International Business Machines is a complicated company. IBM sells hardware, including mainframe systems, Power servers, and storage; it provides a vast array of IT services across the globe, and it sells billions of dollars' worth of software each year. About 80% of its revenue comes from clients that use multiple IBM products and services, with the company's strategy of providing integrated solutions the key to its exceptional profitability.
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There's no other company that does exactly what IBM does, and that makes comparing it to other technology companies difficult. IBM is worth more with all of its businesses working together rather than separately, a lesson learned during the company's near-death experience and subsequent turnaround in the early 1990s. But it can still be useful for investors to see exactly where IBM stacks up in certain areas.
A software juggernaut
Image source: IBM.
During 2015, IBM generated $22.9 billion from software sales. Most of this revenue, about $19.5 billion, came from middleware, which is software that acts as the glue between other pieces of software. Another $1.8 billion came from operating systems, while the remaining $1.6 billion was derived from other products.
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If IBM's software segment were a stand-alone company, it would be the fourth-largest software company in the world. Microsoft reigns supreme, with Windows, Office, and its many other billion-dollar software businesses putting the company far in the lead. Oracle is in second, with its database products continuing to generate outsized profits for the company. And SAP , with its broad set of software products, is in third.
Fiscal 2015 Revenue
Fiscal 2015 Operating Profit
Operating profit figures exclude restructuring charges. Data sources: Microsoft, Oracle, SAP, and IBM.
IBM's software sales have been declining in recent years. The impact of currency fluctuations is one reason, with IBM's total revenue growth in 2015 negatively impacted by 8 percentage points because of a strong U.S. dollar. Another factor is the company's shift toward offering software as a service, which tends to push revenue recognition into the future. At the end of 2015, IBM's as-a-service annual run rate, which includes software as well as cloud infrastructure, reached $4.5 billion.
Despite the transition going on at IBM, the company's software business is still immensely profitable for the company.
A major server vendor
Image source: IBM.
Hardware represents a relatively small percentage of IBM's revenue, but it's still an important contributor to the company's success. Following the sale of its x86 server business in 2014, IBM's systems business is left with mainframes and Power servers.
During the fourth quarter of 2015, IBM claimed the No. 3 spot in the global server market, according to IDC. HP Enterprise was the clear leader, followed by Dell, IBM, Lenovo, and networking giant Cisco.