International Business Machines Corp. (IBM) sells a wide range of products, including information technology (IT) services, cloud and cognitive offerings, artificial intelligence (AI), 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 strives to be a leading provider in the hybrid cloud and AI.
  • IBM is considering selling off its Watson Health business.
  • The company made several acquisitions at the end 2020.

IBM’s Financials

IBM posted net income of $5.6 billion on $73.6 billion of revenue in its 2020 fiscal year (FY), which ended December 31, 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 fell 40.7% as revenue declined 4.6% during the year.

IBM noted that the COVID-19 pandemic impacted its business in FY 2020. The uncertainty created by the pandemic led to a shift in client priorities toward maintaining operational stability, flexibility, and the preservation of cash. Although clients continued to demand products and services that support their digital transformation, they opted for engagements with a shorter time horizon and prioritized operational expenditures over capital expenditures.

IBM’s Business Segments

IBM provides a breakdown of its revenue (i.e. external revenue, which excludes revenue derived from intersegment transactions) 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 a hybrid cloud service that helps clients predict, automate, secure, and modernize their business. 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 2.1% in FY 2020 to $23.4 billion, comprising about 32% of IBM's total revenue. Pre-tax income fell 18.6% to $6.4 billion. The segment comprises 70% 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 AI-enabled intelligent workflows and modernize application suites that are optimized for hybrid cloud environments. Revenue fell 3.8% to $16.2 billion in FY 2020, comprising nearly 22% of IBM's revenue. Pre-tax income declined 16.8% to $1.4 billion, comprising about 15% 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 5.7% in FY 2020 to $25.8 billion, but it still comprised the largest share of IBM's total revenue at over 35%. Pre-tax income fell 92.9% for the year to $117 million, comprising about 1% 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 8.2% in FY 2020 to $7.0 billion, comprising 10% of IBM's total revenue. The segment posted a 35.9% decline in pre-tax income to $449 million, comprising 5% of the total for all segments.

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 19.8% in FY 2020 to $1.1 billion, comprising about 2% of IBM's total revenue. Pre-tax income declined 27.9% for the quarter to $761 million, comprising about 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

BM is considering selling its Watson Health business, a person with knowledge of the matter told Bloomberg. IBM is exploring different alternatives, such as a sale to a private equity firm or a merger with a blank-check company. However, it is still early in the deliberations and the company decide not to pursue a deal, said the person who asked not to be identified.

IBM made a number of acquisitions late last year, including: an agreement to acquire Nordcloud, a European leader in cloud implementation, application transformation, and managed services (December 21, 2020); acquisition of Canada-based fintech company, Expertus Technologies Inc. (December 15, 2020); an agreement to acquire Instana, an application performance monitoring and observability company (November 18, 2020); and an agreement to acquire TruQua Enterprises LLC, an IT services and consulting SAP development partner that specializes in delivering finance and analytics solutions to Fortune 500 companies (November 16, 2020).

IBM announced in the first half of October 2020 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.


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)