IBM, almost uniquely among technology companies, has managed to survive a series of technological sea changes and make it to its 100th anniversary, which was celebrated last week in New York. Since 1911, as the world has progressed from the calculator and typewriter to the mainframe to the personal computer and now to the Internet, this corporate centurion remains at the top of its game and near the top of the technology heap."
Successful companies like IBM (or Alcoa and Microsoft) that survive over many generations do so because of their extreme focus on innovation, bringing new products to the market, cost-cutting, productive efficiency, and engaging in super-competitive behavior. Even when they inevitably capture a large market share and become industry leaders, companies like IBM, Alcoa (AA) and Microsoft (MSFT) still face extreme market discipline, both from existing firms and from the potential threat of new competitors who stand ready to enter the market and challenge the market leader under the right market conditions.
And to make it to its 100th anniversary, IBM not only had to survive intense market competition and "technological sea changes," but it also had to survive several antitrust cases brought by the U.S. government (like Alcoa and Microsoft), including one that lasted for more than a decade. From Wikipedia:
"IBM's dominant market share in the mid-1960s led to antitrust inquiries by the U.S. Department of Justice, which filed a complaint for the case U.S. v. IBM in the United States District Court 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. The case dragged out for 13 years, turning into a resource-sapping war of attrition. In 1982, the Justice Department finally concluded that the case was “without merit” and dropped it. But having to operate under the pall of antitrust litigation significantly impacted IBM's business decisions and operations during all of the 1970s and a good portion of the 1980s.
The chart above shows the history of IBM stock returns compared to the Dow Jones Industrial Industrial Average (DJIA) from 1968 to 1985. Perhaps this is a case of correlation and not causation, but during the entire time that IBM was being sued by the Department of Justice for exercising monopoly power, the return on IBM was about the same as for the entire DJIA. But as soon as the case was dropped, and IBM no longer had to divert resources to defend itself from government prosecution, the return on IBM stock rebounded. In the three years following the end of the government's lawsuit, IBM shares increased by 120%, or more than twice the 50% return on the DJIA during that period.
Of course by the 1980s the computer industry was going through a major "technological sea change" and moving from mainframe computers to personal computers, and the potential threat of competition from young upstarts like Microsoft (founded 1975), Apple (AAPL) (founded 1976), Sun (founded in 1982), Cisco (CSCO) (founded 1984) and Dell (DELL) (founded 1984) was becoming a reality and providing IBM with so much market competition that the government's monopoly case against IBM was becoming irrelevant.