IBM 2002 Annual Report Download - page 49

Management Discussion
47international business machines corporation and Subsidiary Companies
SO revenue in 2001 increased versus 2000 primarily as a
result of strong growth in Asia Pacific.
BCS revenue increased 8.8 percent to $9,331 million (7 per-
cent at constant currency) in 2002 versus 2001. The increase
was due to the addition of PwCC results in the fourth quarter.
BCS revenue excluding PwCC would have declined year over
year. BCS continues to be impacted by the industry pressure
on consulting services. The integration of PwCC is on sched-
ule. BCS revenue in 2001 increased versus 2000. The fourth
quarter 2002 results of BCS, which include the PwCC business
acquired from PricewaterhouseCoopers (PwC) on October 1,
2002, were not audited by PwC; instead, such results were
audited by another Big 4 auditing firm.
ITS revenue, excluding maintenance, increased 5.1 per-
cent to $6,593 million (4 percent in constant currency) in
2002 versus 2001. This revenue growth resulted from
increases in the deployment of network hardware and con-
nectivity services, business continuity services and OEM
alliances. ITS revenue increased in 2001 versus 2000 in sup-
port of server consolidations, business continuity services and
OEM alliances.
Global Services gross profit dollars decreased 0.6 percent
in 2002 compared to 2001 and increased 8.6 percent in 2001
versus 2000. The gross profit margin decreased 1.2 points in
2002 versus 2001 and increased 0.8 points in 2001 versus 2000.
The declines in both gross profit dollars and gross profit
margins in 2002 were attributable to market conditions, par-
ticularly in the Communications and Financial sectors, and
continued weakness in the consulting and systems integration
businesses. These declines were partially offset by improve-
ments in gross profit for maintenance, driven by increased
productivity and lower parts costs. The increases in both
gross profit dollars and gross profit margin in 2001 versus
2000 were primarily a result of increased productivity and
lower parts costs across all geographies for maintenance
offerings and cost reductions across all services offerings.
global services signings
(dollars in millions)
for the year ended december 31: 2002 2001
Longer-term*«$«33,068 «$«32,016
Shorter-term*20,020 19,261
Total*$«53,088 $«51,277
*Longer-term are contracts generally 7 to 9 years in length and represent SO contracts
and those BCS contracts with the U.S. Federal Government and its agencies. Shorter-
term are contracts generally 3 to 9 months in length and represent the remaining BCS
contracts and ITS contracts.
In 2002, the company signed Global Services contracts total-
ing $53 billion as compared to $51 billion in 2001. Signings
in 2002 included 42 contracts in excess of $100 million, five
of which exceeded $1 billion, as well as $1.2 billion of new
signings during the fourth quarter associated with the
acquired PwCC business. The pace of signings accelerated in
the fourth quarter of 2002. Contracts totaling $3.1 billion
acquired as part of the PwCC acquisition are not included in
the signings number. Instead, these contracts were added as
an adjustment to backlog. Backlog estimates are subject to
change and are affected by currency assumptions used in the
company’s plans, changes in the scope of contracts
— mainly
long-term contracts — and periodic revalidations. After
adjustments for changes in the scope of contracts, the esti-
mated backlog including SO, BCS, ITS and maintenance was
$112 billion at December 31, 2002, as compared to $102 bil-
lion at December 31, 2001.
looking forward
The addition of PwCC into IBM Global Services on October 1,
2002, will play a significant role in the company’s ability to
help customers transform themselves into on demand busi-
nesses. As of the acquisition date, the company added about
30,000 professionals bringing with them industry-specific
business transformation skills that can leverage existing IBM
and business partner capabilities to deliver e-business on
demand solutions.
Hardware
The company recently changed the names of its hardware seg-
ments, whereby Enterprise Systems is now the Systems Group
and Personal and Printing Systems is now the Personal
Systems Group.
description of business
Systems Group
The Systems Group comprises eServer and Storage products.
eServers are based upon IBM operating systems (zSeries and
iSeries), as well as UNIX (pSeries) and the Microsoft Windows
operating system (xSeries). All of these server lines have the
capability to run Linux, a key open standard operating system.
Data storage products include disk, tape and storage area net-
works included within the Storage brand.
The Systems Group provides business solutions to cus-
tomers. Approximately half of the Systems Group’s sales
transactions are through business partners and approximately
40 percent direct to customers, slightly more than half of
which are through the Web at ibm.com. In addition, while
appropriately not reported as external revenue, hardware is
also deployed internally in support of IBM Global Services
offerings and contracts.
Personal Systems Group
The Personal Systems Group includes the company’s lines of
personal computers, printers and point-of-sale terminals.
The personal computer business is characterized by a high
degree of commoditization, short product life cycles, and
intense price competition. Leaders in personal computers
execute intense cost control and generate customer loyalty
through the offering of differentiated features such as the
company’s new ThinkVantage technologies, superior post-
sale support, and maintenance.