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How Does IBM Make Money?

Founded in 1911, the International Business Machines Corporation (IBM ) is one of the oldest and most well known tech companies in the U.S. The company began with a merger of three 19th-century companies, which created the Computing-Tabulating-Recording Company (CTR). After the company changed its name in 1924, it also expanded beyond its primary product line-up of commercial scales and punch card tabulators. Now, more than a century later, the company has become one of the biggest multinational technology services companies in the world.

IBM's Revenue by Segment

The company is divided into five major segments: Global Technology Services and Global Business Services, which the company collectively calls Global Services, Software, Systems and Technology, and Global Financing. Together, these segments account for $97,751,000,000 in revenue for a single year (according to IBM’s 2013 10-K filing).

In this piece, we explore each of these segments, detailing their operations as well as contributions to the company’s overall profitability.

Global Technology Services

IBM’s Global Technology Services segment accounts for more than one-third of the company’s total revenue. The segment focuses on providing IT infrastructure and business process services. The segment aims to use its technological expertise and industry insight to align its customers’ IT and business objectives. The segment’s current services lineup includes:

  • Strategic Outsourcing
  • Global Process Services
  • Integrated Technology Services
  • Cloud Services
  • Technology Support

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This segment raked in nearly $26 billion in revenues in 2013, account for roughly one-quarter of IBM’s total revenue. Software consists primarily of middleware and operating systems software. One of the most innovative pieces of software that IBM offers is Watson – the first commercially available cognitive computing platform that has the ability to interact in natural language, processing big data, and learning from its interactions with people. IBM’s other software include:

  • WebSphere
  • Information Mangaement
  • Tivoli
  • Social Workforce
  • Rational
  • Mobile

Global Business Services

This segment accounts for a little over 18% of IBM’s annual revenue. Global Business Services focuses on two primary business areas: Consulting and Application Management Services. The consulting segment provides expertise on business strategy, finance, technology, marketing, operation, and supply chain. Application Management Services offer application management, maintenance, and support services for packaged software, as well as custom and legacy applications.

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Systems & Technology

The Systems & Technology segment is often referred to as the “hardware” division of IBM. It accounts for just under 15% of total revenues. The segment provides core technologies for data centers, semiconductor technology, data storage products, and products, and packaging solutions for IBM’s own advanced technology needs and for external clients. The lineup includes:

  • System Z
  • Power Systems
  • System X
  • Disk, Tape, and Flash Storage
  • Microelectronics

Global Financing

IBM’s Global Financing segment accounts for only 2% of the company’s annual revenues. The segment aims to help clients acquire technological solutions and services by providing robust financing and asset management strategies. Global Financing offers three main services: client financing, commercial financing, and remanufacturing and remarketing. The segment currently operates in over 55 countries across the world.

The Bottom Line

While many investors may have guessed which segments generate the most revenue for IBM, this exercise goes to show how important it is for investors to figure out how a particular company makes money. SEC filings–10-Ks in particular–are a great place for investors to dig deeper into a company’s business.

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