IBM 2004 Annual Report Download - page 17

MANAGEMENT DISCUSSION
International Business Machines Corporation and Subsidiary Companies
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ibm annual report 2004
Storage. Data storage products, including disk, tape and storage area networks. (Systems
and Technology Group)
Strategic Outsourcing Services (SO). Competitive cost advantages through the outsourcing
of processes and operations. (Global Services)
Tivoli software. Software for infrastructure management, including security, change, config-
uration, job scheduling, storage capability, performance and availability. (Software)
WebSphere software. Management of a wide variety of business processes using open
standards to interconnect applications, data and operating systems. (Software)
Component Value
Component Value includes advanced semiconductor development and manufacturing for
IBM’s server and storage offerings, and services, technology and licenses provided to OEMs
that create and market products requiring advanced chips and other core technology
elements. IBM leverages components for infrastructure value, while continuing to partici-
pate in selected markets, focusing on key industry partners.
CAPABILITIES
Application Specific Integrated Circuit (ASICs). Manufacturing of customized semiconductor
products for clients. (Systems and Technology Group)
Advanced Foundry. Integrated supply chain services and a full suite of semiconductor manu-
facturing services using either a client’s or IBM’s design. (Systems and Technology Group)
Standard products and custom microprocessors. Semiconductors designed and manufactured
primarily based upon IBM’s PowerPC architecture. (Systems and Technology Group)
business segments
Organizationally, the company’s major operations comprise a Global Services segment; a
Systems and Technology Group; a Personal Systems Group; a Software segment; a Global
Financing segment; and an Enterprise Investments segment.
Global Services is a critical component of the company’s strategy of providing insight and
solutions to clients. While solutions often include industry-leading IBM software and hard-
ware, other suppliers’ products are also used if a client solution requires it. Global Services
outsourcing contracts as well as BCS contracts range from less than one year to ten years.
Systems and Technology Group provides IBM’s clients with business solutions requiring
advanced computing power and storage capabilities. More than half of the Systems and
Technology Group’s eServer and Storage Systems sales transactions are through business
partners; approximately 40 percent are direct to end-user clients, more than half of which
are through the Web at ibm.com. In addition, the group provides leading semiconductor
technology and products, packaging solutions and engineering technology services to
OEM clients (approximately 14 percent of Systems and Technology Group revenue) and
for IBM’s own advanced technology needs. While appropriately not reported as external
revenue, hardware is also deployed to support Global Services solutions.
Personal Systems Group includes sales of personal computers, business and computing
solutions for retail stores and advanced printing capabilities for large enterprise clients
and small and medium-sized businesses. In December 2004, it was announced that
Lenovo Group Limited, the largest information technology company in China, will acquire
IBM’s Personal Computing Division. This transaction is expected to close in the second
quarter of 2005.
Software consists primarily of middleware and operating systems software. Middleware
software enables clients to integrate systems, processes and applications across their
enterprises. Middleware is designed to be the underlying support for applications provided
by independent software vendors (ISVs), who build industry- or process-specific applica-
tions according to open industry standards. Operating systems are the engines that run
computers. Approximately 40 percent of external Software revenue relates to one-time
charge (OTC) arrangements, whereby the client pays one up-front payment for a lifetime
license. The remaining annuity revenue consists of both maintenance revenue sold with
OTC arrangements, as well as revenue from software sold on a monthly license charge
(MLC) arrangement. Typically, arrangements for the sale of OTC software include one year
of maintenance. The client can also purchase ongoing maintenance after the first year,
which includes product upgrades and technical support.
Global Financing is described on pages 35 to 39.
Enterprise Investments develops and provides industry-specific IT solutions supporting the
Hardware, Software and Global Services segments of the company. Primary product lines
include product life cycle management software and document processing technologies.
Product life cycle management software primarily serves the Industrial sector and helps
clients manage the development and manufacturing of their products. Document
processor products service the Financial Services sector and include products that enable
electronic banking.
ibm worldwide organizations
The following three company-wide organizations play key roles in IBM’s delivery of value
to its clients:
•Sales & Distribution Organization and related sales channels
•Research, Development and Intellectual Property
•Integrated Supply Chain