They thought the brand alone would be enough, and probably they have been right for a while, so they could sell both the razor and the blades at high prices, but many things changed between the early and late 90s, and the fact that PCs weren't anymore labeled as "IBM compatible" should have raised some flags.
The speed at which they embraced Linux from the late 90s on (*) is an indicator that they were becoming aware of it, but probably have been too slow to adapt to the rest of the industry; I recall in maybe 1999 their C development suite for AIX on AS/400 hardware still cost a boatload of money (like the OS and iron were cheap...) and we already had GCC running on it, but for some problems (possibly with the db interface, can't recall for sure) the company was forced to shell out that money and buy their suite.
(1) I gave a talk at an internal IBM conference in 1997; they were fully aware of Linux and wanted to know more. Word is that Lou Gerstner, then IBM chairman and CEO, asked to some IBM engineers what was all that buzz about Linux about, and some of them replied something like "we are making a huge error we will deeply regret if we don't take it seriously asap", and the rest is history.
(1) I gave a talk at an internal IBM conference in 1997; they were fully aware of Linux and wanted to know more. Word is that Lou Gerstner, then IBM chairman and CEO, asked to some IBM engineers what was all that buzz about Linux about, and some of them replied something like "we are making a huge error we will deeply regret if we don't take it seriously asap", and the rest is history.