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. The company has clients 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 (AI).
  • IBM to acquire a Brazilian software provider that is expected to enhance its AI capabilities.

IBM’s Financials

IBM posted net income of $1.4 billion on $18.1 billion of revenue for Q2 2020, which ended June 30, 2020. Nearly half (47%) of that revenue originated in the Americas. About 31% came from Europe, the Middle East, and Africa; and the remaining 22% originated in the Asia Pacific. Net income fell 45.5% in Q2 compared to the same quarter a year ago. Revenue fell 5.4% compared to the year-ago quarter.

For 2019, IBM's annual net income growth slowed to 8.1% 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 3.3% in Q2 2020 to $5.7 billion, comprising about 32% of IBM's total revenue. Pre-tax income fell 14.9% to $1.7 billion. Even with that decline, the segment comprised 62% 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 fell 7.3% to $3.9 billion in Q2 2020, comprising nearly 22% of IBM's revenue. Pre-tax income grew 24.8% to $362 million, 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 7.6% in Q2 2020 to $6.3 billion, but it still comprised the largest share of IBM's total revenue at nearly 35%. Pre-tax income grew 6.4% for the quarter to $250 million, comprising about 9% 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 grew 5.6% in Q2 2020 to $1.9 billion, comprising 10% of IBM's total revenue. Pre-tax income grew 306.6% to $248 million, comprising about 9% 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 24.5% in Q2 2020 to $265 million, comprising more than 1% of IBM's total revenue. Pre-tax income declined 26.4% for the quarter to $176 million, comprising more than 6% 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 revealed in mid-August the next generation of its IBM Power central processing unit family. The company said the new IBM POWER10 processor is designed to meet the unique needs of enterprise hybrid cloud computing. It will offer up to 3x greater energy efficiency, workload capacity, and container density than the IBM POWER9 processor.

In early July, IBM announced that it had reached a definitive agreement to acquire WDG Soluções Em Sistemas E Automação De Processos LTDA, a Brazilian software provider of robotic process automation. IBM expects the acquisition to advance the company's comprehensive AI-infused automation capabilities. The financial terms of the deal were not disclosed.

How IBM Reports Diversity & Inclusiveness

As part of our effort to improve the awareness of the importance of diversity in companies, we offer investors a glimpse into the transparency of IBM and its commitment to diversity, inclusiveness, and social responsibility. We examined the data IBM releases to show you how it reports the diversity of its board and workforce to help readers make educated purchasing and investing decisions.

Below is a table of potential diversity measurements. It shows whether IBM discloses its data about the diversity of its board of directors, C-Suite, general management, and employees overall, as is marked with a ✔. It also shows whether IBM breaks down those reports to reveal the diversity of itself by race, gender, ability, veteran status, and LGBTQ+ identity.

IBM Diversity & Inclusiveness Reporting
  Race Gender Ability Veteran Status Sexual Orientation
Board of Directors          
C-Suite
 
       
General Management ✔ (U.S. Only)      
Employees ✔ (U.S. Only)