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Management Discussion
International Business Machines Corporation and Subsidiary Companies
25
Global Services Signings
In 2007, total Global Services signings increased 1 percent year to
year to $49,895 million. Shorter term signings were $22,014 million,
an increase of 5 percent year to year. Longer term signings decreased
1 percent to $27,880 million, however, the average duration of longer
term contracts signed in 2007 was 1.1 years shorter than contracts
signed in 2006. Therefore, while longer term signings were essen-
tially flat year to year, the annualized revenue expected from these
signings is higher versus the prior year. GTS signings were $30,154
million and GBS signings were $19,741 million in 2007. The total
Global Services backlog increased $2 billion from the prior year to
an estimated $118 billion.
($ in millions)
FOR THE YEAR ENDED DECEMBER 31: 2007 2006
Global Technology Services Signings
Longer term $21,550 $21,337
Shorter term 8,604 8,271
Total $30,154 $29,608
Global Business Services Signings
Longer term $ 6,330 $ 6,838
Shorter term 13,411 12,727
Total $19,741 $19,565
Global Services signings are management’s initial estimate of the
value of a client’s commitment under a Global Services contract.
Signings are used by management to assess period performance of
Global Services management. There are no third-party standards or
requirements governing the calculation of signings. The calculation
used by management is an approximation of constant currency and
involves estimates and judgments to gauge the extent of a client’s
commitment, including the type and duration of the agreement, and
the presence of termination charges or wind-down costs. For example,
for longer term contracts that require significant up-front investment
by the company, the portions of these contracts that are a signing are
those periods in which there is a significant economic impact on the
client if the commitment is not achieved, usually through a termina-
tion charge or the client incurring significant wind-down costs as a
result of the termination. For shorter term contracts that do not
require significant upfront investments, a signing is usually equal to
the full contract value. Longer term contracts represent SO and
BTO contracts as well as GBS contracts with the U.S. Federal gov-
ernment and its agencies and Application Management Services
(AMS) for custom and legacy applications. Shorter term contracts
represent the remaining GBS offerings of Consulting and Systems
Integration, AMS for packaged applications and ITS contracts.
These amounts have been adjusted to exclude the impact of year-to-
year currency changes.
Signings include SO, BTO, ITS and GBS contracts. Contract
extensions and increases in scope are treated as signings only to the
extent of the incremental new value. Maintenance is not included in
signings as maintenance contracts tend to be more steady state,
where revenues equal renewals.
Backlog includes SO, BTO, ITS, GBS, and Maintenance. Backlog
is intended to be a statement of overall work under contract and
therefore does include Maintenance. Backlog estimates are subject to
change and are affected by several factors, including terminations,
changes in the scope of contracts, periodic revalidations, adjustments
for revenue not materialized and currency assumptions used to
approximate constant currency.
Contract portfolios purchased in an acquisition are treated as posi-
tive backlog adjustments provided those contracts meet the company’s
requirements for initial signings. A new signing will be recognized if
a new services agreement is signed incidental or coincidental to an
acquisition or divestiture.
Systems and Technology
($ in millions)
YR.-TO-YR.
FOR THE YEAR ENDED DECEMBER 31: 2007 2006 CHANGE
Systems and Technology revenue: $21,317 $21,970 (3.0)%
System z (11.2)
System i (10.6)
System p 8.8
System x 7.0
System Storage 5.1
Microelectronics (11.8)
Engineering and
Technology Services
6.5
Retail Store Solutions 14.5
Printing Systems (63.1)
Systems and Technology revenue decreased 3.0 percent (6 percent
adjusted for currency) in 2007 versus 2006. On June 1, 2007, the
company completed the divestiture of its printing business to Ricoh.
This resulted in the loss of approximately $600 million of Systems
and Technology revenue in 2007 when compared to 2006. See note
C, “Acquisitions/Divestitures,” on pages 80 and 81 for additional
information regarding this divestiture. Systems and Technology rev-
enue, excluding the printing business, was flat (declined 3 percent
adjusted for currency) in 2007 versus 2006.