IBM 2008 Annual Report Download - page 26

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Management Discussion
INTERNATIONAL BUSINESS MACHINES CORPORATION and Subsidiary Companies
Management Discussion ................................................................................................18
ROAD MAP ............................................................................................................ 18
FORWARD-LOOKING AND CAUTIONARY STATEMENTS ...................................... 18
MANAGEMENT DISCUSSION SNAPSHOT ............................................................ 19
DESCRIPTION OF BUSINESS ...............................................................................20
YEAR IN REVIEW ..................................................................................................25
PRIOR YEAR IN REVIEW .......................................................................................39
DISCONTINUED OPERATIONS ..............................................................................44
OTHER INFORMATION ..........................................................................................44
GLOBAL FINANCING .............................................................................................53
Report Of Management ............................................................................................... 58
Report Of Independent Registered Public Accounting Firm ................................. 59
Consolidated Statements ............................................................................................ 60
Notes ............................................................................................................................... 66
• Distribution: Consumer Products, Retail, Travel and Transportation
• Communications: Telecommunications, Media and Entertainment,
Energy and Utilities
• Small and Medium Business: Mainly companies with less than
1,000 employees
Research, Development and Intellectual Property
IBM’s research and development (R&D) operations differentiate the
company from its competitors. IBM annually spends approximately
$6 billion for R&D, focusing its investments on high-growth, high-
value opportunities. As a result of innovations in these and other
areas, IBM was once again awarded more U.S. patents in 2008 than
any other company, the first company to achieve over 4,000 patents
in a year. The company will continue to actively seek intellectual
property protection for its innovations, while increasing emphasis on
other initiatives designed to leverage its intellectual property leader-
ship and promote innovation.
In addition to producing world-class hardware and software prod-
ucts, IBM innovations are also a major differentiator in providing
solutions for the company’s clients through its services businesses.
The company’s investments in R&D also result in intellectual prop-
erty (IP) income of approximately $1 billion annually. Some of IBM’s
technological breakthroughs are used exclusively in IBM products,
while others are licensed and may be used in either/both IBM prod-
ucts and/or the products of the licensee. While the company’s various
proprietary intellectual property rights are important to its success,
IBM believes its business as a whole is not materially dependent on
any particular patent or license, or any particular group of patents or
licenses. IBM owns or is licensed under a number of patents, which
vary in duration, relating to its products. Licenses under patents
owned by IBM have been and are being granted to others under
reasonable terms and conditions.
Integrated Supply Chain
Consistent with the company’s work with clients to transform their
supply chains for greater efficiency and responsiveness to global
market conditions, the company continues to derive business value
from its own globally integrated supply chain, which provides a
strategic advantage for the company to create value for clients. IBM
leverages its supply-chain expertise for clients through its supply-chain
business transformation outsourcing service to optimize and help
operate clients’ end-to-end supply-chain processes, from procure-
ment to logistics.
IBM spends approximately $38 billion annually through its sup-
ply chain, procuring materials and services globally. The supply,
manufacturing and logistics, and customer fulfillment operations are
integrated in one operating unit that has optimized inventories
over time, improved response to marketplace opportunities and
external risks, and converted fixed costs to variable costs. Simplifying
and streamlining internal processes has improved operations, sales
force productivity and processes, and these actions have improved
client satisfaction.
Integrated Technology Delivery
Integrated Technology Delivery (ITD) combines all of the worldwide
service delivery capabilities for Strategic Outsourcing with strong
local and regional management teams supported by a set of global
competencies. ITD leverages the company’s global scale and advanced
technology to deliver standardized solutions that are automated,
repeatable and globally integrated. Clients gain cost advantages, access
to industry-leading skills and IBM’s scale and overall flexibility. ITD
manages the world’s largest privately-owned IT infrastructure with
employees in over 40 countries supporting over 450 data centers.
Business Process Delivery
Business Process Delivery (BPD) provides highly efficient, world-class
delivery capabilities in IBM’s business process delivery operations,
which include Business Transformation Outsourcing, Business Pro-
cess Outsourcing and Business Process Services. BPD has employees
and delivery centers in over 40 countries worldwide.