What's up guys and welcome to wall street millennial on this channel, we cover all things related to stocks in investing in today's video we're going to go over how ibm, once the crown jewel of american technology and innovation fell from glory to now be seen as a Relatively sluggish, bloated conglomerate, ibm or international business machines was founded over a hundred years ago in new york and has enjoyed decades of innovative success, including five nobel prize winners, touring award winners and one of the most impressive arrays of patents held by any company. But by the late 20th century and early 21st century, many would say that had lost its lead and now sits behind the likes of google, microsoft and apple in the same industries that it once dominated in this video. We'll take a look at how ibm rose to dominate in the 1900s and how it all came crumbling down before we get into the video we'd like to thank our channel members. Members get access to these videos one day in advance and also get to vote on what topics we cover ibm got its start as a combination of four different companies from the late 1800s that built things like computing scales, dial recorders, the electric tabulating machine and automated Timing machines to keep track of employee shifts in 1911, charles flint, combined all four companies into what was called the computing tabulating recording company or ctr, and base it in endicott new york.

At the time, the company still had plants and offices in its original constituent company locations, including an endicott in birmingham in new york, dayton, ohio, detroit, washington dc and toronto. This company formed the roots of what would eventually turn into ibm, while under the corporate name of the computing tabulating recording company, the business mainly focused on building selling and leasing, scales and industrial time recording machines. But only three years later, ctr and charles flint made the defining move of hiring thomas j watson. This is the same thomas watson that ibm's watson, ai system is named after watson, had recently been fired by another industrial giant at the time national cash register or ncr ncr was an industrial giant that manufactured you guessed it cash registers their products can still be found.

Today, especially as self-checkout counters at grocery stores and pharmacies in the early 1900s, thomas watson single-handedly built up ncr's dominant position in rochester new york through his exceptional salesman skills. However, he sometimes engaged in physical sabotage of competitors to do so and in 1912, ncr was found guilty of violating antitrust laws. As a result, thomas watson, along with other ncr executives, were convicted and sentenced to prison time. His prison time was eventually overturned on appeal and after that he was hired as president of ctr.

Hiring watson proved to be a defining moment from the first day and ctr's revenues skyrocketed after a decade at ctr watson renamed the company to ibm throughout watson's tenure. At the head of ibm, the company's product offerings also expanded. They largely focused on tabulating equipment for companies to keep track of all sorts of records from employee time cards to sales records to census data. Their machines were central to the newly formed social security program.

During the great depression to keep track of employment, records of tens of millions of people, that contract alone caused ibm's revenues to nearly double in the second half of the 1930s during world war ii, ibm built its first modern style, computer called the automatic sequence controlled calculator. It was useful for things like performing scientific calculations and was used in the manhattan project to calculate the best way to detonate a nuclear bomb in the 50s ibm came out with a multitude of modern day technologies, including the first hard drive it was used in their Highly successful 305 ramak computer, which was used extensively by the us army and navy, as well as businesses, they continued their computing dominance with the 7000 series mainframe, which was the first mainframe computer system for businesses that use transistors instead of vacuum tubes. This is the same type of basic electrical component used in computers today and transistors offer the benefits of reduced power, consumption faster computing times and much smaller size than previously used vacuum tubes. With their newly developed commercial computers, ibm's dominance and technology was solidified, their systems were used by nasa to track orbital flights and guide astronauts.

Ibm engineers programmed the first ai systems on ibm machines in the late 50s and they developed the scientific programming language fortran, which is still used today. However, their success in this golden age also proved to be the seeds of their eventual weakness. The 7000 series ibm computer system was the most advanced computer system of the time, but it suffered from major problems. They were initially sold purely as computer hardware without any standard operating system or software to be shipped with it.

This was the early days of computers and seemed like a reasonable setup at the time ibm provided the actual computer with advanced hardware and electronics and consumers would be free to operate whatever software they want on their machines, but with different hardware architectures. Among the 7000 series. Multiple completely separate sets of programs had to be developed. This was a huge undertaking.

Ibm tried to remedy the issue of software compatibility in its computers with the system 360, which came out in the 1960s, the system 360 had to deal with the problems left over from the 7000 series, especially the issue that programs for the 7000 series machines had to Be specifically made for the individual architecture of the hardware, the 360 introduced backwards compatibility by being able to emulate the previous generation systems, so the users would not have to reprogram all of their software from scratch. Just to use the new system. The system 360 ended up. Being hugely popular with customers, they had a near monopoly on both the computer systems that businesses used and the software that ran on them.

Their dominance was perhaps too much for their own good and in 1969 they were accused of violating antitrust laws. Although the case was eventually found to be without merit, that was only the case because ibm unbundled the software and services part of their business. This directly caused a competitive market for software. In the 1980s microsoft.

At the time a young company entered the operating system market. They came out with their own operating system, which they called xenix soon after they developed ms-dos, which would come to bring microsoft to the forefront of operating system software. The dominance of ms-dos forced ibm to contract microsoft in the early 1980s to provide the operating systems that ibm's own pcs would ship with. By allowing other companies to create hardware compatible with microsoft's operating systems.

Microsoft easily became the leading operating system developer. Meanwhile, ibm lost control of the operating systems of its own computers to make matters worse with the rise of personal computers, powerful enough for many basic business tasks. Ibm's core business of mainframe computers was rapidly dwindling throughout the 1980s ibm's revenues and earnings stagnated as microsoft and apple rose in 1993. Ibm's lead had completely disappeared and they posted the biggest annual loss in american corporate history of 8 billion.

The losses stemmed mainly from expenses that covered massive layoffs, shutting down plants and restructuring costs associated with trying to streamline the bloated company ibm then brought in a fresh ceo in louis grissner. At first glance, gerstner seemed a strange pick to lead ibm. He had no technological experience and had just finished serving as ceo of nabisco a packaged food company. However, other candidates from the technology industry, including bill gates and other leaders at competing firms, were uninterested in joining the dying firm.

Even if gerstner did not know much about computers and microprocessors, he had plenty of experience making profits and cash flows at nabisco. When he came into the role of ceo at ibm, he denied that ibm's biggest issue was the lack of the company's vision following the death of the mainframe as a viable market. Instead, he said that the last thing ibm needs is a vision and turned his attention to business execution. One of the most significant decisions that gerstner made was the decision to keep ibm together rather than proceed with plans of the previous ceo to split ibm into disparate business units for things like processors, printers software etc.

He realized that the one advantage that ibm still had was the fact that it owned the full stack of technologies used by many major companies from software to servers from his past experience at other companies. He knew that a major issue that companies faced was that their information technology suites were not integrated and compatibility issues plagued business operations. He decided to shift the company focus towards providing services to clients, rather than just producing hardware, something that less diversified competitors could not offer. He also sold off many of the dying parts of the business, including the pc business that it once dominated.

He laid off many employees and instilled discipline in management. In essence, he made the company much more streamlined and efficient cutting out underperforming units like processors. Instead of continuing the billions of dollars of investment in technology that his predecessors engaged in by the time he left ibm in the early 2000s ibm's corporate profits had stabilized and the stock price had grown by more than 100 billion dollars. However, it all came at a very high price ibm had fallen behind the likes of microsoft and pc software and apple and dell in hardware, which constituted the entirety of what made ibm dominant throughout the previous 40 years.

They also missed out on entirely new technological developments like internet search and social media, which lets the formations of completely new competing business empires like google and facebook instead ibm pivoted towards focusing on service-based businesses. In 2002, they acquired the consulting arm of pwc, also in the 2000s they started focusing on developing super computing and artificial intelligence capabilities. Their vision was to be able to offer supercomputing and server services to companies rather than sell products. These efforts eventually led to the development of ibm watson named after the early ceo, thomas watson in 2011.

Watson beat jeopardy champions. Ken jennings and brad rutter, although winning in jeopardy, seems impressive. It's not immediately clear how it would translate to business prospects for ibm. Besides, the one million dollar prize for winning the game show ibm hoped that they would be able to build watson into an intelligent question and answer bot.

They did have some initial success, particularly with a solution that they built using watson for the sloan kettering cancer center. In new york, where watson could answer basic questions posed by nurses, besides that, you may have seen this commercial for watson marketed towards businesses, i'm here to fix the elevator nothing's wrong with the elevator right. So who sent you new guy. My analysis of sensor and maintenance data indicates elevator three will malfunction in two days.

You still need to pass, despite trying to push for watson's use in business, intelligence and proactive premise, management solutions. Its only real uses were for things much less accretive to business. There's something called chef watson where watson is integrated into a cooking website. Other applications include things like ai tutoring in basic children's textbooks, chat, bots and advertising insights.

Despite pouring billions of dollars into watson's development over the years. The technology for artificial intelligence just isn't there yet to replace certain inherently human tasks, ibm still hasn't been able to make watson useful in the ways it had hoped and the business results show. While ibm's ai efforts, such as watson, have failed to live up to expectations and hopes by management, another area of research for ibm quantum computing is still yet to bear any fruit at all. Their ibm q system 1 is the first circuit-based quantum computer introduced in 2019.

It is an impressive milestone in the development of quantum computers, but still not operational. Perhaps more. Concerning, however, is the fact that one of its competitors that former ceo louis gerstner allowed to come up, google seems to be running laps around ibm in the field of quantum computing, google's quantum computer called sycamore in late 2019 achieved what is known as quantum supremacy. That means that google's quantum computer can complete tasks in a reasonable amount of time that no ordinary supercomputer could do.

In particular, they claim that sycamore can perform in 200 seconds a task that the world's fastest supercomputer would need 10 000 years to complete ibm disputed. This claim saying that the same task could be performed on ibm's own supercomputers in about 2.5 days, not 10, 000 years. But this rebuttal has been described by experts as like when the masters at the game of go eventually lost to ai. They can make a valiant effort for a couple of years in a transition period for the new technology, but everyone knows that sooner or later the dominance of quantum computing will be undeniable.

In the past, 20 years, ibm has survived but proven unable to regain its former glory as the undisputed leader in technology and innovation. They only survived for this long because of higher margin. Businesses mainly focusing on services, especially consulting with revenue, slowly bleeding out since the start of the 2010s ibm, is still in search of a viable business direction. In 2020, they ushered in a new ceo, the former ceo of red hat, which they acquired for 34 billion dollars.

In 2018. later in 2020, they announced that ibm would be splitting into two separate companies to better focus on ibm's, diverse business areas. The main company will focus on cloud computing and artificial intelligence and build off of red hat's foundation. The other company will focus on the legacy, managed infrastructure services business.

This splitting of ibm is hoped to bring a new era of ibm's history with a completely new name for the company that can hopefully attract top talent for technology and research divisions. It remains to be seen whether or not this rebranding will be successful, although ibm is no longer seen as a prestigious firm like it was 60 years ago. It is still a relevant company today, after more than 100 years in business. That's something that not many tech companies can say they had a good run in the mid 1900s, pushing the envelope in electronic technology and innovation and have one of the most impressive portfolios of patents out of any company today, but in the 80s and 90s they let Their lead in the prime pc market slip to other companies like microsoft, dell and apple, because they failed to move fast enough in operating systems in the 90s under lou gerstner.

They stopped the bleeding by cutting back on innovation almost entirely, which led to a decade of free cash flow by the death of their technological dominance. Since then, they have focused on largely fruitless endeavors in immature fields such as quantum computing and artificial intelligence, but without being the leading innovator in these fields and lacking the prestige and reputation to attract the country's top talent to their research institutes. Rather than the likes of google or microsoft, their future in these high-tech areas could just as likely end in failure, as it could end in success that wraps it up for this video. If you like, the content go ahead and smash that, like button and let us know what you think in the comments section below also make sure to subscribe, so you don't miss our future videos in the meantime.

Thank you. So much for watching and we'll see in the next video wall street millennial signing out.