IBM 2008 Annual Report Download - page 32

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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
Overall, gross margin decreased by . points versus the prior year.
This decrease was primarily driven by margin declines in System z,
System x and Microelectronics OEM which impacted the overall
margin by . points, . points and . points, respectively. Partially
offsetting these margin declines was a revenue mix benefit of . points
due to the increased revenue in System z and converged System p.
Systems and Technology segment pre-tax margin declined .
points to . percent in  reflecting the lower revenue and gross
profit margin in  versus .
GLOBAL FINANCING
See pages  and  for an analysis of Global Financing’s segment
results.
GEOGRAPHIC REVENUE
In addition to the revenue presentation by reportable segment, the
company also measures revenue performance on a geographic basis.
The following geographic, regional and country-specific revenue
performance discussion excludes OEM revenue, which is presented
separately.
($  )
Yr.-to -Yr.
For the year ended December : 2008 2007 Change
TOTAL REVENUE: $103,630 $98,786 4.9%
Geographies: $100,939 $95,320 5.9%
Americas 42,807 41,122 4.1
Europe/Middle East/Africa 37,020 34,699 6.7
Asia Pacific 21,111 19,501 8.3
OEM $ 2,691 $ 3,465 (22.4)%
Geographic revenue increased . percent ( percent adjusted for cur-
rency) to $, million in  when compared to . Revenue
increased in all geographies in , and adjusted for currency, revenue
growth was strongest in the Americas followed by Europe and Asia
Pacific. Revenue from the company’s growth markets organization
increased . percent ( percent adjusted for currency) while growth
in the more established major markets was . percent ( percent
adjusted for currency).
Americas revenue increased . percent ( percent adjusted for
currency) in . Revenue increased in all regions with the U.S. up
. percent, Canada . percent ( percent adjusted for currency) and
Latin America . percent ( percent adjusted for currency).
Europe/Middle East/Africa (EMEA) revenue increased . per-
cent ( percent adjusted for currency) in  when compared to .
The majority of major market countries performed well led by Spain
which grew . percent ( percent adjusted for currency), Germany
increased . percent ( percent adjusted for currency) and France
increased . percent ( percent adjusted for currency). Italy increased
. percent (decreased  percent adjusted for currency) while the U.K.
decreased . percent (increased  percent adjusted for currency).
Asia Pacific revenue increased . percent ( percent adjusted for
currency) year over year. Revenue increased in the India, South Korea,
ASEAN, Australia/New Zealand and China regions with combined
growth of . percent ( percent adjusted for currency). Japan reve-
nue, which represented  percent of the Asia Pacific revenue base,
increased . percent as reported, but decreased  percent adjusted
for currency in  when compared to .
Across the geographies, aggregate revenue from the countries
comprising the company’s growth markets organization increased
. percent ( percent adjusted for currency) in  and represented
approximately  percent of the company’s total geographic revenue.
The company has continued to invest to capture new infrastructure
spending in the growth markets. Adjusted for currency, growth in
these markets was  points higher than in the major markets. The
BRIC countries, a subset of the growth markets, together grew
. percent ( percent adjusted for currency), with growth in India
of . percent ( percent adjusted for currency), Brazil . percent
( percent adjusted for currency), China . percent ( percent
adjusted for currency) and Russia . percent ( percent adjusted
for currency).
OEM revenue decreased . percent ( percent adjusted for
currency) in  when compared to , driven by reduced demand
in the Microelectronics OEM business.
TOTAL EXPENSE AND OTHER INCOME
($  )
Yr.-to -Yr.
For the year ended December : 2008 2007 Change
Total expense and other income $28,945 $27,240 6.3%
Expense to Revenue 27.9% 27.6% 0.4 pts.
The key drivers year to year in total expense and other income were
approximately:
• Operational expense, - point
• Acquisitions, + points
• Currency, + points
In , the company continued to focus on productivity improve-
ments in its more established markets and increased its investments
in the growth markets. Within selling, general and administrative
expense (SG&A), total sales and marketing expense increased 
percent year to year ( percent adjusted for currency). Sales and mar-
keting expense in the growth markets increased  percent ( percent