IBM 2012 Annual Report Download - page 31

3030 Management Discussion
International Business Machines Corporation and Subsidiary Companies
pre-tax profit, an increase of $840 million from 2011. The results
reflect the company’s sustained investment in strategic branded
software. In addition to organic investments, acquisitions have pro-
vided additional capabilities, while leveraging the existing portfolio
of offerings. The software business completed nine acquisitions in
2012, further increasing the company’s capabilities in analytics,
cloud and Smarter Planet.
Key branded middleware revenue increased 2.9 percent (5 percent
adjusted for currency) and again gained market share in 2012, as the
Software business continued to be the leader in the middleware
market. Revenue continued to mix to the faster growing and higher
value branded middleware products which accounted for 65 percent
of total software revenue in 2012, an increase of 1 point from 2011.
WebSphere revenue increased 7.8 percent (10 percent adjusted
for currency) in 2012, with strong performance throughout the year,
and gained share. Revenue performance included strong growth in
the core offerings of commerce and application servers. Commerce
revenue increased 14 percent (15 percent adjusted for currency) and
application server products increased 6 percent (8 percent adjusted
for currency). The company further strengthened its WebSphere
portfolio during the year with the acquisitions of Worklight, DemandTec,
Emptoris and Tealeaf.
Information Management revenue increased 1.5 percent (4 per-
cent adjusted for currency) in 2012 compared to 2011. Performance
was led by growth in the business analytics offerings. The acquisi-
tions of Varicent and Vivisimo expanded the Business Analytics and
Optimization software capabilities. Varicent’s analytics software
helps clients optimize sales performance management. Vivisimo
expands the breadth of the company’s big data capabilities and
creates the most complete end-to-end big data solution for clients.
Tivoli revenue increased 4.1 percent (6 percent adjusted for cur-
rency) in 2012, led by its storage and security offerings, and gained
share. Tivoli storage revenue was up 12 percent (14 percent adjusted
for currency) in 2012, with double-digit constant currency growth in
each quarter, reflecting the value of storage software. Tivoli security
revenue increased 8 percent (10 percent adjusted for currency), with
strong contribution from Q1 Labs which provides next generation
security intelligence.
Lotus revenue decreased 2.1 percent as reported, but was flat
year to year at constant currency in 2012. The social business offer-
ings performed well, including contribution from the acquisition of
Kenexa, a leading provider of recruiting and talent management
solutions.
Rational revenue decreased 1.6 percent as reported, but increased
1 percent at constant currency in 2012 year over year, and held share.
Operating systems revenue increased 1.8 percent (4 percent
adjusted for currency) in 2012 compared to 2011, driven by Platform
Computing which provides cluster and grid management software
for distributed computing environments.
Other software revenue increased 7.0 percent (9 percent adjusted
for currency) driven by growth in software-related services.
($ in millions)
For the year ended December 31: 2012 2011
Yr.-to-Yr.
Percent/
Margin
Change
Software
External gross profit $22,569 $22,065 2.3%
External gross profit margin 88.7% 88.5% 0.2 pts.
Pre-tax income $10,810 $ 9,970 8.4%
Pre-tax margin 37.6% 35.3% 2.3 pts.
Software gross profit increased 2.3 percent to $22,569 million in
2012, with a gross profit margin of 88.7 percent, up 0.2 points year
to year. Software pre-tax income of $10,810 million increased 8.4
percent and the pre-tax margin improved 2.3 points to 37.6 percent.
Normalized for workforce rebalancing charges of $94 million and
$6 million in the third quarter of 2012 and 2011, respectively, software
pre-tax income was up 9.3 percent and the pre-tax margin
expanded 2.6 points. The Software business had another success-
ful year leveraging revenue growth and expense productivity to drive
significant margin expansion and profit growth.
Systems and Technology
($ in millions)
For the year ended December 31: 2012 2011*
Yr.-to-Yr.
Percent
Change
Yr.-to-Yr.
Percent Change
Adjusted for
Currency
Systems and Technology external revenue $17,667 $18,985 (6.9)% (5.9)%
System z 5.4%6.3%
Power Systems (8.5)(7.4)
System x (3.7)(2.7)
Storage (5.8)(4.1)
Total Systems excluding Retail Store Solutions (3.7)(2.5)
Microelectronics OEM (14.4)(14.4)
Total Systems and Technology excluding Retail Store Solutions (5.1)(4.0)
Retail Store Solutions (Divested in 2012) (52.6)(51.7)
* Reclassified to conform with 2012 presentation.