tbr 4q10 ibm global services report

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Technology Business Research is a different kind of research company. Our bottoms-up approach provides a look at the technology industry unlike anything you’ve seen before. We analyze company performance in professional services, networking and mobility, computing and hardware, and software on a quarterly basis, leveraging our data to create industry benchmarks and landscapes that provide a business perspective on leaders and laggards and their business plans. We are experts in the business of technology.IBM Global Services (IGS) is leading its major competitors in terms of offerings and capabilities due to its offensive strategy, vision for opportunistic investments, and geographic diversification.


  • 1. Technology Business ResearchAccelerating Customer Success Through Business Research TBRT E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C .

2. PROFESSIONAL SERVICES BUSINESS QUARTERLYSMIBM Global ServicesFourth Calendar Quarter 2010Fourth Fiscal Quarter 2010 Ended Dec. 31, 2010Publish Date: Feb. 8, 2011Author: Elitsa Bakalova (elitsa.bakalova@tbri.com), PSBQ AnalystContent Editor: Alison Crawford, PSBQ Senior Analyst/TBR T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C .Project Manager 3. Contents TBRCompany Analysis Company Data Models3 Executive Summary29 Income Statements8 Strategy Overview31 Balance Sheet11Corporate SWOT Analysis32 Service Line Model15Financial Model Strategy 33 Geographic Model18Go to Market & Services Strategies 34 Vertical Revenue Model23Alliance & Acquisition Strategies35 Operating Expenses25Geographic Analysis36 Headcount Model26Resource Management Strategy 37 Financial Strategy Graphs28Future Outlook 39 Go-to-Market Graphs32Appendix 40 Resource Management Graphs 42 Acquisitions Tables 46 Portfolio of Services 47 Vertical Offerings 48 Quarterly Signings Tables 54 Strategic Alliance Tables 56 Worldwide Locations Table 58 About TBR3IGS 4Q10 | Professional Services Business Quarterly2011 Technology Business Research, Inc. 4. Executive Summary TBRIBMs growth investments will generate more signings in the near termKey Developments IBM hit $142 billion in services backlog during 4Q10, up $8 billion sequentially and $5 billion year-to-year. IBM identifies this as a momentum builder and expects to keepMomentum is pushing forward in its backlog during 2011, especially in outsourcing. IBM has clearbuilding across visibility into its outsourcing business performance. The company forecasts revenue fromservices, and Big its outsourcing backlog will grow 3% year-to-year during 2011, accounting for a majorBlue is charging share of outsourcing revenue. Growing signings (up 18% year-to-year to a record $22.1ahead at full speed 1 billion) due to improving demand in consulting & SI and in the mature markets, along with traction in the growth markets, will shape IBMs performance in 2011. IBM is investing in the development of its business analytics capabilities (a cross-businessIBM is developing unit) to capture market share and growth. Business analytics is targeted to contributeits business 20% of IBMs growth over the 2015 Corporate Roadmap. IBM is investing in dedicatedanalytics business analytics consultants (4,000 consultants in 2009; ended 2010 with 7,800);capabilities to targeted acquisitions (has spent $12+ billion on software investments since 2005); andcapture market mathematics capabilities and analytics solutions centers to serve local clients.share from Competition may create temporary challenges, but TBR believes IBM is well-positioned incompetition terms of capabilities (e.g., Cognos and SPSS gained through acquisitions) and client reach.IBM is working 1 IBMs ultimate ambition is to expand the Smarter Planet business (a cross-business unit)with clients toto ~$10 billion in total for IBM by 2015 (up from $3 billion at the end of 2010). TBRcreate a Smarter believes this is an achievable goal given IBMs ability to provide a combination ofPlanet software, services and hardware addressing key client needs from specific verticals. IBMs BPO services is now called IBM Global Process Services (previously called ManagedIBM has rebranded1 Business Process Services). TBR believes transformation has been at the forefront ofits BPO-relatedIBMs BPO offerings, and in addition to cost savings from outsourcing, IBM has providedbusiness, investingits clients with business advantages from high-end strategic consulting and integrationin growthservices. The addition of analytics to BPO creates a unique offering in TBRs view and a strong differentiator for IBM.4IGS 4Q10 | Professional Services Business Quarterly 2011 Technology Business Research, Inc. 5. Executive Summary TBRThe improving momentum in the IT services market, coupled withIBMs investments in growth, will create business opportunitiesTBR Position IBM AND IGS 4Q10 PERFORMANCE VS. EXPECTATIONS (in $ millions)Consensus Guidance Range ActualIBM Global Services (IGS) is leading its major IBM Revenue $27,910$27,240 - $28,420 $29,019competitors in terms of offerings and capabilities due IBM Services Revenue (external) N/A$14,000 - $15,000 $14,923to its offensive strategy, vision for opportunisticIBM Services Operating Income N/A N/A $2,403.00investments, and geographic diversification. IBM Non-GAAP EPS $4.00 $3.74 - $4.11$4.18 IGS will continue to grow its top line in 2011, albeitIBM AND IGS 1Q11 GUIDANCE AND EXPECTATIONSat mid-single digits in TBR estimates, in line with IT (in $ millions) TBR EstimateConsensus Guidance Rangeservices market growth anticipation for the year.IBM Revenue $25,000$23,680 $23,380 - $24,130IGS will benefit from stabilization of the globalIBM Services Revenue (external) $14,196N/A $14,000 - $15,000economy as well as from its growth initiatives,IBM Services Operating Income$2,178.39 N/A N/A IBM Non-GAAP EPSN/A $2.23$2.11 - $2.41which will attract clients and projects. IGS has significantly improved its competitivestanding and has the potential to expand its client IGS Strategiesreach and amass additional market share. To Build a resilient, global business model that generatessupport its long-term, top-line growth, IGS has revenue and profit improvement opportunitiesinvested in high-value offerings, such as business Grow services business at/above market growth andanalytics, cloud computing and vertical-specificexpand pretax income by 8% to 10% CAGR through 2015offerings (part of Smarter Planet initiative), as well Shift portfolio toward higher-value, rapid-growth areasas investing in growth markets (expanding beyond(Smarter Planet, business analytics and cloud computing)the BRIC region). Invest in skills and capabilities in emerging markets; drive IGS will continue its gradual operating marginproductivity in developed marketsexpansion (growing pretax income by 8% to 10% Diversify geographic revenue base and satisfy demandCAGR through 2015). IGS will see more benefitsfor services in growth marketsfrom its global integration, its focus on higher-value Strengthen global service delivery networkofferings and productivity initiatives. Leverage inorganic growth to expand capabilities5 IGS 4Q10 | Professional Services Business Quarterly 2011 Technology Business Research, Inc. 6. Executive SummaryTBRContinued revenue growth will create new opportunities for increasedsoftware and services revenue in the coming quartersQuarterly Segment Performance4Q10GrowthSegmentKey Changes & Drivers Trends to Monitor RevenueY/Y Increasing outsourcing backlog with Services revenue was driven by growth key contribution from growth in outsourcing (albeit in the low-single markets looking to build their ITIBM Global digits), a return to growth in consulting$14.9 2.0%infrastructures, as well as improvedServices & SI and strong performance in growthbillion spending from base (existing) initiatives (business analytics grew 40% accounts, will contribute to year-to-year). outsourcing revenue growth in 2011. IBMs 4Q10 software revenue was driven by expanding middlewareIBM SW is focusing on high-growth IBM demand in growth markets. $7.0areas such as business intelligence, Software 11.0% The companys 14 acquisitionsbillionbusiness analytics, cloud, SmarterGroup throughout 2010 are increasinglyPlanet and growth markets. integrated and boosting revenue. IBM STG leveraged upgrades to its We anticipate strong STG growthSystems &System z and POWER lineups, while $6.3going into 1H11, as IBM works toTechnology meeting continued demand for Xeon- 21.4%billionbetter integrate its portfolio andGroupbased, high-end System x, to drive over expand into emerging markets. 20% revenue growth from 4Q09. We believe IBM will focus on Beneficial interest rate environmentsGlobal$628 constructing financing offers and and higher margins on equipment sales 1.1%Financingmillion incentives to drive growth in boosted Global Financing. emerging markets.6 IGS 4Q10 | Professional Services Business Quarterly 2011 Technology Business Research, Inc. 7. Executive Summary TBRIGS global integration, higher-value offerings and productivity initiativeswill continue to drive sustained margin advancesRevenues IGS external revenue increased 2.0% year-to-year,TBR IGS EXTERNAL REVENUE GROWTH AND PROFITABILITYdemonstrating growth in Global Technology Services, anRevenue Growth Year-to-year$1825%Pretax Income/Revenue $14.07$14.92$14.2020%outsourcing business, and improving performance in$15 $14.63$13.72$13.72 15%Global Business Services, a transactional content business 10%In $ Billions$12 4.3% 2.1%2.0%2.1%2.0% 3.5% 5%that was challenged during the recession (now seeing $90% -5%gains in consulting and in SI).$6-10%$2.32 $2.22$2.40Expenses $3$1.41$2.11 $2.18 -15% -20% IGS cost of services increased 4.2% year-to-year to $10 $0-25%billion in 4Q10, accounting for 67.3% of external revenue, 4Q091Q10 2Q10 3Q10 4Q10 1Q11 Est.up 140 basis points from 65.9%. Increased leverage ofRevenue Pretax IncomeRevenue Growth Year-to-yearlower-cost resources for service delivery will help IGS SOURCE: TBR AND IBMimprove its gross margin. IGS SG&A contracted 160 basis points to 16.6% ofexternal revenue, as IGS focus on productivity had a IGS OPERATING RATIOSTBRpositive impact in lowering operating costs. 100%14.3%90% 16.0%Margins% of External Revenue 14.6%14.6%15.0%80% 9.7% IGS pretax operating margin improved 30 basis points to70%30.3%27.3%28.9%28.3%33.9%15.6%, while GTS operating margin improved 80 basis 60% 27.3%50%points to 15.8% (both year-to-year).40% 15.0%14.9%15.5%15.8%15.1%10.0% TBR believes IGS will continue to see improving 30%profitability. Levers include: continued global integration 20% 35.8% 34.4%34.4%35.3%34.7%34.7%of IGS capa