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53
Management Discussion
International Business Machines Corporation and Subsidiary Companies
($ inmillions)
For the year ended December 31: 2014** 2013**
Yr.-to-Yr.
Percent
Change
Yr.-to-Yr.
Percent Change
Adjusted for
Currency
Global Services external revenue $54,954 $56,947 (3.5)% 0.7%*
Global Technology Services $35,442 $35,737 (0.8)% 1.7%*
Outsourcing 19,082 19,245 (0.8) 1.5
Integrated Technology Services 9,506 9,380 1.3 3.7
Maintenance 6,853 7,111 (3.6) (0.1)*
Global Business Services $19,512 $21,210 (8.0)% (1.1)%*
Outsourcing 5,438 6,912 (21.3) (4.7)*
Consulting and Systems Integration 14,075 14,298 (1.6) 0.4
* Adjusted for divestitures and currency.
** Reclassified to conform with 2015 presentation.
Global Technology Services revenue of $35,442 million decreased
0.8percent as reported in 2014 compared to 2013, but increased
2percent adjusted for currency (2points) and divestitures. Within
ITS revenue, the SoftLayer platform, which provides highly dif-
ferentiated solutions for clients looking to deploy across public,
private or hybrid clouds all unified on one platform, had strong
performance. GTS Outsourcing revenue decreased 0.8percent
as reported in 2014, but increased 1percent adjusted for currency.
Growth was driven by performance from the substantial new con-
tracts brought on during 2013. In 2014, clients continued to sign
large outsourcing engagements that leverage the company’s
cloud, business analytics and mobile solutions.
Global Business Services revenue of $19,512 million decreased
8.0percent as reported and 1percent adjusted for divestitures
(5points) and currency (2points) compared to 2013. Within Con-
sulting and Systems Integration revenue, there was strong growth
in the practices that are highly differentiated in the marketplace
which address cloud, analytics, mobile and social, offset by
declines in the more traditional parts of the portfolio, such as back
office implementations. As the new offerings continue to become
a larger part of the portfolio they will contribute more meaningfully
to the revenue performance. In July 2014, the company announced
a strategic partnership with Apple to deliver a new class of “enter-
prise ready” MobileFirst business applications for iOS combining
mobility and analytics. In the fourth quarter of 2014, the first appli-
cations were launched.
($ inmillions)
For the year ended December 31: 2014*2013*
Yr.-to-Yr.
Percent/
Margin
Change
Global Services
Global Technology Services
External gross profi t $13,808 $13,958 (1.1)%
External gross profi t margin 39.0% 39.1% (0.1) pts.
Pre-tax income $ 5,931 $ 6,649 (10.8)%
Pre-tax margin 16.3% 18.1% (1.8 ) pts.
Global Business Services
External gross profi t $ 5,923 $ 6,409 (7.6)%
External gross profi t margin 30.4% 30.2% 0.1 pts.
Pre-tax income $ 3,408 $ 3,548 (3.9)%
Pre-tax margin 17.0% 16.2% 0.8 pts.
* Reclassified to conform with 2015 presentation.
Overall, the profit performance in GTS reflects the actions that
the company has taken to transform the business. The company
has invested in its strategic imperatives to accelerate growth,
continued to optimize its delivery platform through workforce
rebalancing and broader use of automation, and divested busi-
nesses, all impacting the year-to-year results. While these actions
all have near-term impacts to profit, they position the GTS business
more effectively going forward and will enable it to deliver more
value to clients.
In 2014, GBS profit was impacted by lower revenue on a rela-
tively fixed cost base partially offset by a benefit from the pre-tax
gain of $202million related to the customer care divestiture. In
areas where the company has strong differentiation, such as
solutions that address the strategic imperatives, there was good
growth and gross margin performance. However, in the more
traditional parts of the portfolio, there was continued price and
profit pressure. The company will continue to invest in the strategic
imperatives and accelerate the transition to global delivery.