IBM 2005 Annual Report Download - page 29
Download and view the complete annual report
Please find page 29 of the 2005 IBM annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.-
1 -
2
-
3
-
4
-
5
-
6
-
7
-
8
-
9
-
10
-
11
-
12
-
13
-
14
-
15
-
16
-
17
-
18
-
19 -
20 -
21 -
22 -
23 -
24 -
25 -
26 -
27 -
28 -
29 -
30 -
31 -
32 -
33 -
34 -
35 -
36 -
37 -
38 -
39 -
40
-
41
-
42
-
43
-
44
-
45
-
46
-
47
-
48
-
49
-
50
-
51
-
52
-
53
-
54
-
55
-
56
-
57
-
58
-
59
-
60
-
61
-
62
-
63
-
64
-
65
-
66
-
67
-
68
-
69
-
70
-
71
-
72
-
73
-
74
-
75
-
76
-
77
-
78
-
79
-
80
-
81
-
82
-
83
-
84
-
85
-
86
-
87
-
88
-
89
-
90
-
91
-
92
-
93
-
94
-
95
-
96
-
97
-
98
-
99
-
100
-
101
-
102
-
103
-
104
-
105
 |
 |
ManagementDiscussion
INTERNATIONALBUSINESSMACHINESCORPORATION ANDSUBSIDIARYCOMPANIES
28_ ManagementDiscussion
growthrateduetotheimpactof highlevelsofbacklog erosion
experiencedin2004andthecumulativeeffectoflowersignings,
starting in 2004 through the first quarter of 2005. SO revenue
growthwasdrivenbytheAmericas (2 percent)andEMEA(6per-
cent),withadecline yeartoyearinAsiaPacific (2percent).
BCSrevenueincreasedin2005versus2004ledbygrowth
intheAmericas (7percent)andEMEA(5percent),partiallyoff-
setby declinesinAsiaPacific (6percent).BCS signingswere
up 19 percent over last year, with Consulting and Systems
Integration up 3 percent and Business Transformation
Outsourcing up 126 percent. The company’s Consulting and
Systems Integration business had many areas of growth, with
strong performance in the Strategy and Change and Supply
ChainManagementpractices.Thisoverallgrowthwasmitigated
by weakness year to year in Japan, Germany, and the com-
pany’s Federal Business in the U.S. However, across all prac-
tices, the company drove improved resource utilization and
pricing trends remained stable to improving. The company is
takingactionstoimproveitsgrowthinConsultingandSystems
Integration. The company is increasing the level of dedicated
sales resources to drive its Business and Web Services and
SystemOrientedArchitecture(SOA) solutions,furtherinvesting
in resources to address mid-market opportunities, increasing
the level of brand resources in Asia Pacific and leveraging its
globalend-to-enddesign,build,andruncapabilities.
Thecompany’s BTO businesscontinueditsstrongyear-to-
yeargrowth.BTOisanimportantofferingtoaddressthe BPTS
opportunity. Other elements include the Strategy and Change
practice,E&TS,andBusinessPerformanceSoftware.Fortheyear,
BPTSrevenuewas$4billion,up28percentyeartoyear.
ITSsigningsweredown7percentin2005versus2004. The
ITS business is more dependent upon short-term signings for
revenue growth and signings declines in the third and fourth
quarterimpactedtheoverallrevenuegrowthratefor2005. The
companybegantorebalanceitsITS offerings portfolio andshift
itsbusinessdevelopmentanddeliverycapabilitiesandskillsto
highergrowthareasinthethirdquarterof2005.Theinitialport-
folio rebalancing work is completed. The company is adding
businessdevelopmentskillsandthesalescoveragemodelhas
beenalignedtotherevisedportfolio.
year. Inaddition,sinceGlobalServicesisprimarilyaresource-
based business, the resulting Global Services margins were
impacted more by pension expense increases, partially miti-
gatedbylower stock-based compensationexpense.
GLOBALSERVICESSIGNINGS
(Dollarsinmillions)
FORTHEYEARENDEDDECEMBER31: 2005 2004 2003
Longer-term* $«27,180 $«22,857 $«34,608
Shorter-term* 19,901 20,146 20,854
Total $«47,081 $«43,003 $«55,462
* Longer-termsigningsincludeSOandBTOcontracts,aswellastheU.S.federal
governmentcontractswithinBCS.Shorter-termsigningsincludeITSandallother
BCScontracts.Theseamountshavebeenadjustedtoexcludetheimpactofyear-
to-yearcurrencychanges.
In2005,totalGlobalServicessigningsincreased9percentyear
toyear,drivenbya19percentincreaseinlonger-termsignings,
whileshorter-termsigningswereessentiallyflat.
GlobalServicessigningsaremanagement’sinitialestimateof
the value of a client’s commitment under a Global Services
contract. Signings are used by management to assess period
performanceofGlobalServicesmanagement.Therearenothird-
party standards or requirements governing the calculation of
signings. The calculation used by management involves esti-
mates and judgments to gauge the extent of a client’s commit-
ment, including the type and duration of the agreement, and
the presence of termination charges or wind-down costs. For
example,forlonger-termcontractsthatrequiresignificantup-front
investmentbythecompany,the portionsofthese contractsthat
are counted as a signing are those periods in which there is a
significanteconomicimpactontheclientifthecommitmentisnot
achieved,usuallythroughaterminationchargeorthe client incur-
ringsignificantwind-downcostsasaresultofthetermination.For
shorter-term contracts that do not require significant up-front
investments,asigningisusuallyequaltothefullcontractvalue.
Signings includes SO, BCS and ITS contracts. Contract
extensionsandincreasesinscopearetreatedassigningsonly
totheextentoftheincrementalnewvalue.Maintenanceisnot
includedinsigningsasmaintenancecontractstendtobemore
steady-state, where revenues equal renewals, and therefore,
the company does not think they are as useful a predictor of
futureperformance.
BacklogincludesSO,BCS,ITS,andMaintenance.Backlog
isintendedtobeastatementofoverallworkundercontractand
therefore does include Maintenance. Backlog estimates are
subjecttochangeandareaffectedbyseveralfactors,including
terminations,changesin the scopeofcontracts,periodicreval-
idations,adjustmentsforrevenuenotmaterializedandcurrency
assumptionsusedtoapproximateconstantcurrency.
Contractportfoliospurchasedinanacquisitionaretreated
aspositivebacklogadjustmentsprovidedthosecontractsmeet
thecompany’s requirementsfor initialsignings.A new signing
willberecognizedif a new services agreementissignedinci-
dentalorcoincidenttoanacquisition.
(Dollarsinmillions)
YR. TOYR.
FORTHEYEARENDEDDECEMBER31: 2005 2004 CHANGE
GlobalServices:
Grossprofit $«12,287 $«11,175 9.9%
Grossprofitmargin 25.9% 24.2% 1.7 pts.
GlobalServices grossprofitdollarsincreasedprimarilydue to
the corresponding increase in revenue and improved gross
profit margins across all categories of Global Services. The
grossprofitmarginimprovementwas primarily duetobenefits
fromthesecond-quarter2005 restructuringand productivityini-
tiatives (see note R, “2005 Actions,” on pages 80 and 81 for
additional information), improved utilization levels, primarily
withinBCS,andabetter overall contractprofileversustheprior