On Thursday, IBM passed Microsoft to become the second most valuable tech company in the world, valued at $214 billion to Microsoft’s $213.2 billion. According to Bloomberg Businessweek, this is the first time IBM has surpassed Microsoft since 1996, although in May of this year IBM did briefly boast a higher market capitalization, which estimates the total value of a company from the total shares a firm has outstanding and its stock price, than Microsoft.
IBM's win was short-lived, however. Microsoft reclaimed the number two spot on Friday, though at the time of this post, Microsoft is worth $210.80 billion, slightly less than IBM, which is valued at $210.81 billion, according to Google Finance.
The people at Businessweek wrote that IBM’s (brief) dominion over Microsoft is a sign of changes in the industry. The focus appears to be shifting away from the personal computer and according to Businessweek, IBM's increased valuation is due to their willingness to diversify. In 2005, they sold their PC business to Lenovo, and have been focusing on software development for corporations and governments, including investing $100 million into data analytics software. Microsoft still gets most of their business from their Windows and Office software that is exclusively for personal computers.
According to The Wall Street Journal, much of IBM's recent success has been thanks to CEO Samuel J. Palmisano:
Palmisano made tough decisions to dump cherished businesses like IBM's PC division and bulk up in technology services, business software and premium hardware—complex lines of business that are hard for competitors to replicate and carry high profit margins. The moves by the IBM lifer who took over from Louis Gerstner in 2002 allowed the company to find new life in the post-PC era.
His shrewd business decisions have evidently paid off. Not only has IBM's market cap surpassed Microsoft's, but their stock prices have far outpaced Microsoft's in the past year. While IBM's stock prices rose 34 percent during 2011, Microsoft's only went up by 3.9 percent.
As evidence of the tech industry's shifting focus, look no further than Google. With a market cap of $167.51 billion, they are the fourth most valuable tech company, and they don't even make computers.
IBM isn't the first to recently pass Microsoft in value. In May 2010, Apple’s market cap squeaked past Microsoft’s and by February 2011, Apple was $100 billion ahead. In August, Apple edged out Exxon to become the most valuable company in the world, but has since fallen slightly behind the oil giant. In August, 24/7 Wall St compiled a list of the top-ten most valuable companies in America. Some non-tech, but still valuable corporations in the United States include Procter & Gamble, AT&T, and Wal-Mart which are currently valued at $175.95 billion, $170.19 billion, and $180.81 billion respectively.