IBM 2010 Annual Report Download - page 32

30
Management Discussion
International Business Machines Corporation and Subsidiary Companies
Systems and Technology revenue increased 11.0 percent (11 percent
adjusted for currency) in 2010 versus 2009. Revenue performance
was driven by double-digit growth in System z, System x, Micro-
electronics OEM, Storage disk products and Retail Store Solutions.
Systems and Technology had very strong performance in the
growth markets, which grew 20 percent (19 percent adjusted for
currency), driven by the BRIC countries which increased 29 percent
(28 percent adjusted for currency). The company gained share in
high-end servers, while total servers and storage held share.
System z revenue increased 16.4 percent (18 percent adjusted
for currency) in 2010 versus 2009. The increase in revenue was
driven by the new mainframe product introduced in the third quarter
and strong performance in both the growth markets and major
markets. MIPS (millions of instructions per second) shipments
increased 22 percent in 2010 versus 2009. This performance
reflects the value and innovation System z delivers to the company’s
clients. The new z Enterprise 196 server delivers 40 percent more
performance than the prior generation mainframe, driven by the
world’s fastest processor which operates at more than 5 gigahertz.
Power Systems revenue decreased 8.4 percent (9 percent
adjusted for currency) in 2010 versus 2009. Revenue increased in
the fourth quarter 1.8 percent (3 percent adjusted for currency)
as the company benefited from new POWER7 products which
were introduced late in the third quarter. Although revenue declined
in 2010, Power Systems gained share and continued to be the
market share leader. The decrease in revenue was primarily driven
by high-end servers which declined 26 percent (27 percent
adjusted for currency), partially offset by increases in midrange
systems of 7 percent (7 percent adjusted for currency) and blades
of 7 percent (7 percent adjusted for currency). The company had
over 1,000 competitive unit displacements in 2010, which drove
approximately $1 billion of business. Approximately 60 percent of
these wins came from Oracle UNIX installed accounts and 30
percent from Hewlett-Packard installed accounts. In addition, the
company also drove x86 consolidations to Power Systems, with
over 100 competitive wins.
System x revenue increased 27.5 percent (27 percent adjusted
for currency) in 2010 versus 2009. In the growth markets, revenue
increased 30 percent versus the prior year. High-end System x
revenue increased 22 percent (21 percent adjusted for currency)
in 2010 versus 2009, while total server revenue increased 27
percent (27 percent adjusted for currency) in 2010 versus 2009.
System x blades revenue increased 20 percent (20 percent
adjusted for currency) versus the prior year.
Storage revenue increased 7.6 percent (8 percent adjusted for
currency) in 2010 versus the prior year. In the growth markets,
storage revenue grew 21 percent year over year (21 percent
adjusted for currency). Total disk revenue increased 13 percent
(14 percent adjusted for currency) in 2010 versus 2009. The
increase was driven by strength in enterprise disk products which
increased 16.4 percent (17 percent adjusted for currency) led by
XIV and DS8000. XIV has added over 975 new customers since
the acquisition in the fourth quarter of 2007. Tape revenue declined
6 percent in 2010 versus 2009.
Microelectronics OEM revenue increased 24.8 percent (25
percent adjusted for currency) in 2010 versus 2009. The company
had strong revenue growth from its OEM customers in networking,
game consoles and wireless communications.
Retail Stores Solutions revenue increased 22.4 percent (23
percent adjusted for currency) in 2010 versus 2009 as the company
extended its leadership position as a point of sale provider.
($ in millions)
Yr.-to-Yr.
For the year ended December 31: 2010 2009 Change
Systems and Technology:
External gross profit $6,920 $6,127 12.9%
External gross profit margin 38.5% 37.8% 0.7 pts.
Pre-tax income $1,586 $1,419 11.8%
Pre-tax margin 8.4% 8.3% 0.2 pts.
Pre-tax income—normalized* $1,643 $1,359 20.9%
Pre-tax margin—normalized 8.8% 7.9% 0.8 pts.
* Excludes $57 million and $4 million of workforce rebalancing charges in the first
quarter of 2010 and 2009, respectively, and $(64) million related to the Geodis gain
in the first quarter of 2009.
The increase in external gross profit for 2010 versus 2009 was
due to improved operating leverage driven by higher revenue.
Overall gross margin increased 0.7 points in 2010 versus the
prior year. The increase was primarily driven by improved margins
in Microelectronics (1.6 points), System x (0.7 points) and Storage
(0.4 points), partially offset by a decline due to revenue mix (1.4
points) and lower margins in Power Systems (0.6 points) and
System z (0.5 points).
Systems and Technology’s pre-tax income increased 20.9
percent in 2010 on a normalized basis when compared to the prior
year. Pre-tax margin increased 0.8 points in 2010 on a normalized
basis versus 2009.
Global Financing
See pages 55 through 59 for an analysis of Global Financing’s
segment results.