IBM 2010 Annual Report Download - page 31

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Management Discussion
International Business Machines Corporation and Subsidiary Companies
Software revenue of $22,485 million increased 5.1 percent (5 percent
adjusted for currency) in 2010 compared to 2009. Adjusting for the
divested PLM operations, revenue grew at 8.1 percent (8 percent
adjusted for currency) in 2010. Software revenue growth continued
to be led by the Key Branded Middleware products with strong
performance in the areas of business commerce, business analytics,
storage management and business integration. Overall, the
Software business performed well in 2010, delivering over $9 billion
in segment pre-tax profit, an increase of 12 percent as reported
versus 2009. In addition, the company continues to invest in addi-
tional capabilities for the software business through both organic
investments and the completion of 13 acquisitions in 2010.
Key Branded Middleware revenue increased 10.8 percent
(11 percent adjusted for currency) and gained market share again
in 2010 as the Software business extended its lead in the middle-
ware market. Software revenue continued to mix to the faster
growing branded middleware which accounted for 62 percent of
total software revenue in 2010, an increase of 3 points from 2009.
Adjusted for currency, growth in 2010 was led by growth in
WebSphere and Tivoli. The Software business continues to benefit
from the company’s growth initiatives, with business analytics
revenue up year over year.
WebSphere revenue increased 20.8 percent (21 percent
adjusted for currency) in 2010 with strong performance throughout
the year. Application Servers software had revenue growth of 12.0
percent (11.7 percent adjusted for currency) year to year. Business
Integration software, which includes the ILOG, Sterling Commerce
and Lombardi acquisitions, delivered strong revenue growth in
2010, up 33.6 percent (33 percent adjusted for currency). With the
2010 acquisitions of Sterling Commerce, Coremetrics and Unica
Corporation, the company expects continued market momentum
in its WebSphere commerce area.
Information Management revenue increased 8.6 percent
(8 percent adjusted for currency) in 2010 versus the prior year with
revenue growth in both Information Management solutions and
infrastructure offerings. The software business continued to expand
its Information Management capabilities through strategic acqui-
sitions, as the company completed the acquisitions of Netezza,
OpenPages, PSS Systems, Clarity Systems and Initiate Systems.
Tivoli revenue increased 15.0 percent (15 percent adjusted
for currency) in 2010 when compared to 2009, with revenue
growth in each element of the Integrated Service management
strategy—Systems management, Security and Storage manage-
ment. Tivoli provides clients an integrated approach to service
management.
Rational revenue increased 4.8 percent (5 percent adjusted for
currency) in 2010 versus 2009.
Operating systems revenue increased 5.5 percent (5 percent
adjusted for currency) in 2010 compared to 2009, driven by Power
Systems and System x related products.
Other software revenue decreased 16.6 percent (17 percent
adjusted for currency) due primarily to the divestiture of the PLM
operations in the first quarter of 2010.
($ in millions)
Yr.-to-Yr.
For the year ended December 31: 2010 2009 Change
Software:
External gross profit $19,537 $18,405 6.2%
External gross profit margin 86.9% 86.0% 0.9 pts.
Pre-tax income $ 9,097 $ 8,095 12.4%
Pre-tax margin 35.8% 33.6% 2.1 pts.
Pre-tax income—normalized* $ 8,603 $ 8,005 7.5%
Pre-tax margin—normalized 33.8% 33.3% 0.6 pts.
* Excludes $98 million and $17 million of workforce rebalancing charges in the first
quarter of 2010 and 2009, respectively, and $(591) million related to the PLM gain in
the first quarter of 2010 and $(106) million related to the Geodis gain in the first
quarter of 2009.
Software gross profit of $19,537 million in 2010 increased 6.2
percent versus 2009, driven primarily by the year-to-year growth
in software revenue. The improvement in the gross profit margin
was primarily driven by the divestiture of the lower gross margin
PLM revenue. The Software segment delivered $9,097 million of
pre-tax profit in 2010, an increase of $1,002 million, or 12.4 percent,
versus 2009. The segment pre-tax profit margin expanded 2.1
points to 35.8 percent. On a normalized basis, segment pre-tax
income increased 7.5 percent and segment pre-tax margin
expanded 0.6 points to 33.8 percent.
Systems and Technology
($ in millions)
Yr.-to-Yr.
Yr.-to-Yr. Change Adjusted
For the year ended December 31: 2010 2009 Change for Currency
Systems and Technology external revenue: $17,973 $16,190 11.0% 11.1%
System z 16.4% 17.7%
Power Systems (8.4) (8.5)
System x 27.5 26.8
Storage 7.6 8.1
Retail Store Solutions 22.4 23.2
Total Systems 9.5 9.6
Microelectronics OEM 24.8 24.7