Toshiba Corporation and the Sony Corporation of Japan, designed the Cell Broadband Engine.

Developed over a four-year period beginning in 2001, this advanced computer chip has multiple applications, from supercomputers to Toshiba high-definition televisions to the Sony Playstation 3 electronic game system. IBM also designed the computer chips for the Microsoft Corporation Xbox 360 and the Nintendo Company Wii game systems. IBM became the first company to generate more than 3,000 patents in one year (2001) and, later, more than 4,000 patents in one year (2008). The company now holds more than 40,000 active patents, which generate considerable income from royalties.