IBM 2014 Annual Report Download - page 60

59
Management Discussion
International Business Machines Corporation and Subsidiary Companies
in the UNIX market, and took two actions to improve its business
model in Power Systems. First, it is making the platform more rel-
evant to clients. To achieve this:
• In the fourth quarter of 2013, the company introduced a new
Integrated Facility for Linux offering which enables clients to
run Linux workloads in their existing servers. This mirrors the
successful strategy the company executed on the Systemz
platform;
• The company will expand its Linux relevance even further
with POWER8 in 2014, which will provide additional big data
and cloud capabilities; and
• Through the company’s OpenPOWER consortium it is making
Power technology available to an open development alliance,
building an ecosystem around the Power technologies.
Secondly, even with these additional capabilities, the company
recognizes that the size of the Power platform will not return to
prior revenue levels. The company will take action by right-sizing
the business for the demand characteristics it expects.
Systemx revenue decreased 13.5percent (13percent adjusted
for currency) in 2013 versus 2012. High-end Systemx revenue
decreased 16percent (16percent adjusted for currency) and
blades revenue declined 45percent (45percent adjusted for cur-
rency) in 2013 compared to 2012. The declines in both high-end
Systemx and blade were partially offset by increased revenue
driven by Pure Systems.
Storage revenue decreased 10.8percent (10percent adjusted
for currency) in 2013 versus 2012. The company’s flash solu-
tions continued to gain momentum in 2013 with positive revenue
Geographic Revenue
In addition to the revenue presentation by reportable segment, the company also measures revenue performance on a geographic basis.
The following geographic, regional and country-specific revenue performance excludes OEM revenue.
($ in millions)
For the year ended December 31: 2013 2012
Yr.-to-Yr.
Percent
Change
Yr.-to-Yr.
Percent Change
Adjusted for
Currency
Total revenue $98,367 $102,874 (4.4)% (2.3)%
Geographies $97,800 $102,268 (4.4)% (2.2)%
Americas 43,249 44,556 (2.9) (2.0)
Europe/Middle East/Africa 31,628 31,775 (0.5) (2.1)
Asia Pacific 22,923 25,937 (11.6) (2.8)
Major markets (4.2)% (2.2)%
Growth markets (4.9)% (2.4)%
BRIC countries (8.2)% (5.6)%
growth. The Storwize products delivered double-digit growth,
which were more than offset by declines in legacy OEM mid-range
offerings, and declines in high-end offerings driven by significant
pricing pressure.
($ in millions)
For the year ended December 31: 2013 2012
Yr.-to-Yr.
Percent/
Margin
Change
Systems and Technology
External gross profit $5,299 $6,966 (23.9)%
External gross profit margin 40.8% 43.4% (2.6) pts.
Pre-tax income $ 213 $1,866 (88.6)%
Pre-tax margin 1.6%11.2%(9.6) pts.
The decrease in external gross profit in 2013 versus 2012 was due
to lower revenue and a lower overall gross profit margin reflecting
the business model challenges. Overall gross margin decreased
2.6points year to year in 2013 driven by lower margins in Power
Systems, Systemx and Storage as well as a decline due to revenue
mix, partially offset by margin improvement in Systemz.
Systems and Technology’s pre-tax income decreased
88.6percent to $213 million in 2013. Pre-tax margin decreased
9.6points in 2013 versus 2012.
Global Financing
See pages 73 through 77 for an analysis of Global Financing’s seg-
ment results.