IBM 2013 Annual Report Download - page 50

49
Management Discussion
International Business Machines Corporation and Subsidiary Companies
Global Services
The Global Services segments, Global Technology Services and
Global Business Services, generated $14,664 million of revenue in
the fourth quarter, a decrease year to year of 2.3 percent as
reported, but an increase of 1 percent adjusted for currency. This
was the second consecutive quarter of constant currency revenue
growth in total Global Services. Pre-tax income of $2,929 million in
the fourth quarter of 2013 was up 2.1 percent year to year and the
pre-tax margin improved 0.9 points, with margin expansion in both
segments. Global Services continued to have good performance in
the key growth areas of cloud, business analytics and Smarter
Planet in the quarter, and the company is continuing to invest to
extend its capabilities. Total outsourcing revenue of $6,662 million
decreased 4.5 percent (1 percent adjusted for currency) and total
transactional revenue of $6,202 million increased 0.3 percent
(4 percent adjusted for currency) year over year.
Global Technology Services revenue of $9,917 million decreased
3.6 percent (1 percent adjusted for currency) in the fourth quarter
of 2013 with constant currency performance in line with the third
quarter of 2013. The major markets returned to constant currency
growth for the first time since the first half of 2012, led by Europe,
while the growth markets performance decelerated. GTS Outsourc-
ing revenue decreased 4.2 percent (1 percent adjusted for currency)
in the fourth quarter of 2013; however, constant currency perfor-
mance improved 2 points from the third quarter. While GTS
Outsourcing is beginning to realize the benefit from several of the
large client transformational contracts signed earlier in 2013, it con-
tinues to see a decline in revenue from sales into existing base
accounts where the activity is more transactional in nature and can
be economically sensitive. ITS revenue decreased 3.1 percent (flat
adjusted for currency) in the fourth quarter. 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 to the ITS revenue performance
and drove one point of constant currency revenue growth to total
GTS in the fourth quarter. The GTS gross profit margin improved 1.2
points in the fourth quarter, with margin expansion across all lines
of business, led by ITS and Maintenance. Pre-tax income decreased
1.9 percent to $1,989 million while the pre-tax margin improved 0.4
points to 19.5 percent in the fourth quarter of 2013 compared to the
prior year. Profit performance was impacted by the performance in
the growth markets. In addition, the company continues to make
investments in key growth areas such as cloud, mobility and secu-
rity. These initiatives are beginning to contribute to revenue growth,
and will yield improved profit results as they achieve scale. Margin
expansion was driven by reductions in performance-related com-
pensation and benefits from the second-quarter 2013 workforce
rebalancing actions.
Global Business Services revenue of $4,747 million increased
0.6 percent as reported and 4 percent at constant currency in the
fourth quarter of 2013 and gained share again in the period. GBS
had constant currency revenue growth in all geographic regions led
by North America and the growth markets. Japan continued its solid
performance, and Europe had constant currency revenue growth
for the second consecutive quarter. On an offering basis, growth
was driven by the practices that address the Digital Front Office.
GBS delivered double-digit growth in each of the strategic growth
initiatives—business analytics, Smarter Planet and cloud. In addi-
tion, within the back office solutions that address the Globally
Integrated Enterprise, implementation services that support the
traditional packaged applications increased again in the fourth quar-
ter at constant currency. Application Outsourcing revenue decreased
6.5 percent (2 percent adjusted for currency) and C&SI revenue
increased 2.7 percent (6 percent adjusted for currency), representing
a 1 point sequential improvement at constant currency from the third
quarter of 2013. The GBS gross profit margin improved 0.7 points
in the fourth quarter versus the prior year. GBS pre-tax income of
$940 million in the fourth quarter of 2013 increased 11.7 percent,
with a pre-tax margin of 19.1 percent, an improvement of 2.0 points
year to year. The primary year-to-year profit drivers were reductions
in performance-related compensation, continued benefits from the
enterprise productivity initiatives and the second-quarter 2013 work-
force rebalancing actions.
Software
Software revenue of $8,140 million increased 2.8 percent (4 percent
adjusted for currency) in the fourth quarter led by growth in key
branded middleware. Key branded middleware revenue increased
5.5 percent (6 percent adjusted for currency) year to year and
gained share.
WebSphere revenue increased 14.3 percent (15 percent adjusted
for currency) in the fourth quarter and gained share. Revenue per-
formance included good growth in both the on-premise Application
Server business and the newer cloud-based offerings. Mobile con-
tinued to have strong growth—the comprehensive MobileFirst
portfolio of software and services extends value to clients enabling
them to reach new markets and gain competitive advantage. In addi -
tion, the core WebSphere offerings of Business Integration and
Commerce delivered strong growth. Information Management rev-
enue increased 4.8 percent (5 percent adjusted for currency) in the
fourth quarter and gained share. Distributed database offerings
were up double-digits at constant currency, and the business ana-
lytics software offerings had its strongest growth in 2013 in the
fourth quarter, led by business intelligence and Netezza appliances.
Tivoli revenue increased 0.5 percent (1 percent adjusted for cur-
rency) in the fourth quarter compared to the prior year period, driven
by double-digit growth in its security business. The transformation
driven by mobile and cloud computing is raising the importance of
security for enterprise customers, and the company is continuing to
build its capabilities in this area. Social Workforce Solutions revenue
increased 2.4 percent (3 percent adjusted for currency) in the fourth
quarter and continued to be driven by Kenexa, which provides
cloud-based recruiting and talent management. Rational revenue
increased 0.3 percent (1 percent adjusted for currency) year to year
in the fourth quarter.
The Software business delivered pre-tax income of $4,239
million in the fourth quarter of 2013, an increase of 5.5 percent year
to year, with a pre-tax margin of 47.0 percent, an improvement of
1.0 points.