International Business Machines, better known by IBM, is a global powerhouse in the information technology market. While the company is a household name in the commercial space, the federal business has a decidedly different profile.
IBM in the Federal Market
IBM’s U.S. Federal work falls within the company’s IBM Government Industry, which encompasses U.S. Federal, State, Local, and international government service programs. The company recorded approximately $1B in prime federal revenue in fiscal year 2019, according to USAspending.gov data.
IBM’s Federal Segment is focused primarily on three core services: Defense and National Security services, Cyber Security, and Cloud Services. These business units support a respectably broad mix of both U.S. Department of Defense and Federal Civilian customer groups.
Figure 1 – IBM’s Top 10 Federal Customers by Prime Contract Obligations for Fiscal Year 2014 – 2019.
Source: USAspending.gov
From the chart above, we can glean that IBM’s top federal customers have historically been the U.S. Army, the Internal Revenue Service, the Federal Emergency Management Agency, the Social Security Administration, and the Centers for Medicare and Medicaid Services.
However, as we dive deeper into the company’s core contract awards under these customers, it becomes clear that some of these revenue streams are drying up (or have already run dry).
- U.S. Department of the Army, General Fund Enterprise Business System (GFEBS) – IBM has been awarded a 1-year $146 million ceiling value modification to continue support through January 2021, but the program has been consolidated under the Unified Enterprise Resource Planning Capability Support contract awarded to Accenture in February 2020.
- Federal Emergency Management Agency (FEMA), Enterprise Application Development Integration & Sustainment (EADIS) Software Development – This legacy DHS EAGLE task order was originally awarded in 2008 and ran through December 2017 with a final $581 million obligated value. IBM was awarded numerous extension and bridge task orders to continue sustainment services for EADIS through May 2020. IBM failed to win the successor program – PIVOT.
- Internal Revenue Service (IRS), Enterprise Single Sign-On BPA – IBM’s biggest IRS contract was the $236 million ESSO Blanket Purchasing Agreement, under which IBM provided software subscription and maintenance support for Enterprise Single Sign-On products including IBM Guardium Data Protection. The BPA expired in June 2018, and IBM was not able to secure a follow-on continuation of the work.
- National Oceanic and Atmospheric Administration (NOAA) Weather and Climate Operational Supercomputing System (WCOSS) – While NOAA is not among IBM’s top-ranking customers, the company’s legacy WCOSS contract had been a steady stream of long-term revenue, providing hardware and equipment for NOAA’s high-performance computing (HPC) needs. WCOSS was obligated $249 million over the contract’s 8-year period of performance, and came to a close in February 2020. The $505 million WCOSS II recompete was awarded to General Dynamics IT.
Despite IBM’s losses, they have maintained footing providing hardware leasing and software licensing work with the Internal Revenue Service (IRS) and with the Social Security Administration (SSA).
- In fiscal year 2019, IBM was awarded two new IRS contracts for systems development – the $33 million Integrated Financial System (IFS) and the $54 million EA3 (Authentication, Authorization, Access) Architect and Development Support program. These new contract wins have helped sustain IBM’s waning footprint within the IRS and secure their presence within that customer for the next few years.
- Within the Social Security Administration (SSA), IBM has maintained a steady presence as an IT hardware operations and maintenance provider, as well as through software license sales as a vendor. In 2017, the company was awarded a $318 million GSA IT Schedule 70 order to provide software licenses for the SSA – this work has been funded for $245 million to date and will carry the company through December 2021.
The FedSavvy Strategies Takeaway
- The IBM federal business we once new has eroded significantly.
- To date, IBM has not yet had significant success winning high value new federal prime contracts to replace its losses. We may see a significant shift in the company’s posture and federal business strategy in the coming months If they want to replace losses and then expand.
- Looking into the company’s GAO protest history, we can see that IBM’s portfolio losses have not been for a lack of trying. IBM has made several attempts towards enterprise IT infrastructure and software development work inside their current customer base, including IRS Infrastructure Shared Services (ISS) (ultimately awarded to Northrop Grumman) and the TSA Secure Flight Systems IT services contract (ultimately awarded to Accenture).
- IBM recently promoted IBM Federal’s General Manager Sam Gordy to Chief Strategy Officer of the IBM Public and Federal Market in January 2020. Only time will tell if he will change the direction and success of IBM’s federal business.
- A question we consider is “What will IBM do to turn around the fortunes?” The lack of noteworthy wins over the last several years calls into question what IBM is doing to turn around their federal portfolio.
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