International Business Machines Corp. (IBM) sells a wide range of products, including information technology (IT) services, cloud and cognitive offerings, and enterprise systems and software. It has operations in more than 175 countries and competes with hundreds of companies ranging from small businesses to large multinational corporations. Major competitors include Alphabet Inc. (GOOGL), Cisco Systems Inc. (CSCO), Microsoft Corp. (MSFT), Amazon.com Inc. (AMZN), Oracle Corp. (ORCL), Salesforce.com Inc. (CRM), and Hewlett Packard Enterprise Co. (HPE).

Key Takeaways

  • IBM sells IT services, cloud and cognitive offerings, and enterprise systems and software.
  • The Global Technology Services segment is IBM's biggest revenue source, but Cloud & Cognitive Software is the most profitable.
  • IBM's goal is to be a leading provider in the hybrid cloud and artificial intelligence.
  • Arvind Krishna, head of Cloud & Cognitive Software, will succeed Ginni Rometty as CEO on April 6.

IBM’s Financials

IBM posted net income of $9.4 billion on $77.1 billion of revenue during fiscal year (FY) 2019, which ended on December 31. Nearly half (47%) of that revenue originated in the Americas. About 32% came from Europe, the Middle East, and Africa; and the remaining 21% originated in the Asia Pacific.

Annual net income growth slowed to 8.1% during 2019 following a gain of 51.7% in 2018. Net income growth in 2018 was partly abnormally inflated by a significant decline in net income during 2017, which was largely due to one-time tax expenses of $5.5 billion related to the 2017 Tax Cuts and Jobs Act. Even though IBM's net income rose in 2019, it still was $2.4 billion less than it was in 2016 and $3.8 billion less than 2015.

The overall decline in net income during the past four years reflects the company's revenue over the same period, which declined in three of the past four years. Revenue fell 3.1% in 2019 after meager growth of 0.6% in 2018. Revenue declined 1.0% in 2017 and 2.2% throughout 2016.

IBM’s Business Segments

IBM provides a breakdown of its revenue and pre-tax income from continuing operations for five segments: Cloud & Cognitive Software; Global Business Services; Global Technology Services; Systems; and Global Financing.

Cloud & Cognitive Software

The Cloud & Cognitive Software segment brings together IBM's software platforms and solutions to deliver integrated and secure cloud, data and AI solutions to clients. The segment includes all of the company's software products except for operating system software reported in the Systems segment. Revenue for the Cloud & Cognitive segment grew 4.5% during 2019 to $23.2 billion, comprising about 30% of IBM's total revenue. Pre-tax income fell 10.5% to $8.0 billion. Even with that decline, the segment comprised 61% of IBM's total pre-tax segment income.

Global Business Services

The Global Business Services segment provides consulting, business process, and application management services. The segment is aimed at helping clients to build platform strategies, transform processes, and build hybrid, open cloud infrastructures. Revenue grew 0.2% to $16.6 billion in FY 2019, comprising nearly 22% of IBM's revenue. Pre-tax income grew 2.3% to $1.7 billion, comprising about 13% of IBM's pre-tax income for all segments.

Global Technology Services

The Global Technology Services segment offers comprehensive IT infrastructure and platform services, including a set of hybrid cloud services and solutions. Revenue for the segment fell 6.1% during 2019 to $27.4 billion, but it still comprised the largest share of IBM's total revenue at nearly 36%. Pre-tax income declined 7.6% for the year to $1.6 billion, comprising about 13% of IBM's combined segment pre-tax income.

Systems

The Systems segment provides infrastructure platforms to help meet the new requirements of hybrid multi-cloud and enterprise AI workloads. It also designs advanced semiconductor and systems technology. Revenue for the segment fell 5.4% during 2019 to $7.6 billion, comprising 10% of IBM's total revenue. Pre-tax income declined 22.5% to $0.7 billion, comprising about 5% of IBM's combined segments' pre-tax income.

Global Financing

The Global Financing segment is engaged in financing, remanufacturing and remarketing. Financing is conducted through IBM Credit, which provides financing to customers. Remanufacturing and remarketing consists of the sale or lease of refurbished or upgraded equipment. Revenue for the segment fell 11.9% during 2019 to $1.4 billion, comprising nearly 2% of IBM's total revenue. Pre-tax income declined 22.5% for the year to $1.1 billion, comprising more than 8% of IBM's combined segments' pre-tax income.

(A note to readers that the segment breakdowns above and in the pie charts exclude IBM's "Other" segment, which includes a small amount of revenue from divested businesses and other sources.)

IBM’s Recent Developments

IBM announced earlier this week that it is partnering with Infosys Ltd. (INFY), an India-based IT and business consulting company, to help companies transition, modernize, and transform their workloads and applications to the IBM Public Cloud. Infosys is the first global system integrator to join the IBM public cloud ecosystem.

The company also announced in January that IBM's board had elected Arvind Krishna, Senior Vice President for Cloud & Cognitive Software, to become Chief Executive Officer (CEO) and a member of the board on April 6. He will succeed CEO and Chairman Virginia Rometty, who will carry on as Executive Chairman of the Board until the end of the year.