IBM 2005 Annual Report Download - page 5

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resources to the opportunities we see in collaborative
innovation. There is large and growing demand
across engineering-intensive industries
—
from auto-
motive and aerospace to telecommunications and
medical equipment
—
to leverage the technologies
and research prowess of partners. This is not
outsourced R&D, but true shoulder-to-shoulder
collaboration. The ability to extend IBM’s legendary
technology strengths to clients to accelerate their
own product and service R&D is a powerful proposi-
tion that no one in our industry can easily match.
SOFTWARE: Software revenues totaled $15.8billion
in 2005, an increase of 4percent. We believe we
improved our competitive position in all five of our
key middleware brands. Indeed, 2005 marked a
milestone for our software business. As I’ve reported
to you for several years, we have been focusing our
internal software R&D and acquisition efforts on the
high-growth middleware segment of the software
opportunity. Last year, for the first time, more than
half of our software revenue came from strategic
middleware products vs. the slower growth host or
legacy platforms.
In software, as in systems, the technology bets we
made several years ago are paying off. Companies are
seeking to dissolve barriers that impede the flow of
information within the enterprise by deploying open,
standards-based middleware to integrate their IT sys-
tems and to maximize digital assets in all their forms.
There is a significant shift underway in the world of
software toward what is called service-oriented archi-
tecture (SOA), which allows companies to be much
more flexible and responsive. As the worldwide
leader in middleware, IBM is in a strong position to
capitalize on the SOA market, which some analysts
expect to more than double, to $143 billion, by 2008.
Our WebSphere middleware family grew 10 per-
cent in 2005, with particular strength in Application
Servers and Portals, which grew 15 percent and
12 percent, respectively. Information management
software grew 8percent, fueled by our content
management and information integration products
—
a
set of offerings that we are enhancing with a $1billion
investment in a new “information on demand”
practice we announced this February, including
advanced tools and 10,000 additional practitioners
located in centers of excellence around the world.
Our Rational software tools grew 4percent for the
year, and Tivoli 11 percent
—
including 24 percent
growth for Tivoli storage software, as clients
continued their strong adoption of our virtualization
technologies. In addition, our 2005 acquisitions
of companies such as Ascential, Bowstreet, SRD
and DWL have strengthened our hand in other
high-growth areas, including business integration
and Web-enabled software.
GLOBAL SERVICES: IBM Global Services remains
the leading IT services company in the world, with
more than twice the revenue of our nearest rival.
We are ranked as the number-one service provider
in IT outsourcing, Web hosting and consulting
& systems integration. Revenues from Global
Services in 2005 totaled $47.4billion, an increase of
2percent. Our backlog is estimated at $111 billion,
the same as a year ago.
We’ve been seeing a transition in services over
the past few years, a shift to smaller deals of shorter
duration. These are good opportunities
—
if you
can recalibrate your sales model to capture them in
addition to the traditional “mega-deals.” And the
profitability of these kinds of deals is very attractive,
if your global cost structure is competitive. We had
to address both our sales model and services cost
structure last year, and we did so. We also took other
actions to strengthen our services business
—
shifting
thousands of employees into global delivery centers;
rebalancing our Integrated Technology Services
portfolio; and doubling the resources dedicated to
integrated solutions, which we expect will account
for 70 percent of the total IT opportunity by 2008.
These changes give us a platform for increasing
growth in 2006.
I want to call out in particular our continuing
progress in the high-growth market we call Business
Performance Transformation Services. This is where
4_ Chairman’s Letter