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IT software and Services industries are suffering from a fall in demand for software and web services as consumers are focusing solely on essentials and not discretionary products. That said, the industry has seen companies with a portfolio of software as well as services aimed at remote collaboration benefit due to the growing number of people globally. Many companies are also operating with employees working remotely from their own home.
For the FY 2020, IBM's GAAP EPS was $6.23, down from $10.56 in the same period of the previous year. The Revenue was recorded at $73.6 billion, down 5% (down 4% adjusting for divested businesses and currency). Total cloud revenue of $25.1 billion, up 19% ( (up 20% adjusting for divested businesses and currency). GAAP gross profit margin up 100 basis points; operating (non-GAAP) gross profit margin up 130 basis points. Net cash generated from operating activities was $18.2 billion. Cash on hand was $14.3 billion while company reduced debt by more than $11 billion since closing the Red Hat acquisition
Below are key drivers of IBM's value for IBM:
For additional details, select a driver above or select a division from the interactive Trefis split for IBM at the top of the page.
IBM makes money primarily through the sale of Cognitive Solutions Software and Technology Services such as Infrastructure & Cloud Services and Outsourcing. IBM's customers are large and medium-sized businesses worldwide.
Cognitive solutions software provides the basis for many of the company’s strategic areas, including analytics, security, and social. IBM has established the world’s deepest portfolio of data and analytics solutions, including analytics and data management platforms, cloud data services, enterprise social software, talent management solutions, and software solutions tailored for the industry. Watson Platform, Watson Health, and Watson Internet of Things capabilities are included in Solutions Software. IBM’s world-class security platform delivers integrated security intelligence across clients’ entire operations, including their cloud, applications, networks, and data, helping them to prevent, detect, and remediate potential threats.
Infrastructure and Cloud Services, offered under the Technology and cloud services (TCS) umbrella, are IBM’s offerings that support a company’s IT infrastructure with the use of IBM software and cloud resources. The portfolio includes a comprehensive set of hybrid cloud services and solutions to assist clients in building and running enterprise IT environments that utilize public and private clouds and traditional IT.
Many companies such as Alphabet, Microsoft, Accenture, Amazon are dabbling in the Cognitive solutions field. However, IBM has the first movers advantage. In the Infrastructure and Cloud Services, Amazon and Microsoft lead. But other providers such as Adobe also have a strong foothold in niche segments.
We believe that Cognitive Solutions Software and Technology & Cloud services are the most valuable segment of IBM due to:
IBM has first movers advantage for offering AI-based Cognitive solutions to SME through the cloud. The advent of cloud-based services has resulted in a shift in revenue from maintenance to license renewal. Therefore, we expect the number of firms looking to deploy cognitive solutions in order to discover more trends in the data will grow in the coming years.
Much of IBM's Technology and cloud services business is based on PaaS, IaaS, and SaaS services. These services are recurring in nature as a client tends to resign with an existing service provider. As a result, contracts and services are renewed on expiry. We believe IBM would be able to maintain steady cash flows, even in tough times, in a segment where it is the market leader.