IBM 2014 Annual Report Download - page 59

58 Management Discussion
International Business Machines Corporation and Subsidiary Companies
Tivoli revenue increased 3.9percent (5percent adjusted for
currency) in 2013 and gained share, driven by storage growth and
the security solutions portfolio. Tivoli storage revenue was up
7percent (8percent adjusted for currency) in 2013. Tivoli security
revenue increased 17percent (19percent adjusted for currency)
and reflected contribution from the acquisition of Trusteer in
the third quarter of 2013, which extended Tivoli’s data security
capabilities further into cloud and mobile environments. The
transformation driven by mobile and cloud computing is raising
the importance of security for enterprise customers. The com-
pany has been building and expanding its security capabilities
and at year-end 2013 had 6,000 security experts worldwide, 3,000
patents in security and 25 security laboratories worldwide across
software and services.
Workforce Solutions revenue increased 10.8percent (12per -
cent adjusted for currency) in 2013. Performance was driven by
Kenexa, which provides cloud-based recruiting and talent man-
agement solutions.
Operating systems revenue decreased 3.1percent (2per-
cent adjusted for currency) in 2013 compared to 2012, driven by
declines in Systems z and Power Systems.
($ in millions)
For the year ended December 31: 2013 2012
Yr.-to-Yr.
Percent/
Margin
Change
Software
External gross profit $23,032 $22,569 2.0%
External gross profit margin 88.8% 88.7% 0.1 pts.
Pre-tax income $11,106 $10,810 2.7%
Pre-tax margin 38.1% 37.6% 0.5 pts.
Software gross profit increased 2.0percent in 2013, with a gross
profit margin of 88.8percent. Software pre-tax income increased
2.7percent to $11.1 billion and the pre-tax margin improved
0.5points to 38.1percent. The Software business had another
successful year leveraging revenue growth and expense savings,
primarily from the company’s enterprise productivity initiatives, to
drive profit growth and margin expansion. The relative strength
of the Software business, fueled by growth in the key growth ini-
tiatives, improved the company’s business mix and contributed
to its operating (non-GAAP) consolidated gross and net margin
improvements in 2013.
Systems and Technology
($ in millions)
For the year ended December 31: 2013 2012
Yr.-to-Yr.
Percent
Change
Yr.-to-Yr.
Percent Change
Adjusted for
Currency
Systems and Technology external revenue $12,988 $16,034 (19.0)% (18.2)%
Systemz (13.4)% (12.6)%
Power Systems (31.4) (30.7)
Systemx (13.5) (12.7)
Storage (10.8) (9.7)
Total Systems and Technology excluding Retail Store Solutions (17.2) (16.4)
Retail Store Solutions (Divested in 2012) (98.2) (98.2)
Systems and Technology revenue decreased 19.0percent (18per-
cent adjusted for currency) in 2013 versus 2012. Adjusting for the
divested RSS business, revenue declined 17.2percent (16percent
adjusted for currency) in 2013. Two issues within the business sig-
nificantly impacted the segment’s revenue and profit performance
in 2013. First, STG was dealing with challenges in its hardware
business models specific to Power Systems, Storage and x86. In
addition, Systemz revenue was impacted by the product cycle,
particularly in the second half, as the company entered the back
end of the current mainframe cycle with difficult period-to-period
comparisons driving revenue declines.
Systemz revenue decreased 13.4percent (13percent adjusted
for currency) in 2013 versus 2012. The decrease was primarily
driven by lower revenue in North America, while revenue increased
in the growth markets. Millions of instructions per second (MIPS)
shipments increased 6percent in 2013 versus 2012. The increase
in MIPS was driven by specialty engines, which increased 17per-
cent year over year and continued to be more than 50percent of
the total volumes. The decline in Systemz revenue was expected
based on the product’s movement through the product cycle in
2013. In the current mainframe cycle, the company has shipped
28percent more MIPS compared to the same period in the prior
cycle. The revenue and gross profit in the current cycle are each
about 99percent of the previous cycle, net of currency. The addi-
tional MIPS capacity in the current product cycle is a reflection of
the ongoing relevance of the mainframe to clients, and provides
the company with financial returns consistent with past cycles.
Power Systems revenue decreased 31.4percent (31percent
adjusted for currency) in 2013 versus 2012. The Power platform
continued to ship significant capacity into the UNIX market, how-
ever this was more than offset by significant price performance,
resulting in lower revenue. The company has been very successful