IBM 2008 Annual Report Download - page 31

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Management Discussion
INTERNATIONAL BUSINESS MACHINES CORPORATION and Subsidiary Companies
SYSTEMS AND TECHNOLOGY
($  )
Yr.-to-Yr.
For the year ended December : 2008 2007 Change
SYSTEMS AND TECHNOLOGY
REVENUE: $19,287 $21,317 (9.5)%
System z 12.5%
Legacy System i (66.1)
Converged System p 11.2
System x (16.9)
System Storage (3.4)
Retail Store Solutions (15.0)
Total Systems (4.9)
Microelectronics OEM (25.1)
Printing Systems NM
NM—Not meaningful
Systems and Technology segment revenue decreased . percent
(down  percent adjusted for currency) in  versus . In June
, the company divested its printing business. Systems and Tech-
nology revenue, excluding the divested printing business, decreased
. percent ( percent adjusted for currency) in  versus .
Total Systems revenue decreased . percent ( percent adjusted for
currency) in  versus .
In the current economic environment, clients are focused on
reducing the cost of running their IT infrastructure. Virtualization,
which provides the capability to run multiple workloads on a single
server, is a key enabler of efficiency. System z is the leading platform
for virtualization as it is able to support thousands of images and
operate fully utilized. The company’s POWER architecture supports
hundreds of partitions, often driving utilization rates of over  per-
cent. Both of these platforms leverage the entire system, from the
company’s custom semiconductors through the software stack, to
achieve these high levels of efficiency and lower cost of ownership.
The distributed computing model, which utilizes many small servers,
cannot offer the same level of efficiency and value.
System z revenue increased . percent ( percent adjusted for
currency) in  versus . System z revenue growth was particu-
larly strong in the Americas (up  percent), as well as in the Financial
Services and Industrial sectors globally. Clients in emerging markets
also leveraged this platform’s stability and efficiency during .
MIPS (millions of instructions per second) shipments increased 
percent in  versus , posting double-digit growth in each
quarter, reflecting strength in both traditional and specialty work-
loads. Specialty MIPS increased  percent in , as clients exploit
the capabilities of System z to bring new Linux and Java applications
to this highly efficient and cost effective platform.
Converged System p revenue increased . percent ( percent
adjusted for currency) in  versus , reflecting solid demand
for the energy efficiencies and multi-operating system capabilities
of POWER technology. Clients are concluding that POWER
technology is the right solution for a multitude of workloads. The
revenue growth was primarily driven by midrange servers which
increased  percent and high-end servers which increased  per-
cent in  versus .
Legacy System i revenue decreased . percent ( percent
adjusted for currency) in  versus , as the company continues
to transition the System i customer base to the converged POWER
platform within System p.
System x revenue decreased . percent ( percent adjusted for
currency) in  versus . System x server revenue declined 
percent and blades revenue decreased  percent, in  versus ,
respectively. The decline in server revenue reflects a significant
slowdown in the x market, especially in the second half of , as
clients are virtualizing and consolidating workloads onto more effi-
cient platforms such as POWER and mainframe.
System Storage revenue decreased . percent ( percent adjusted
for currency) in  versus . Total disk revenue was essentially
flat in  versus . Enterprise Disk revenue increased  percent
primarily due to increased demand for the DS product, while
midrange disk revenue declined  percent. Tape revenue declined
 percent in  primarily due to reduced demand and clients
deciding to purchase additional media to expand the utilization of
their existing devices.
Microelectronics OEM revenue decreased . percent ( per-
cent adjusted for currency) in  versus . The primary mission
of this business is to provide leadership technology for the systems
business, as demonstrated during  in the new System z main-
frame and POWER systems.
Retail Stores Solutions revenue decreased . percent ( percent
adjusted for currency) in  versus , reflecting weakness in the
retail sector and a compare to a strong , when a new program-
mable point-of-sale solution was being delivered to large clients.
($  )
Yr.-to-Yr.
For the year ended December : 2008 2007 Change
SYSTEMS AND TECHNOLOGY
GROSS PROFIT:
Gross profit $7,341 $8,468 (13.3)%
Gross profit margin 38.1% 39.7% (1.7) pts.