IBM 2014 Annual Report Download - page 39

38 Management Discussion
International Business Machines Corporation and Subsidiary Companies
mobile, security and cloud to address the needs clients see in
their businesses. These capabilities span from real-time insights
to real-time fraud detection in a system that can consistently run
at 100-percent utilization with 100-percent uptime. The company
continues to innovate on the platform to address client needs and
extend its leadership in high-end systems, a core franchise that
has nearly doubled in installed capacity over the last fiveyears.
Power Systems revenue decreased 18.9percent (18percent
adjusted for currency) in 2014 compared to the prior year. Although
down year to year, there was sequential improvement in the year-
to-year revenue growth rate at constant currency in the last two
quarters of the year. The company has repositioned Power which is
not only a systems business, but also an open chip processor and
an IP income opportunity through the OpenPOWER foundation. In
June, scale-out systems based on POWER8 were introduced and
high-end POWER8-based enterprise systems were announced in
October. These newly announced systems are highly scalable and
can handle the most data intensive, mission critical applications
in the industry. In addition, the company saw continued expan-
sion of the OpenPOWER consortium, now with over 80 members,
14 of which are in greater China. Since the establishment of the
consortium a year ago, several offerings have been introduced
by consortium members based on the POWER architecture. In
addition, the company has initiated a strategic partnership with
Suzhou PowerCore, which intends to use POWER architecture to
develop and market processors for servers in China.
Storage revenue decreased 12.0percent (11percent adjusted
for currency) in 2014 compared to the prior year. However, at
constant currency, it delivered sequential improvement in the
year-to-year growth rate over the last three quarters of 2014. Full-
year performance included strong contribution from FlashSystem
and the Storwize portfolio. However, this was more than offset by
weakness in high-end disk and the continued wind-down of the
legacy storage-related OEM business.
($ in millions)
For the year ended December 31: 2014 2013
Yr.-to-Yr.
Percent/
Margin
Change
Systems and Technology
External gross profit $3,945 $5,299 (25.6)%
External gross profit margin 39.5% 40.8% (1.3) pts.
Pre-tax income $ 34 $ 213 (84.1)%
Pre-tax margin 0.3% 1.6% (1.3) pts.
Systems and Technology’s gross profit margin of 39.5percent
decreased 1.3points versus the prior year. The decrease was
driven by lower margins in Power Systems (1.3points) and Storage
(0.9points), partially offset by an increase due to mix (0.7points),
driven by the divestiture of the industry standard server business.
Pre-tax income decreased $179 million or 84.1percent and pre-tax
margin decreased 1.3points in 2014 versus the prior year.
In 2014, the company took significant actions to reposition
its Systems and Technology business for higher value, and rein-
forced its commitment to driving innovation in high-end systems
and storage. It repositioned Power through the development of
the POWER8 systems which are built for cloud and big data,
and it made available the POWER8 architecture through the
OpenPOWER consortium to build an open ecosystem and an IP
opportunity. The company is divesting its Microelectronics busi-
ness with future chip supply coming from an at-scale provider,
and has committed $3 billion of investment over five years in the
next era of chip technology as it strengthens its semiconductor
research and development and systems innovation. The company
also divested Systemx, the industry standard server business,
and announced the z13, the new generation of the mainframe.
With its portfolio repositioned and the introduction of the new
mainframe, this business segment should now see profit lever-
age going forward.
Global Financing
See pages 73 through 77 for an analysis of Global Financing’s seg-
ment results.