IBM Services reporting change

Date: 31 Mar 2015 Tuesday

Previously discussed during IBM's fourth quarter 2014 earnings call

IBM’s business processing outsourcing business, branded Global Process Services, which was previously managed within Global Technology Services (GTS), has been integrated into Global Business Services (GBS) creating an end-to-end business transformation capability for clients. This change was previously discussed during IBM’s fourth quarter 2014 earnings call on January 20, 2015. While there is no change to aggregate IBM reported results, the change impacts the revenue, gross profit, and pre-tax income for the GTS and GBS segments. IBM provides the following information to allow investors to update historical results and 2015 models in advance of its first quarter 2015 earnings report.

This new alignment benefits both clients and IBM by combining industry and strategy consulting more deeply with process outsourcing, and providing more immediate access to the innovations of IBM Software and Research that GBS incorporates into its solutions and transformational programs. The integration addresses emerging client needs for increased flexibility, innovation, a shift to a consult-to-operate model, and greater process outsourcing industry expertise across Finance and Administration, Supply Chain Management, Marketing, Human Resources and Talent, and Mortgage Origination & Servicing.

Starting in the first quarter of 2015, Global Process Services revenue, which previously was reported in GTS Outsourcing, will now be reported in GBS Outsourcing. The associated gross profit and pre-tax income that was included in the GTS segment will now be reported in the
GBS segment.

In 2014, this business delivered approximately $1.7 billion of revenue and over $400 million of pre-tax income. Within this, the first quarter of 2014 results include one month of revenue and profit associated with the divested Customer Care BPO business. The first and second quarter 2014 pre-tax income also includes gains associated with that divestiture. There is no significant change to the GTS or GBS revenue growth rates excluding the divested customer care business as a result of this reporting adjustment.

The following table includes the reclassified 2013 and 2014 segment results for Global Technology Services and Global Business Services.


($M) 1Q13 2Q13 3Q13 4Q13 FY13 1Q14 2Q14 3Q14 4Q14 FY14
Global Technology Services
External Revenue 8,901 8,832 8,798 9,206 35,737 8,849 9,010 8,837 8,746 35,442
Total Revenue 9,149 9,124 9,059 9,468 36,800 9,089 9,257 9,089 8,941 36,376
External GP 3,359 3,420 3,514 3,665 13,958 3,432 3,505 3,449 3,422 13,808
Segment PTI 1,511 1,446 1,808 1,885 6,649 1,215 1,669 1,625 1,422 5,931
($M) 1Q13 2Q13 3Q13 4Q13 FY13 1Q14 2Q14 3Q14 4Q14 FY14
Global Business Services
External Revenue 5,188 5,310 5,254 5,458 21,210 4,964 4,938 4,840 4,771 19,512
Total Revenue 5,368 5,498 5,431 5,627 21,924 5,105 5,078 4,975 4,897 20,055
External GP 1,453 1,623 1,693 1,640 6,409 1,450 1,472 1,498 1,503 5,923
Segment PTI 777 691 1,035 1,045 3,548 759 1,013 861 775 3,408

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