IBM Main Profit Center Is Its Software Segment

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International Business Machinery Company (IBM) sells a variety of products and services, including software, consulting, and hybrid cloud infrastructure. The company also provides financing services to its customers to facilitate the acquisition of their information technology (IT) systems, software and services. The company has customers in more than 175 countries and competes with hundreds of companies ranging from small businesses to large multinationals.

IBM business segment

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

Software

IBM's software segment connects enterprise software solutions to its hybrid cloud platforms to support customers with their data needs and help them automate and secure their systems. The segment includes all of IBM's software offerings except for software included in the infrastructure segment.

The Software segment generated revenue of $24.1 billion in fiscal 2021, up 5.3% year-over-year. That accounts for more than 42% of total sales across all four segments. The segment's gross profit increased 5.9% to $19.0 billion, accounting for 59% of total profit for all segments.

Advice

The IBM Consulting segment advises clients on how to transform their business and implement new technologies. The segment designs and builds hybrid cloud architectures, optimizes workflows and business processes, and works with IBM customers to develop products and solutions to support their companies' digital transformation.

The consulting segment generated $17.8 billion in revenue for the year, up 9.8% from fiscal 2020. It accounts for more than 31% of total sales across all segments.

The segment's gross profit increased 4.9% to $5.0 billion in fiscal 2021, accounting for approximately 16% of total profit for all four segments.

Infrastructure

The IBM Infrastructure segment offers hybrid cloud solutions. It offers customers an infrastructure platform that helps meet the new requirements associated with enterprise AI and multi-cloud hybrid workloads. It also offers hardware such as high-performance servers, storage solutions, and Cloud Infrastructure-as-a-Service (IaaS). This segment also includes the repair and remarketing of used equipment.

Infrastructure segment revenue decreased 2.4% to $14.2 billion in fiscal 2021, accounting for nearly 25% of total revenue across all four segments. The segment generated a gross profit of $7.8 billion, down 6.1% year-over-year. It accounts for around 24% of the total gross profit across all segments.

Financing

IBM's financing segment helps enterprise customers acquire their information technology systems, software and services. The segment typically provides financing for products or services critical to a client's business operations and supports IBM's hybrid cloud platform and AI strategy.

The financing segment generated revenue of $774 million, down 20.6% from fiscal 2020. It accounted for more than 1% of total sales across all segments. The segment's gross profit for the year decreased 39.7% to $245 million, accounting for nearly 1% of total profit for all four segments.

Recent IBM developments

On March 3, 2022, IBM issued a statement regarding Russia's invasion of Ukraine. In a release, the company said it stopped selling the technology in Russia in response to the crisis.

On February 15, 2022, IBM announced the acquisition of Neudesic, a cloud services consultancy specializing in the Microsoft Azure cloud platform. The company said the acquisition will help expand its hybrid multicloud service offering and support its ongoing hybrid cloud and AI strategy. The financial terms of the transaction were not disclosed.

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