IBM 2013 Annual Report Download - page 37

36 Management Discussion
International Business Machines Corporation and Subsidiary Companies
Global Services
In 2013, the Global Services segments, Global Technology Services
(GTS) and Global Business Services (GBS), delivered $56,947 million
of revenue, grew pre-tax income 2.5 percent and expanded pre-tax
margin 1.0 points. GBS returned to revenue growth in 2013, at con-
stant currency, leveraging the investments made in the Digital Front
Office practices. GTS revenue performance improved during the
second half of 2013 and is stabilizing. Global Services had
good performance in the key growth initiatives of Smarter Planet,
business analytics and cloud, and is continuing to invest to expand
its capabilities in these areas. Total outsourcing revenue of $26,157
million decreased 5.1 percent (2 percent adjusted for currency) and
total transactional revenue of $23,678 million decreased 1.0 percent
as reported, but increased 2 percent adjusted for currency year to
year. The estimated Global Services backlog was $143 billion at
December 31, 2013, an increase of 1.8 percent (5 percent adjusted
for currency) versus the prior year-end balance.
($ in millions)
For the year ended December 31: 2013 2012
Yr.-to-Yr.
Percent
Change
Yr.-to-Yr.
Percent Change
Adjusted for
Currency
Global Services external revenue $56,947 $58,802 (3.2)% (0.2)%
Global Technology Services $38,551 $40,236 (4.2)% (1.4)%
Outsourcing 22,060 23,344 (5.5)(2.7)
Integrated Technology Services 9,380 9,550 (1.8) 1.0
Maintenance 7,111 7,343 (3.1)(0.7)
Global Business Services $18,396 $18,566 (0.9)% 2.6%
Outsourcing 4,097 4,209 (2.6)1.5
Consulting and Systems Integration 14,298 14,358 (0.4)2.9
Global Technology Services revenue of $38,551 million in 2013
decreased 4.2 percent (1 percent adjusted for currency) year to year.
From a geographic perspective, revenue declines in North America
and Europe were partially offset by growth in Japan, adjusted for
currency. GTS Outsourcing revenue decreased 5.5 percent (3 per-
cent adjusted for currency) in 2013. Revenue performance was
impacted by a decline in revenue from sales into existing base
accounts. This activity is more transactional in nature and can be
economically sensitive. Revenue was also impacted by the work done
to improve the profitability of the restructured low margin outsourcing
contracts. GTS Outsourcing had double-digit signings growth in 2013
and started to realize the benefit from several of the large transfor-
mational contract signings in its fourth-quarter 2013 revenue.
Integrated Technology Services (ITS) revenue decreased 1.8 percent
as reported, but increased 1 percent adjusted for currency in 2013
compared to 2012. The company continues to shift the ITS business
toward higher value managed services such as business continuity,
security and cloud. Within the cloud offerings, SoftLayer contributed
2 points of revenue growth to the ITS performance in 2013, and a
half-point to total GTS revenue for the year. SoftLayer provides
unmatched performance, flexibility and breadth for public and hybrid
cloud workloads. In January 2014, the company announced plans
to invest over $1.2 billion to double its SoftLayer centers, and with
40 cloud datacenters in 15 countries, the company will have cloud
centers in every major geography and key financial center.
Global Business Services revenue of $18,396 million decreased
0.9 percent as reported, but increased 3 percent at constant currency
in 2013 with growth in both GBS Outsourcing and Consulting and
Systems Integration (C&SI), adjusted for currency. GBS revenue
increased 0.5 percent (4 percent at constant currency) in the second
half of the year. On a geographic basis, revenue growth at constant
currency was led by North America, Japan and the growth markets,
while Europe was flat year to year. By offering, growth was driven by
the practices that address the Digital Front Office. GBS delivered
double-digit growth in each of the strategic growth initiatives of busi-
ness analytics, Smarter Planet and cloud. The company has been
investing to build capabilities in these key areas and now has nearly
20,000 resources in GBS focused on the growing Digital Front Office
opportunity. In the area of big data, the GBS capabilities span from
Business Analytics and Optimization strategy, through Front Office
Analytics to Fraud and Regulatory Compliance and Risk Management.
Application Outsourcing revenue decreased 2.6 percent as reported,
but increased 2 percent adjusted for currency. C&SI revenue decreased
0.4 percent as reported, but increased 3 percent adjusted for currency.
Both lines of business had constant currency revenue growth year
to year in the growth markets. In 2013, the GBS backlog grew for the
fifth consecutive year at constant currency led by the major markets.
($ in millions)
For the year ended December 31: 2013 2012
Yr.-to-Yr.
Percent/
Margin
Change
Global Services
Global Technology Services
External gross profit $14,691 $14,740 (0.3)%
External gross profit margin 38.1% 36.6% 1.5 pts.
Pre-tax income $ 6,983 $ 6,961 0.3%
Pre-tax margin 17.6% 16.8% 0.8 pts.
Global Business Services
External gross profit $ 5,676 $ 5,564 2.0%
External gross profit margin 30.9% 30.0% 0.9 pts.
Pre-tax income $ 3,214 $ 2,983 7.7%
Pre-tax margin 16.8% 15.5% 1.3 pts.