Picking Apart IBM’s $150 Billion In US Manufacturing And R&D
May 21, 2025 Timothy Prickett Morgan
Several weeks ago, we read with great interest, considering the great desire by President Donald Trump to foment a new wave of indigenous manufacturing in the United States with extreme import tariffs, that Big Blue was committing to “to invest $150 billion in America over the next five years to fuel the economy and to accelerate its role as the global leader in computing.”
This announcement was not one, as far as we know, brokered between Arvind Krishna, IBM’s chairman, president, and chief executive officer, and Trump, which is not necessarily smart. It is perhaps best to let this commander in chief think everything is his idea. (But, you can never say that.) Krishna saying that Big Blue has been “focused on American jobs and manufacturing since our founding 114 years ago” no doubt fell on a lot of deaf ears and sounded a bit tinny given all of the manufacturing, software development, supply chain management, and services jobs that IBM has offshored over the many decades we have been watching the company.
The announcement includes over $30 billion in research and development funding, which leaves the other $120 billion for precisely we do not know what.
We sent off the good people at IBM PR a bunch of questions about what this money would be spent for, and how much of it was incremental over what Big Blue was already planning to spend in the United States. IBM was bragging about how mainframe and quantum computers were being made in Poughkeepsie, New York, and we pointed out to IBM PR that this was not new at all, and in fact that they forgot to mention that high-end Power Systems machines like the Power9-based Power E980 and Power10-based Power E1080 were made in Pokie as well – or they used to be, as far as we knew. But that is not a repatriation of manufacturing at all, and represents no change, really.
We don’t have a lot of good data, but we think the bulk of Power Systems manufacturing – meaning systems smaller than the Power E980 and Power E1080 – have long since been consolidated to factories that IBM has had in Guadalajara, Mexico since the AS/400 was launched more than three and a half decades ago. The Guadalajara region is a manufacturing hub – like Freemont, California and Taipei, Taiwan and Shenzhen, China – and at least as of a decade ago, accounted for a quarter of all imports into the United States. IBM’s Power Systems division is part of that product flow from Mexico to the US, and when IBM shifted to a build-to-order system back in February, we talked about all of this and how IBM’s Power Systems manufacturing has moved all around the world over the decades.
This is no longer a big manufacturing operation, in terms of capacity shipped, but it does account for a lot of IBM’s hardware revenue and is measured in the billions of dollars. And right now, Power Systems is concentrated in Mexico. For all we know, storage products are made there, too. We suspect these flash, disk, and tape arrays are made in Mexico as well, thanks in no small measure to the United States Mexico Canada Agreement (USMCA), the follow-on to the North American Free Trade Agreement (NAFTA) that Trump signed in 2018 and updated in early 2020. USMCA is not all that different from NAFTA, which President Bill Clinton signed in 1994.
What is not clear is if some of that $120 billion is being spent moving at least some of the Power Systems manufacturing back to the United States. We asked IBM PR and received static as a response. Like other companies doing “indigenous investing,” IBM is not interested in being precise so much as putting out a large number that will make President Trump pre-emptively happy. (These are not the droids you are looking for. . . . )
We, of course, applaud efforts to have Americans making stuff again, but we do not think that anyone can know the effect on prices and the economy. It may all net out to better paying jobs and higher prices, but more independence and supply chain flexibility. Which, we think, is a net gain.
More immediately, we do not know if the tariffs imposed by the Trump administration on Mexico will apply to any of IBM’s gear made in that country and shipped to the United States. There are exemptions built into the USMCA that the president cannot overrule. No one wants to answer this question, of course.
It would be funny if IBM shifted back to regional manufacturing of Power Systems and storage to avoid some of the harsher tariffs, but it may simply be cheaper and easier to pass the costs of the tariffs on to customers.
One last thing. The research and development spending. From 2020 through 2024 inclusive, IBM spent $33.6 billion on R&D, and it grew every year, sometimes as low as 1.2 percent to $6.57 billion in 2022 and sometimes as high as 10.3 percent in 2024 to $7.48 billion. If R&D is set at something above $30 billion in the next five years, it means IBM’s aggregate spending on R&D has to decline in the next five years compared to the previous five years. One possible line to fit this curve is for R&D spending by IBM to drop by 8 percent in 2025 to $6.9 billion and then drop 6 percent a year until it falls to $5.37 billion in 2029. Over those five years between 2025 and 2029 inclusive, that adds up to $30.5 billion, and the spending in 2029 is lower than the $5.91 billion IBM spent on R&D in 2019.
If you adjust that spending for inflation over the decade of that span, it looks even worse.
IBM can – and might – spend more on R&D. But to our eyes, this doesn’t look like the good news that Big Blue is trying to make it out to be. No one else in the trade or business press did any of this math, of course. They probably just ran the IBM press release through ChatGPT, let is mishmash it up a bit, and hit “publish.”
Screw that.
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To external observer outside the US like me could seem random, albeit engineered random and chaos, a moving target, FAFO in essence (the system is so complex also to the ones in charge that – in order to find the resistance limit in some things – you pump the pressure higher and higher and stop when the pipe starts emitting cracking noises).
It’s justified if that is a real revolution that you are setting up.
But be sure that it will take years to steer the ship, to build capacity, to be China-like in integration, to have again production, health, and not only finance, dollar printing and lending, and subscription software rent levies and cloud.
Good luck!
I have little respect for you… your commentary remarks are juvenile.
That’s funny. I thought they weren’t.