IBM, The Revolution

1880s–1924: The origin of IBM

Tabulating Machine Corporation plant in 1893.IBM's history dates back decades before the development of electronic computers when it developed punched card data processing equipment. It originated as the Computing Tabulating Recording (CTR) Corporation, which was incorporated on June 16, 1911 in Endicott, New York, United States of America.

CTR was formed through a merger of three separate corporations: Tabulating Machine Company (founded 1896 in Washington D.C.), the International Time Recording Company (founded 1900 in Endicott), and the Computing Scale Corporation (founded 1901 in Dayton, Ohio, USA).[1] The key person behind the merger was financier Charles Flint, who brought together the founders of these companies to propose a merger and remained a member of the board of CTR until his retirement in 1930.[2]

The president of the Tabulating Machine Company at the time of the merger was Herman Hollerith, who had founded the company and was a seminal figure in the industry. His series of patents on tabulating machine technology, first applied for in 1884, drew on his work at the U.S. Census Bureau from 1879-82. Hollerith was initially trying to reduce the time and complexity needed to tabulate the 1890 Census. His transition to the use of punch cards in 1886 laid a foundation for generations of equipment and a core component of what would become IBM.[3]

The companies that merged to form CTR manufactured a wide range of products, including employee time-keeping systems, weighing scales, automatic meat slicers, and most importantly for the development of the computer, punched card equipment.

Thomas J. Watson Sr. became General Manager of CTR in 1914 and President in 1915. In 1917, CTR entered the Canadian market under the name of International Business Machines Co., Limited. On February 14, 1924, CTR changed its name to International Business Machines Corporation. At the helm during this period, Watson played a central role in establishing what would become the IBM organization and culture.


[edit] 1925-1949: IBM's early growth
During the next twenty-five years, IBM's organization and product lines grew steadily. Despite the Great Depression of the 1930s, IBM continued to develop and manufacture new products, and after the Social Security Act of 1935 secured a major government contract to maintain employment data for 26 million people. IBM's archive website[4] describes this as "the biggest accounting operation of all time," and it opened the door for a variety of other government contracts.

In 1928, IBM introduced a new 80 column rectangular-hole punched card.[5] This format became the standard "IBM Card" that was used by the company's tabulators and computers for many decades.

The rise of Nazi Germany and the onset of World War II had a profound impact on IBM. Like many U.S. businesses, IBM had relationships and contracts with the German military/industrial technocracy. This topic is addressed in more detail below (see IBM's role in WWII and the Holocaust).


Browning Automatic Rifle
M1 CarbineAfter America entered World War II, IBM played an active role in the U.S. war effort. According to the IBM archive website:

When World War II began, all IBM facilities were placed at the disposal of the U.S. government. IBM's product line expanded to include bombsights, rifles and engine parts – in all, more than three dozen major ordnance items. Thomas Watson, Sr., set a nominal one percent profit on those products and used the money to establish a fund for widows and orphans of IBM war casualties.[6]

In particular, IBM manufactured the Browning Automatic Rifle and the M1 Carbine. Allied military forces widely utilized IBM's tabulating equipment for military accounting, logistics, and other war-related purposes. There was extensive use of IBM punch-card machines for calculations made at Los Alamos during the Manhattan Project for developing the first atomic bombs; this has been notably discussed by Richard Feynman in his book, Surely You're Joking, Mr. Feynman!. During the War IBM also built the Harvard Mark I for the U.S. Navy, the first large-scale automatic digital computer in the U.S.


[edit] 1950–1959: Postwar recovery and the rise of business computing

IBM 7090 installationIn the 1950s, IBM became a chief contractor for developing computers for the United States Air Force's automated defense systems. Working on the SAGE interceptor control system, IBM gained access to crucial research being done at Massachusetts Institute of Technology, working on the first real-time, digital computer (which included many other advancements such as an integrated video display, magnetic core memory, light guns, the first effective algebraic computer language, analog-to-digital and digital-to-analog conversion techniques, digital data transmission over telephone lines, duplexing, multiprocessing, and networks). IBM built fifty-six SAGE computers at the price of US$30 million each, and at the peak of the project devoted more than 7,000 employees (20% of its then workforce) to the project. More valuable to the company in the long run than the profits, however, was the access to cutting-edge research into digital computers being done under military auspices. IBM neglected, however, to gain an even more dominant role in the nascent industry by allowing the RAND Corporation to take over the job of programming the new computers, because, according to one project participant, Robert P. Crago, "we couldn't imagine where we could absorb two thousand programmers at IBM when this job would be over some day, which shows how well we were understanding the future at that time."[7] IBM would use its experience designing massive, integrated real-time networks with SAGE to design its SABRE airline reservation system, which met with much success.


[edit] 1960–1968: The System/360 era
See also: History of CP/CMS
IBM was the largest of the eight major computer companies (with UNIVAC, Burroughs, NCR, Control Data Corporation, General Electric, RCA and Honeywell) through most of the 1960s. People in this business would talk of "IBM and the seven dwarfs", given the much smaller size of the other companies' computer divisions (IBM produced approximately 70 % of all computers in 1964).[8]

The major technical development of the 1960s was IBM's System/360 series.[9]


[edit] 1969–1979: The System/370 era
In 1970, GE sold most of its computer business to Honeywell and in 1971, RCA sold its computing division to Sperry Rand. With only Burroughs, UNIVAC, NCR, Control Data, and Honeywell producing mainframes, people then talked of "IBM and the BUNCH."[8] In April 1973 Honeywell v. Sperry Rand, a landmark U.S. federal court case, was decided. That decision invalidated the 1964 patent for the ENIAC, the world's first general-purpose electronic digital computer, thus putting the invention of the electronic digital computer into the public domain.

Most of those companies are now long gone as IBM competitors, except for Unisys, which is the result of multiple mergers that included UNIVAC and Burroughs, and General Electric, which has re-entered the business in recent years.[citation needed] NCR and Honeywell dropped out of the general mainframe and mini sector and concentrated on lucrative niche markets, NCR's being cash registers (hence the name, National Cash Register), and Honeywell becoming the market leader in thermostats. The IBM computer, the IBM mainframe, that earned it its position in the market at that time is still growing today. It was originally known as the IBM System/360 and, in far more modern 64-bit form, is now known as the IBM System z9.

IBM's success in the mid-1960s led to inquiries as to IBM antitrust violations by the U.S. Department of Justice, which filed a complaint for the case U.S. v. IBM in the United States District Court for the Southern District of New York, on January 17, 1969. The suit alleged that IBM violated the Section 2 of the Sherman Act by monopolizing or attempting to monopolize the general purpose electronic digital computer system market, specifically computers designed primarily for business. Litigation continued until 1983, and had a significant impact on the company's practices. In 1973, IBM was ruled to have created a monopoly via its 1956 patent-sharing agreement with Sperry-Rand in the decision of Honeywell v. Sperry Rand, a decision that invalidated the patent on the ENIAC.

A key event at IBM in 1969 was the decision to "unbundle" software from hardware sales. See unbundling of software and services, below.

The major technical development of the 1970s was IBM's System/370 series.

Between 1971 and 1975, IBM investigated the feasibility of a new revolutionary line of products designed to make obsolete all existing products in order to re-establish its technical supremacy. This effort, known as the Future Systems project, was terminated by IBM's top management in 1975, but had consumed most of the high-level technical planning and design resources during five years, thus jeopardizing progress of the existing product lines (although some elements of FS were later incorporated into actual products).


[edit] 1980–1989: Information revolution, rise of software and PC industries
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T-REX Corporate Center was originally one of IBM's research labs where the IBM PC was created.In the 1980s, IBM consolidated its mainframe business, and expanded the scope of mainframes with the S/390 and ESA/390 series. Importantly, during this time, the company embarked on the practice of converting its large rental base of mainframes to lease agreements. This financial strategy created the perception that IBM's revenues and profits were much stronger than they really were as in the mid to latter part of the decade, management scrambled to react to the spending shift towards distributed computing, which threatened the monopoly IBM held within the technology business.[citation needed]


The original IBM PC (ca. 1981)The company hired Don Estridge at the IBM Entry Systems Division in Boca Raton, Florida. With a team known as "chess", they built the IBM PC, launched on August 12, 1981. Although not cheap, at a base price of US$1,565 it was affordable for businesses — and many businesses purchased PCs. Typically, these purchases were not by corporate computer departments, as the PC was not seen as a 'proper' computer. Purchases were often instigated by middle managers and senior staff who saw the potential — once the revolutionary VisiCalc spreadsheet, the killer app, had been ported to the PC as the clone, Lotus 1-2-3. Reassured by the IBM name, they began buying the machines on their own budgets for numerous applications corporate computer departments did not, and in many cases could not, accommodate.[citation needed]

Up to this point in its history, IBM relied on a vertically integrated strategy, building most key components of its systems itself, including processors, operating systems, peripherals, databases and the like. In an attempt to speed time to market for the PC, IBM chose not to build the operating system and microprocessor internally, rather it sourced these vital components from Microsoft and Intel respectively. Ironically, in a decade which marked the end of IBM's monopoly, it was this fateful decision by IBM that passed the sources of its monopolistic power (operating system and processor architecture) to Microsoft and Intel, paving the way for the creation of hundreds of billions of dollars of market value outside of IBM.[citation needed]

In the midrange arena, IBM consolidated the market position its General Systems Division had built in the 1970s with the System/3, System/32 and System/34. The System/38, with its radical architecture, had experienced delays to its first customer shipment since announcement in 1978. In 1982, IBM disbanded the organisation that had meant the Data Processing Division sold only mainframes to large customers while the General Systems Division sold only S/3x machines to small and medium-sized customers. Instead, the new ISM (for small and medium customers) and ISAM divisions (large customers) could sell from the entire IBM portfolio.[citation needed]

1983 saw the announcement of the System/36, the replacement for the System/34. And in 1988, IBM announced the AS/400, intended to represent a point of convergence for both System/36 customers and System/38 customers. The 1970s had seen IBM develop a range of BICARSA applications for specific industries: construction (CMAS), distribution (DMAS) and manufacturing (MMAS), all written in the RPG II language. By the end of the 1980s, IBM had almost completely withdrawn from the BICARSA applications marketplace. Because of developments in the antitrust cases against IBM brought by the US government and European Union, IBM sales representatives were now able to work openly with application software houses as partners. (For a period in the early 1980s, a 'rule of three' operated, which obliged IBM sales representatives, if they were to propose a third-party application to a customer, to also list at least two other third-party vendors in the IBM proposal. This caused some amusement to the customer, who would typically have engaged in intense negotiations with one of the third parties and probably not have heard of the other two vendors.)

As the decade ended, it was clear that competition and innovation in the computer industry was now taking place along segmented, versus vertically integrated lines, where leaders emerged in their respective domains. Examples included Intel in microprocessors, Microsoft in desktop software, Novell in networking, HP in printers, Seagate in disk drives and Oracle in database software. Soon IBM's dominance in personal computers would be challenged by the likes of Compaq and later Dell. Recognizing this trend, CEO John Akers, with the support of the Board of Directors, began to split IBM into increasingly autonomous business units (e.g. processors, storage, software, services, printers, etc.) to compete more effectively with competitors that were more focused and nimble and had lower cost structures.


[edit] 1990–1999: IBM's near disaster and rebirth
IBM's traditional mainframe business underwent major changes in the 1990s, as customers increased their emphasis on departmental and desktop computing. However, the decade of the 1990's began with IBM posting record profits up to that point in its history. This proved illusory as the rental to lease conversion was tapping out, demand for mainframes was waning and corporate downsizing was in full swing. Corporate spending shifted from high profit margin mainframes to lower margin microprocessor-based systems and the growth in IBM's PC business was not nearly enough to offset the company's mainframe revenue decline.[citation needed]

On October 5, 1992, at the COMDEX computer expo, IBM announced the first ThinkPad laptop computer, the 700c. The computer, which then cost US$4350, included a 25 MHz Intel 80486SL processor, a 10.4-inch active matrix display, removable 120 MB hard drive, 4 MB RAM (expandable to 16 MB) and a TrackPoint II pointing device.[10] On January 19, 1993 IBM announced a US$4.97 billion loss for the 1992 financial year, which was then the largest single-year corporate loss in U.S. history.[citation needed]

That same year, Louis V. Gerstner, Jr. joined IBM and he is widely credited with turning the company around. His strategy to reverse the decision of his predecessor and re-integrate IBM's major divisions to focus on services first and products second, is often heralded as the decision that led the company from the brink of disaster and remains the fundamental underpinning of IBM's strategy today. A byproduct of that decision was a shift in focus significantly away from components and hardware and towards software and services.[citation needed]

Starting in 1995 with its acquisition of Lotus Development Corp., IBM built up the Software Group from one brand, DB2, to five: DB2, Lotus, WebSphere, Tivoli, and Rational.


[edit] 2000 and on: Recent trends
In 2002, IBM strengthened its business advisory capabilities by acquiring the consulting arm of professional services firm PricewaterhouseCoopers. The company has increasingly focused on business solution-driven consulting, services and software, with emphasis also on high-value chips and hardware technologies; as of 2005 it employs about 195,000 technical professionals. That total includes about 350 Distinguished Engineers and 60 IBM Fellows, its most-senior engineers.


A chart showing IBM's revenue and net income, 1980–2005.
A chart showing IBM's patent history, 1993–2005.In 2002, IBM announced the beginning of a US$10 billion program to research and implement the infrastructure technology necessary to be able to provide supercomputer-level resources "on demand" to all businesses as a metered utility.[11] The program has since then been implemented.[12]

In the same year its hard disk operations was sold to Hitachi. [13]

IBM has steadily increased its patent portfolio since the early 1990s, which is valuable for cross-licensing with other companies. In every year from 1993 to 2005, IBM has been granted significantly more U.S. patents than any other company. The thirteen-year period has resulted in over 31,000 patents for which IBM is the primary assignee.[14] In 2003, IBM earned 3415 patents, breaking the US record for patents in a single year.[15]

Protection of the company's intellectual property has grown into a business in its own right, generating over $10 billion dollars to the bottom line for the company during this period.[16][17] A 2003 Forbes article quotes Paul Horn, head of IBM Research, saying that IBM has generated $1 billion in profit by licensing intellectual property.[18]

In 2004, IBM announced the proposed sale of its PC business to Chinese computer maker Lenovo Group, which is partially owned by the Chinese government, for US$650 million in cash and US$600 million in Lenovo stock. The deal was approved by the Committee on Foreign Investment in the United States in March 2005, and completed in May 2005. IBM acquired a 19% stake in Lenovo, which moved its headquarters to New York State and appointed an IBM executive, Steve Ward, as its chief executive officer. The company retained the right to use certain IBM brand names for an initial period of five years. As a result of the purchase, Lenovo inherited a product line that features the ThinkPad, a line of laptops that had been one of IBM's most successful products.

As of 2004, IBM had shifted much of its focus to the provision of business consulting & re-engineering services from its hardware & technology focus. The new IBM has enhanced global delivery capabilities in consulting, software and technology based process services - and this change is reflected in its top-line.[19]

On June 20, 2006, IBM and Georgia Institute of Technology jointly announced a new record in silicon-based chip speed at 500GHz. This was done by freezing the chip to −451°F (−268°C) using liquid helium and is not comparable to CPU speed. The chip operated at about 350GHz at room temperature.[20]


[edit] Major events, trends, and technologies

[edit] IBM's role in WWII and the Holocaust

In 2001, author Edwin Black published IBM and the Holocaust (ISBN 0-609-80899-0), a book that documented how IBM's New York headquarters and CEO Thomas J. Watson acted through its overseas subsidiaries to provide the Third Reich with punch card machines that could help the Nazis to track down the European Jewry (especially in newly conquered territory). The book quotes extensively from numerous IBM and government memos and letters that describe how IBM in New York, IBM's Geneva office and Dehomag, its German subsidiary, were intimately involved in supporting Nazi oppression. The book also includes IBM's internal reports that admit that these machines made the Nazis much more efficient in their efforts. A 2003 documentary film The Corporation showed close-ups of several documents including IBM code sheets for concentration camps taken from the files of the National Archives. Prisoner Code 8 was Jew, Code 11 was Gypsy. Camp Code 001 was Auschwitz, Code 002 was Buchenwald. Status Code 5 was executed by order, code 6 was gas chamber. One extensively quoted IBM report written by the company's European manager during WWII declared “in Germany a campaign started for, what has been termed … ‘organization of the second front.’” The memo added, “In military literature and in newspapers, the importance and necessity of having in all phases of life, behind the front, an organization which would remain intact and would function with ‘Blitzkrieg’ efficiency … was brought out. What we had been preaching in vain for years all at once began to be realized.”

Although IBM actively worked with the Hitler regime from its inception in 1933 to its demise in 1945, IBM has asserted that since their German subsidiary came under temporary receivership by the Nazi authorities from 1941 to 1945, the main company was not responsible for its role in the latter years of the holocaust.[21] Shortly after the war, the company worked aggressively to recover the profits made from the many Hollerith departments in the concentration camps, the printing of millions of punchcards used to keep track of the prisoners, the custom-built punchcard systems, and its servicing of the Extermination through labour program. The company also paid its employees special bonuses based on high sales volume to the Nazis and collaborator regimes. As in many corporate cases, when the US entered the war, the Third Reich left in place the original IBM managers who continued their contacts via Geneva, thus company activities continued without interruption. IBM has consistently refused calls by Jewish, Gypsy, survivor, and veterans groups to apologize for its involvement with the Nazi regime. The book won two major 2001 awards from the American Society of Journalists and Authors: Best Book of the Year and Best Investigative Article of the Year for "IBM and Auschwitz" which was based on the book. IBM has never contradicted any of the evidence or facts in the books or the many documentaries, but claimed it has no real information on the period. IBM and the Holocaust has been featured in hundreds of news articles, magazine stories, TV shows and documentaries, virtually none with rebuttal from IBM. The company has stated that Black's case "is long and heavily documented, and yet he does not demonstrate that I.B.M.[sic] bears some unique or decisive responsibility for the evil that was done."