Background
One can see that IBM experienced a gradual decline in revenue throughout the last four financial years (FYs). The revenue decrease between the 2020 and 2021 FYs was especially significant, as total revenue plummeted from $73,6 billion to $57,3 (Yahoo!Finance, 2022a). However, the seemingly drastic fall can be explained by the recent spinning off of IBM’s Managed Infrastructure Services unite into Kyndryl, a standalone company. According to Enderle (2021), this move benefited IBM since the company brought its products closer to customers and simplified its organizational structure. Therefore, the $16,3 billion revenue decline should not be considered a sign of severe problems.
IBM remains a profitable company according to the gross profit, operating income, and pretax income indicators. However, one can notice that the company’s income declined significantly during the COVID-19 pandemic. For instance, IBM’s operating income had reduced from $10,6 billion in 2019 to $6,9 billion in 2020; the pretax income fell from $10,1 billion to $4,6 between the 2019 and 2020 FYs (Yahoo!Finance, 2022a). According to IBM’s Chief Financial Officer James Kavanaugh, the income drop stemmed from the numerous project delays by the clients (as cited in Alley, 2020). Since IBM primarily works with corporate customers, the pandemic-related disruptions negatively affected the company’s income statement.
Dell’s Financial Results Review
One can notice that Dell has a significantly higher revenue compared to IBM. In addition, Dell’s revenue was steadily increasing, from $90,6 billion in January 2019 to $101,1 billion in January 2022 (Yahoo!Finance, 2022b). These results can be perceived as the fruits of Michael Dell’s visionary decision to acquire EMC Corporation, the IT infrastructure giant, back in 2016. Telecommunications, healthcare, logistics, and many other industries have turned digital, constantly requiring solutions for data management and storage (Gara, 2021). As such, Dell created a strong foothold in the corporate IT infrastructure solutions segment and managed to grow significantly.
In addition, Dell also possesses a valuable advantage of product diversity. Unlike IBM, which focuses on corporate products, Dell has a dedicated Client Solutions Group (CSG) segment that sells desktop computers, laptops, and workstations (Yahoo!Finance, 2022c). The CSG activity was crucial during the COVID-19 pandemic due to the surge of demand for equipment needed for remote work (Williams, 2022). Whereas companies in the corporate segment struggled from project delays, Dell experienced growth. For example, Dell’s gross profit increased from $25 billion in 2019 to $29,4 billion in 2021; pretax income went from -$2,3 billion to $3,6 billion over the same period (Yahoo!Finance, 2022b). When the COVID-19-related restrictions were mostly lifted and the demand for PCs and laptops decreased, Dell experienced a fall in gross profit at the beginning of the 2022 FY (Yahoo!Finance, 2022b). Nevertheless, the company returned to profitability and improved its key financial indicators over the past four years.
Takeaways and Analysis
Most importantly, it is necessary to note that both IBM and Dell are currently profitable at a comparable level. IBM finished the 2021 FY with a $4,8 billion pretax income; Dell reported a $5,9 billion pretax income in January 2022 (Yahoo!Finance, 2022a; Yahoo!Finance, 2022b). As such, one cannot claim that either of the companies is currently struggling. However, IBM sustained significantly more losses during the pandemic — while IBM’s corporate clients were delaying projects and purchases, Dell’s CSG was generating revenue, contributing to the company’s overall profitability. In this regard, Dell’s product diversity served as a valuable competitive advantage. Overall, Dell has greater business flexibility than IBM, which gives this company more options in challenging circumstances.
References
Alley, A. (2021). IBM’s net income drops 46 percent amid Covid-19. DCD.
Enderle, R. (2021). The IBM Kyndryl spin-off: When separation makes sense. Datamation.
Gara, A. (2021). Deal of the century: How Michael Dell turned his declining PC business into a $40 billion windfall. Forbes Middle East.
Yahoo!Finance. (2022a). International Business Machines Corporation (IBM).
Yahoo!Finance. (2022b). Dell Technologies Inc. (DELL).
Yahoo!Finance. (2022c). Dell Technologies Inc. (DELL).