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41
Management Discussion
International Business Machines Corporation and Subsidiary Companies
Global Business Services revenue increased 2.5 percent
(2 percent adjusted for currency) to $4,877 million in the fourth quarter
of 2011. Application Outsourcing revenue increased 4.7 percent (4
percent adjusted for currency), led by strong performance in the
growth markets. Consulting and Systems Integration had revenue
growth in the fourth quarter of 1.9 percent (1 percent adjusted for
currency), an improved constant currency growth rate compared to
the third quarter. Overall GBS revenue continued to be impacted by
Japan and the Public Sector; total GBS revenue, excluding Japan
and the Public sector, increased 8.1 percent (9 percent adjusted for
currency) in the fourth quarter of 2011. Although, revenue declines
in Japan and the Public Sector continued in the fourth quarter,
performance in the Public Sector improved compared to the prior
two quarters of 2011. GBS gross profit increased 7.2 percent in the
fourth quarter and gross profit margin expanded 1.3 points versus
the prior year. GBS segment pre-tax income increased 14.4 percent
to $841 million in the fourth quarter of 2011 with pre-tax margin
expanding 1.8 points to 16.6 percent.
Software
Software revenue increased 8.7 percent (9 percent adjusted for
currency) to $7,648 million in the fourth quarter. Key branded
middleware revenue increased 11.3 percent (11 percent adjusted for
currency) year to year. This was the fifth consecutive quarter of
double-digit revenue growth in key branded middleware along with
17 consecutive quarters of share gains as the business continues to
extend its leadership in the middleware market. WebSphere revenue
increased 21.4 percent (21 percent adjusted for currency) in the
fourth quarter of 2011 year to year and gained share. Each of
WebSphere’s five product areas had revenue growth of 10 percent
or higher in the fourth quarter including the Smarter Commerce
offerings, which were up over 25 percent. Information Management
revenue increased 8.7 percent (9 percent adjusted for currency) in
the fourth quarter year to year and gained share. Distributed Database
software revenue grew double digits in the fourth quarter, led by
performance from the Netezza offerings which were up nearly 70
percent. Revenue from business analytics software offerings, most
of which are part of Information Management, continued to outpace
the market with double-digit growth in the fourth quarter. The
acquisition of Algorithmics in the fourth quarter of 2011 further
strengthens the business analytics and optimization offerings by
providing risk analytics capabilities that help customers make
informed decisions. Tivoli revenue increased 13.7 percent (14 percent
adjusted for currency) year over year in the fourth quarter and gained
share, driven by Storage software growth of 30 percent (30 percent
adjusted for currency). In addition, Security solutions had revenue
growth of 15 percent (15 percent adjusted for currency). With the
recent acquisition of Q1 Labs, the company can now offer clients a
new level of intelligence around security to enable them to better
predict, prevent and detect all types of security threats. Rational
revenue increased 3.7 percent (4 percent adjusted for currency) in
the fourth quarter and gained share, driven by strong performance
in Telelogic. Software gross profit increased 8.9 percent and the
gross profit margin expanded 0.2 points. Software delivered segment
pre-tax income of $3,710 million in the fourth quarter, a growth of
12.5 percent compared to the fourth quarter of 2010, with a pre-tax
margin of 43.7 percent, up 1.4 points.
Systems and Technology
Systems and Technology revenue decreased 7.6 percent (8 percent
adjusted for currency) to $5,803 million in the fourth quarter versus
the same period in 2010. The year-to-year decline reflects very strong
growth in the fourth quarter of 2010 of over 20 percent, driven by
mainframe growth of nearly 70 percent. System z revenue decreased
31.2 percent (31 percent adjusted for currency) and MIPS (millions
of instructions per second) shipments decreased 4 percent year to
year. The decline in revenue was a result of the strong fourth quarter
of 2010 when the company successfully launched its zEnterprise
196 server. Power Systems revenue increased 6.3 percent (6 percent
adjusted for currency) and gained share. This reflected 15 consecutive
quarters of share gains in Power Systems. In the fourth quarter, the
company had over 350 competitive displacements resulting in over
$350 million of business; approximately 60 percent of this business
was from Hewlett Packard with most of the balance coming from
Oracle/Sun. This was the strongest quarter of competitive
displacements since the company started tracking this activity in
2006. System x revenue decreased 2.5 percent (3 percent adjusted
for currency) in the fourth quarter year to year. Storage revenue
decreased 1.2 percent (1 percent adjusted for currency) in the fourth
quarter of 2011 versus the comparable period in 2010. Total disk
revenue decreased 1 percent (1 percent adjusted for currency) and
tape revenue decreased 4 percent (4 percent adjusted for currency)
in the fourth quarter. When combined with the storage software
revenue growth of 30 percent, total storage revenue increased
5 percent in the fourth quarter compared to the prior year. Retail
Stores Solutions revenue increased 8.9 percent (9 percent adjusted
for currency) in the fourth quarter and continued to gain share.
Systems and Technology gross margin decreased 3.1 points versus
the prior year driven primarily by product mix (approximately 2 points).
Systems and Technology’s pre-tax income decreased 32.6 percent
to $790 million in the fourth quarter and pre-tax margin decreased
4.8 points to 13.2 percent.
Global Financing
Global Financing revenue of $548 million decreased 12.9 percent
(13 percent adjusted for currency), driven primarily by a decrease in
used equipment sales revenue. The Global Financing segment
fourth-quarter pre-tax income decreased 9.1 percent to $514 million
and the pre-tax margin declined 0.9 points to 46.1 percent.