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).
- 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 is spinning off its Managed Infrastructure Services unit to focus on its open hybrid cloud and AI capabilities.
IBM posted net income of $1.7 billion on $17.6 billion of revenue for Q3 2020, which ended September 30, 2020. Nearly half (46%) of that revenue originated in the Americas. About 32% came from Europe, the Middle East, and Africa; and the remaining 22% originated in the Asia Pacific. Net income rose 1.6% in Q3 compared to the same quarter a year ago. Revenue fell 2.6% 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. Any negative revenue or pre-tax income figures are not included in segment percentage share calculations or in the pie charts above.
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 6.8% in Q3 2020 to $5.6 billion, comprising about 32% of IBM's total revenue. Pre-tax income rose 42.2% to $1.8 billion. The segment comprises 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 fell 4.7% to $4.0 billion in Q3 2020, comprising nearly 23% of IBM's revenue. Pre-tax income grew 0.5% to $570 million, comprising about 19% 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 3.6% in Q3 2020 to $6.5 billion, but it still comprised the largest share of IBM's total revenue at nearly 37%. Pre-tax income fell 18.6% for the quarter to $399 million, comprising about 13% of IBM's combined segment pre-tax income.
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 15.1% in Q3 2020 to $1.3 billion, comprising 7% of IBM's total revenue. The segment posted a pre-tax loss of $37 million, compared to pre-tax income of $39 million in the year-ago quarter.
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 20.4% in Q3 2020 to $273 million, comprising about 2% of IBM's total revenue. Pre-tax income declined 28.7% for the quarter to $196 million, comprising about 7% 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 in the first half of October that it was going to separate its Managed Infrastructure Services unit of its Global Technology Services segment into a new public company. IBM said that the spinoff, which is expected to be completed by the end of 2021, will allow for the company to focus its attention on its open hybrid cloud platform and AI capabilities. The newly-formed company will also have more flexibility to focus on modernizing the infrastructure of global organizations.
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.
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|
|General Management||✔ (U.S. Only)||✔|
|Employees||✔ (U.S. Only)||✔|
Securities and Exchange Commission. "IBM Form 10-K for the year ended December 31, 2019," Page 29. Accessed Mar. 3, 2020.
Securities and Exchange Commission. "IBM Form 10-Q for the quarter ended September 30, 2020," Page 36. Accessed Nov. 1, 2020.
Securities and Exchange Commission. "IBM Form 10-K for the year ended December 31, 2019," Pages 7 & 8. Accessed Mar. 3, 2020.
Securities and Exchange Commission. "Form 10-Q for the quarterly period ended September 30, 2020," Page 3. Accessed Nov. 1, 2020.
Securities and Exchange Commission. "Form 10-Q for the quarterly period ended September 30, 2020," Page 13. Accessed Nov. 1, 2020.
Securities and Exchange Commission. "IBM Form 10-K for the year ended December 31, 2019," Page 139. Accessed Mar. 3, 2020.
Securities and Exchange Commission. "IBM Form 10-K for the year ended December 31, 2019," Pages 74 & 97. Accessed Mar. 3, 2020.
Securities and Exchange Commission. "IBM Form 10-K for the year ended December 31, 2019," Page 31. Accessed Mar. 3, 2020.
Securities and Exchange Commission. "Form 10-Q for the quarterly period ended September 30, 2020," Page 16. Accessed Nov. 1, 2020.
Securities and Exchange Commission. "IBM Form 10-K for the year ended December 31, 2019," Page 32. Accessed Mar. 3, 2020.
Securities and Exchange Commission. "IBM Form 10-K for the year ended December 31, 2019," Page 33. Accessed Mar. 3, 2020.
International Business Machines Corp. "IBM To Accelerate Hybrid Cloud Growth Strategy And Execute Spin-Off Of Market-Leading Managed Infrastructure Services Unit." Accessed Nov. 1, 2020.
International Business Machines Corp. "IBM Reveals Next-Generation IBM POWER10 Processor." Accessed Sep. 6, 2020.