IBM 2005 Annual Report Download - page 30
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ManagementDiscussion
INTERNATIONALBUSINESSMACHINESCORPORATION ANDSUBSIDIARYCOMPANIES
_29
HARDWARE
(Dollarsinmillions)
YR. TOYR.
FORTHEYEARENDEDDECEMBER31: 2005 2004 CHANGE
Hardwarerevenue: $«23,857 $«30,710 (22.3) %
SystemsandTechnology
Group $«20,981 $«19,973 5.0%
zSeries (7.6)
iSeries 0.8
pSeries 14.6
xSeries 5.9
StorageSystems 15.3
Microelectronics 15.6
Engineering&
TechnologyServices 39.2
RetailStoreSolutions (23.0)
PrinterSystems (8.6)
PersonalComputingDivision 2,876 10,737 NM
NM—NotMeaningful
Microelectronicsrevenueincreasedduetoimprovedman-
ufacturingyieldsandvolumesforgameprocessors.Thefourth
quarterof2005wasthefirstfullquarterofproductionforthese
processors.Partiallyoffsettingthisincreasewasa softeningof
demandforsomeofthecompany’soldertechnology. E&TS rev-
enuecontinuedtoshowstronggrowthasitrepresentsaunique
opportunity for the company to leverage its deep capabilities,
expertise and assets in engineering design to benefit client
engineeringandR&Dprocesses.E&TSis akeycomponentof
thecompany’sbusinessesthataddresstheBPTSopportunity.
RetailStoresSolutionsrevenuedecreasedprimarilydueto
anumberoflargetransactions in2004anddemandfromthese
clients declined in 2005. Printer Systems revenue decreased
dueprimarilytolower hardwareandmaintenancesales.
PersonalComputingDivisionrevenuedecreasedasaresult
of the company divesting its Personal Computing business to
LenovoonApril30,2005. The2005resultshavefourmonthsof
revenue versus 12 months in 2004. See note C, “Acquisitions/
Divestitures,” onpages 66and67 foradditionalinformation.
SystemsandTechnologyGrouprevenueincreased5.0 percent
(5percent adjusted forcurrency)in2005versus2004. pSeries
serverrevenueincreasedwithdoubledigitgrowthinallgeogra-
phiesasclientscontinuetorecognizethestrengthandleader-
shipofthePOWERarchitecture.InearlyOctober,thecompany
announcedanewPOWER5+processorthatincludestheindus-
try’sfirstQuadCoreModule,whichputsfourprocessorcoreson
asinglepieceofceramic. AdditionalnewpSeries productswill
bedeliveredin2006. Thecompanyexpectstogainshareinthe
UNIX market when the 2005 external results are reported.
iSeries server revenue increased driven by broad demand for
thecompany’sPOWER5basedofferings. Demandinthefourth
quarter of 2005 fell off as clients anticipated the first-quarter
2006announcementofthenewPOWER5+ basedproducts. In
2005,iSeriesaddedover2,500new clients,reflectingacontin-
uedcommitmenttotheplatformfrom ISVs,resellersand clients.
Within xSeries, server revenue increased 7 percent despite
strongcompetitivepressuresdrivinglowerprices,particularlyin
EuropeandAsia.Thecompany’smomentuminBladesremains
strongwithrevenuegrowthof65percentin2005versus2004.
Thecompanyexpectstomaintainits market leadershipposition
inBladecenter. Although zSeriesserver revenuedeclined ver-
sus 2004, MIPS volumes grew 7 percent in 2005. The MIPS
growth was driven by the company’s new System z9 which
began shipping in late September 2005. The zSeries clients
continue to add new workloads to this platform as they build
their on demand infrastructure. These new workloads have
acceleratedJavaandLinuxadoptiononthezSeriesplatform.
TotalStoragerevenuegrowthwas driven by Totaldiskrev-
enuegrowthof19percent,while tape grew 9 percentin2005
versus2004. Within Externaldisk,mid-rangediskandenterprise
products both had strong revenue growth of approximately 24
percent in 2005 versus 2004. The company believes it gained
marketshareinexternaldiskandextendeditsmarketleadership
intape.
(Dollarsinmillions)
YR. TOYR.
FORTHEYEARENDEDDECEMBER31: 2005 2004 CHANGE
Hardware:
Grossprofit $«8,718 $«9,505 (8.3) %
Grossprofitmargin 36.5% 31.0% 5.5 pts.
Thedecreaseingrossprofitdollars for2005versus2004was
primarilyduetothesaleofthecompany’sPersonalComputing
business. Theincreaseingrossprofitmarginwasalsoprimarily
due to the divestiture of the Personal Computing business
(whichhadalowergrossprofitmarginthantheotherhardware
products) in the second quarter of 2005. This divestiture con-
tributed 3.8 pointsoftheimprovementintheHardwaremargin.
Systems and Technology Group gross profit margins
declined 1.2 points to 40.4 percent in 2005 versus 2004.
Microelectronicsmarginsimprovedandcontributed 0.6 points
of improvementasmanufacturingyieldsandvolumesincreased
on game processors. In addition, margin improvements in
pSeries contributed 0.5 points to the overall margin. These
improvements were more than offset by lower margins in
StorageSystemswhichimpactedtheoverallmarginby 1.1 points
primarilyduetointensifiedcompetitionresultinginproductdis-
countingand the mix to mid-range disk andtapeproducts.In
addition, zSeries,xSeries andiSeriesservers hadlowermargins
whichimpactedtheoverallmarginby 0.8points,0.2 pointsand
0.2 points,respectively.
Differences between the Hardware segment gross profit
marginandgrossprofitdollaramountsaboveandtheamounts
reportedonpage 25 (andderivedfrompage 48)primarilyrelate
totheimpactofcertainhedgingtransactions(see“Anticipated
Royalties and Cost Transactions” on page 72). The recorded
amountsfor thesetransactions areconsideredunallocatedcor-
porateamountsforpurposesofmeasuringthesegment’sgross
marginperformanceandthereforearenotincludedintheseg-
mentresults above.