IBM 2006 Annual Report Download - page 7

5
INNOVATION AND GLOBAL INTEGRATION
IBM’s lines of business work together in a model defined
by innovation and global integration, the twin imperatives
that we believe are reshaping business and society in the
21st century. This ability to both innovate and integrate —
and do so in ways that are truly global
— is unique to IBM,
and sets us apart from our competition.
Last year was in many ways the culmination of our
repositioning of IBM as an innovation company. Its most
visible manifestation was our marketing and communications
campaign around the theme, “What makes you special?”
Of course, marketing campaigns by themselves are of little
importance
— unless they persuade the world of an underlying
reality that is substantial and meaningful. Ours did,
supported by a long list of clients whose innovation potential
we have unleashed through unique solutions. It was also
supported by the continued preeminence of IBM’s research
and development capabilities, reflected in our 14th straight
year of earning by far the most U.S. patents of any company
in the world.
Our ability to deliver differentiating innovation to our
clients is being greatly enhanced by IBM’s global integration —
which is simultaneously giving us better economics and
deeper capabilities, while eliminating enormous redundancies
that were built up over 50 years as a multinational. IBM
operates in 170 countries, with about 65 percent of our
employees outside the U.S., including 30 percent in Asia
Pacific. Our non-U.S. operations generate about 60 percent
of IBM’s revenue.
IBM’s research and software development have long
been globally integrated. The company’s R&D system assigns
work among our 20,000-plus software developers in 61 labs
in 15 countries, and 3,000 scientists and technologists in
IBM Research centers in the U.S., China, Israel, Switzerland,
Japan and India, based on areas of unique expertise.
In 2006 we expanded our global delivery centers, where
talented IBMers support the full range of our clients’
applications and business transformation initiatives. We added
thousands of skilled people and improved our capabilities
in India, Brazil and Argentina, as well as Eastern Europe
and multiple other locations in Asia. We have moved
our global procurement mission to China and many of the
services that support our external and internal Websites
to places like Brazil and Ireland. Our financing back office
is in Rio de Janeiro. These IBMers are not leading teams
Services segment totaled $32.3 billion, an increase of
3 percent. Revenues from the Global Business Services
segment were essentially flat at $16 billion, but
improvements in utilization, pricing, contract management
and delivery optimization enabled it to grow its pretax
margin by 2.7 points, to 9.8 percent, excluding 2005
special actions. IBM Global Services is ranked as the
number one or number two service provider in consulting,
systems integration, maintenance, Web hosting, application
services and data center outsourcing. With a strong
finish to the year — the fourth quarter, with nearly
$18 billion in signings, was our largest since the second
quarter of 2002 — we ended 2006 with an estimated
backlog of $116 billion.
• Systems and Technology: IBM is the world leader
in servers, and is leading a number of key changes in
the industry, including shifts to multicore microprocessors,
to high-end virtualized systems, and to the new category
of modular systems known as blades. In 2006 we rolled
out systems based on the new generation of our
Power Architecture family, POWER5+; introduced
the System z Business Class mainframe, targeting
smaller firms; and extended our virtualization and
energy management capabilities.
Our systems and technology business extended
its industry leadership in 2006, with segment revenues
of $22 billion, an increase of 5 percent. Global Financing
segment revenues totaled $2.4 billion, a decrease of
2 percent. Our System z mainframes had a strong year,
growing 8 percent and marking their sixth consecutive
quarter of increased shipments of MIPS (millions of
instructions per second). Our system storage business
was up 6 percent for the year, and our microelectronics
business continued to grow, increasing 22 percent for
the year, thanks to our position as the technology
engine for all three major gaming platforms. Systems
and Technology Group and Global Financing accounted
for 23 percent of IBM’s segment pretax profit in 2006.
The hard work we’ve done to remix our businesses to lead
in these emergent, higher-profit spaces is now showing up in
our earnings and gross profit margins. But a changed business
mix is not the only factor causing IBM’s strong performance.
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