Last year was a blockbuster year for Integrated Systems Solutions Corp, IBM Corp’s US services subsidiary. It is also likely to be its last. According to Annex Research, ISSC’s revenues soared by nearly 50% to $9.3bn in 1995 – double the growth rate of nearest rival Electronic Data Systems Corp – with net income rising sharply to $658m. But in January the US courts overturned a four- decade-old ban that prevented IBM from selling computer services under its own name. This has removed any obligation on IBM to maintain ISSC as a separate company and allowed it to integrate its service activities over 130 countries. The man charged with pulling that all together under the name IBM Global Services is Dennie Welsh, chairman of ISSC and now general manager of the worldwide services operation. His rapid restructuring plan is establishing the world’s largest computer services entity which would have had revenues of $16.2bn in 1995 and is estimated to hit $20bn this year.
Sugar daddy
The $16.2bn for 1995 needs some explanation. It does not include ‘captive’ revenues from hardware maintenance, which run to another $7.4bn. But it does include $3.5bn in revenue derived from servicing IBM’s IT needs, a valid inclusion as captive revenues form part of many large computer services companies businesses – either from a ‘sugar-daddy’ account or a parent. About half of the top 50 services companies shelter under the control of a large multi-national conglomerate – most commonly a telecommunications company, a consumer electronics group, a car maker or a bank. IBM Global Service is active across the spectrum of the services industry, but its strengths vary regionally. The US operation, as embodied in ISSC, gets 43% of its revenues from outsourcing, 27% from systems integration and 13% from disaster recovery services. The rest is split between consulting, training and network services. In Europe and elsewhere, 35% comes from systems integration, with 27% from recovery services and only 16% from facilities management. IBM has been quick to exploit new market opportunities such as network management and midrange computer services for small to medium-sized businesses. But ISSC’s forte remains at the high-end, especially in facilities management. In the first half of this year alone it chalked up $5.1bn worth of deals, bringing contracts under management to $40bn. For its competitors the only consolation is that IBM’s services business is going through a period of upheaval that could result in lost momentum. But analysts remain bullish. I don’t see EDS regaining the lead, says Annex Research’s Bob Djurdjevic.
