How IBM Makes Money

IBM's main profit center is its Software segment

International Business Machines Corp. (IBM) sells a wide range of products and services, including software, consulting, and hybrid cloud infrastructure. The company also provides financing services to its clients in order to facilitate their acquisition of its information technology (IT) systems, software, and services. The company has clients in more than 175 countries and competes with hundreds of companies ranging from small businesses to large multinational corporations.

IBM's 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 software, offers consulting services, and provides hybrid cloud infrastructure solutions.
  • The Software segment is IBM's biggest source of revenue and profits.
  • IBM strives to be a leading provider in the hybrid cloud and AI.
  • The company has stopped selling technology in Russia in response to Russia's invasion of Ukraine.
  • IBM has acquired Neudesic, a cloud services consulting company.

IBM’s Financials

IBM announced in late January financial results for its 2021 fiscal year (FY), which ended Dec. 31, 2021. The company reported a net income of $5.7 billion, up 2.7% compared to the previous year. Annual revenue grew 3.9% to $57.4 billion. Gross profit for the year rose 2.0% to $31.5 billion. The company's gross profit margin was 54.9%, down from 55.9% in FY 2020.

IBM said in its annual report for the year that its financial results reflected progress in several key growth areas, such as in technology and consulting. The company noted that the COVID-19 pandemic created a business environment of uncertainty. But at the same time, the pandemic has reinforced the need of many of IBM's clients to modernize their businesses. The company's hybrid cloud and artificial intelligence (AI) solutions are helping companies to digitally transform their businesses.

IBM’s Business Segments

IBM operates through four business segments: Software, Consulting, Infrastructure, and Financing. It provides a breakdown of revenue and gross profit margin for each of these segments. It also provides a gross profit figure for the first three segments. We use the gross profit margin and revenue figure for the Financing segment to derive a figure for gross profit, which is used in the gross profit pie chart above. Note that IBM also generated revenue through an "Other" category, which we exclude from the revenue and gross profit share percentages below and in the pie charts above.

Software

IBM's Software segment bridges the company's software solutions with its hybrid cloud platform in order to help clients with their data needs and to help them automate and secure their systems. The segment includes all of IBM's software offerings except the software included in the Infrastructure segment.

The Software segment generated $24.1 billion in revenue in FY 2021, up 5.3% from the previous year. It accounted for more than 42% of total revenue across all four segments. The segment's gross profit rose 5.9% to $19.0 billion, comprising 59% of the total across all segments.

Consulting

IBM's Consulting segment advises its clients in helping them to transform their businesses and implement new technology. The segment designs and builds hybrid cloud architectures, optimizes workflows and business processes, and co-creates products and solutions with IBM's clients in order to help digitally transform their businesses.

The Consulting segment generated $17.8 billion in revenue during the year, up 9.8% compared to FY 2020. It accounted for more than 31% of total revenue across all segments. The segment's gross profit rose 4.9% in FY 2021 to $5.0 billion, comprising about 16% of the total across all four segments.

Infrastructure

IBM's Infrastructure segment provides hybrid-cloud solutions. It provides clients with infrastructure platforms that help to meet the new requirements related to hybrid multi-cloud and enterprise AI workloads. It also offers hardware, such as high-performance servers, storage solutions, and cloud infrastructure-as-a-service (IaaS). The segment also includes remanufacturing and remarketing of used equipment.

The Infrastructure segment's revenue fell 2.4% in FY 2021 to $14.2 billion, comprising nearly 25% of total revenue across all four segments. The segment generated $7.8 billion in gross profit, down 6.1% compared to the previous year. It accounted for about 24% of total gross profit across all segments.

Financing

IBM's Financing segment helps the company's clients acquire its IT systems, software, and services. The segment typically provides financing for products or services that are critical to the business operations of the client and are supportive of IBM's hybrid cloud platform and AI strategy.

The Financing segment generated $774 million in revenue, down 20.6% compared to FY 2020. It accounted for more than 1% of total revenue across all segments. The segment's gross profit for the year fell 39.7% to $245 million, comprising nearly 1% of the total across all four segments.

IBM’s Recent Developments

On March 3, 2022, IBM issued a statement on Russia's invasion of Ukraine. In the message, the company indicated that it has stopped selling technology in Russia in response to the crisis.

On Feb. 15, 2022, IBM announced that it has acquired Neudesic, a cloud services consultancy that specializes in the Microsoft Azure cloud platform. The company said that the acquisition will help to expand its hybrid multi-cloud services offerings and aid with its ongoing hybrid cloud and AI strategy. Financial terms of the transaction were not disclosed.

How IBM Reports Diversity and 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)      
Article Sources
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  1. International Business Machines Corp. "Form 10-K for the year ended Dec. 31, 2021," Pages 1-2.

  2. International Business Machines Corp. "Form 10-K for the year ended Dec. 31, 2021," Pages 5 & 9.

  3. International Business Machines Corp. "Form 10-K for the year ended Dec. 31, 2021," Page 2.

  4. International Business Machines Corp. "Annual Report 2021," Page 8.

  5. International Business Machines Corp. "Annual Report 2021," Page 17.

  6. International Business Machines Corp. "Annual Report 2021," Pages 8-9.

  7. International Business Machines Corp. "Annual Report 2021," Page 13.

  8. International Business Machines Corp. "Annual Report 2021," Page 17.

  9. International Business Machines Corp. "Annual Report 2021," Page 13.

  10. International Business Machines Corp. "Annual Report 2021," Page 18.

  11. International Business Machines Corp. "Annual Report 2021," Page 14.

  12. International Business Machines Corp. "Annual Report 2021," Page 19.

  13. International Business Machines Corp. "Annual Report 2021," Pages 14-15.

  14. International Business Machines Corp. "Annual Report 2021," Page 20.

  15. International Business Machines Corp. "Annual Report 2021," Page 15.

  16. International Business Machines Corp. "War in Ukraine: Supporting IBMers."

  17. International Business Machines Corp. "IBM Acquires Neudesic, Leading Microsoft Azure Consultancy."

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