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TBR 2Q11 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 …

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 returning to pre-recession growth rates as global IT services demand stabilizes. IGS’ broad portfolio of high-value, high-growth offerings and its ability to work closely with other IBM business segments have played a key role in the organization’s business expansion. IGS is optimistic about the emerging growth geographies, where it is winning new clients and growing its emerging markets backlog to 20% of total services backlog. Emerging markets offer top-line expansion and bottom-line growth opportunities, and IGS’ globally integrated business model allows it to quickly deploy expertise and capabilities. IGS’ gross margin in emerging markets was 200 basis points higher than in major markets in 2Q11.

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  • 1. Technology Business ResearchAccelerating Customer Success Through Business Research 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 .
  • 2. PROFESSIONAL SERVICES BUSINESS QUARTERLYSMIBM Global ServicesSecond Calendar Quarter 2011Second Fiscal Quarter 2011 Ended June 30, 2011 TBR OUTLOOK – POSITIVE TBR SCORE (0-10 SCALE)  6.25Publish Date: August 8, 2011Author: Elitsa Bakalova (elitsa.bakalova@tbri.com), ProfessionalServices Practice AnalystContent Editor: Lindy Hanson, Professional Services Practice Director 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 .
  • 3. Contents TBR Company Analysis Company Data Models 3 TBR Position 26 Income Statements 4 Executive Summary 28 Balance Sheet 7 Strategy Overview 29 Service Line Model 9 Corporate SWOT Analysis 30 Geographic Model 10 Scenario Discussion 31 Vertical Revenue Model 13 Financial Model Strategy 32 Operating Expense Model 16 Go-to-Market & Services Strategies 33 Headcount Model 21 Alliance & Acquisition Strategies 34 Financial Strategy Graphs 23 Geographic Analysis 36 Go-to-Market Graphs 24 Resource Management Strategy 37 Resource Management Graphs 39 Acquisitions Tables 42 Portfolio of Services 43 Recent Service Announcements 45 Vertical Offerings 47 Quarterly Signings Tables 56 Strategic Alliance Tables 59 Organization Chart 60 Worldwide Locations Table 62 About TBR3 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 4. TBR Position TBRIGS will continue to invest in emerging markets and innovative solutionsto support its core business growth through 2015TBR Assessment Corporate Strategic ObjectivesIBM Global Services (IGS) is returning to pre-recession Grow services business at/above market and expandgrowth rates as global IT services demand stabilizes. IGS’ operating margin by 8% to 10% CAGR through 2015broad portfolio of high-value, high-growth offerings and IBM has a strong services business model and offeringsits ability to work closely with other IBM business that will help the company expand its client base andsegments have played a key role in the organization’s gain market share in both the major and growthbusiness expansion. IGS is optimistic about the emerging markets. IBM’s multi-lever approach to margingrowth geographies, where it is winning new clients and progression, coupled with benefits from recentgrowing its emerging markets backlog to 20% of total workforce rebalancing, will help services profitability reach target levels during 2011.services backlog. Emerging markets offer top-lineexpansion and bottom-line growth opportunities, and Continue to expand in higher-value, rapid growth areasIGS’ globally integrated business model allows it to (Smarter Planet, business analytics and optimization,quickly deploy expertise and capabilities. IGS’ gross and cloud computing)margin in emerging markets was 200 basis points higher IBM’s key differentiator lies in its ability to providethan in major markets in 2Q11. cross-IBM solutions (services, software, hardware and research) that create value for the client. Its ability to IBM AND IGS 2Q11 PERFORMANCE VS. EXPECTATIONS combine the three rapid-growth areas, coupled with(in $ millions) Consensus Guidance Range Actual increasing demand, will contribute to IBM’s goal ofIBM Revenue $25,110 $24,640 - $26,130 $26,666 growing services at/above market through 2015.IBM Services Revenue (external) N/A $14,000 - $15,000 $15,107IBM Services Operating Income N/A N/A $2,170 Expand in emerging geographies to diversify revenueIBM Non-GAAP EPS $3.00 $2.93-$3.09 $3.00 base (goal is to account for ~30% of total IBM revenue by 2015, contributing 50% of IBMs growth) IBM AND IGS 3Q11 GUIDANCE AND EXPECTATIONS IGS’ well-established global delivery network with a(in $ millions) TBR Estimate Consensus Guidance Range strong near/offshore presence (~55% of totalIBM Revenue $27,900 $25,500 $24,920 - $26,130 headcount in 2Q11) will help it serve local clients inIBM Services Revenue (external) $15,193 N/A $14,000 - $15,500 emerging geographies. Together with IBM hardwareIBM Services Operating Income $2,279 N/A N/A and software, IGS will play a core role in IBM’s strategyIBM Non-GAAP EPS N/A $3.11 $2.99-$3.22 to drive IT infrastructure development across 20 high- growth countries (based GDP growth and IT spending).4 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 5. Executive Summary TBRIGS’ worldwide brand recognition and large pipeline lay the foundationfor growth in coming quarters TBR Company Average Standard CALENDAR QUARTER RESULTS TBR SCORING SUMMARY:FINANCIAL METRICS Score Figure in Class Deviation 2Q10 3Q10 4Q10 1Q11 2Q11Operating Margin 5.67 13.9% 9.4% 6.6% Financial Model Strategy: 6.25 6.22 6.32 6.23 6.04Current Ratio 3.90 1.18 1.80 57.1% Go-to-Market & Services Strategies: 7.15 7.00 6.98 6.92 6.96Debt-to-Asset Ratio 3.11 0.80 0.56 12.6%Return on Assets (TTM) 6.63 14.0% 8.1% 3.6% Resource Management Strategy: 5.66 5.70 5.75 5.69 5.76Return on Equity (TTM) 8.35 68.2% 15.6% 15.7% TOTAL AVERAGE TBR SCORE: 6.35 6.31 6.35 6.28 6.25TOTAL AVERAGE TBR SCORE 6.04 TBR Company Average StandardGO-TO-MARKET & SERVICES METRICS Score Figure in Class DeviationRevenue (in $ Millions) 10.00 $15,107 $2,384 $1,441Revenue Growth YTY 4.64 10.1% 17.2% 19.4% IGS continues to post above-averageBacklog/Revenue 6.25 2.45 2.01 0.36 scores relative to industry peers due toDay Sales Outstanding 7.24 39.37 65.25 11.54 strong revenue, backlog and increasedTOTAL AVERAGE TBR SCORE 6.96 customer wins in 2Q11. TBR believes IGS will report accelerated growth through TBR Company Average Standard 2H11 as the company expands itsRESOURCE MANAGEMENT METRICS Score Figure in Class DeviationGross Margin 5.15 32.4% 31.5% 5.9% geographic footprint and servicesOperating Expenses as a % of Revenue 5.47 18.0% 20.3% 4.9% capabilities.Revenue per Employee (TTM) 5.84 $237,294 $175,136 $73,846Operating Income per Employee (TTM) 5.77 $35,066 $17,498 $22,889Utilization Rate 8.04 86.0% 77.2% 2.9%Turnover 5.16 15.3% 15.8% 3.0%TOTAL AVERAGE TBR SCORE 5.76 Key Represents an area where IGS is currently challenged versus peers Represents an area where IGS is outperforming its peers Represents an area where IGS is neither significantly outperforming nor underperforming its peers5 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 6. Executive Summary TBRIGS will slightly outpace market growth in 2011, in line with its targets TBR assessment of IBM Global Services’ two-year strategic outlook Key Takeaways Strategic Outlook Financial: IGS’ efforts to grow profitably will allow • TBR expects IGS to see revenue grow about 7.5% year-to- the organization to expand its revenue and year in 2011, slightly above global IT services market profitability during the rest of 2011. growth, which TBR estimates at ~5% year-to-year, and in line with IGS’ growth targets. Go to Market: IGS will focus on growing in outsourcing (46.9% of revenue in 2Q11), which will • While the major markets will remain IGS’ core geography, see stable growth. Emerging geographies will be a the organization will continue to expand its business in the strong contributor to IGS’ growth through 2015. growth markets as clients build out infrastructures to support growth. Continued success in growth markets, Resource: Expansion of service delivery along with global adoption of cloud computing and capabilities, especially in lower-cost locations, analytics, which grew 25% year-to-year in 1H11 for IBM coupled with adoption of common delivery Global Business Services, will drive positive results for IGS. methods and automation, will remain a key focus • Outsourcing will remain a lead revenue and growth for IGS. contributor (46.9% of total services revenue). ImprovingTBR IGS EXTERNAL REVENUE, GROWTH AND PROFITABILITY demand in consulting & SI will drive opportunities for IGS $70 $60.7 $64.6 25% across the globe. While there may be pockets of $56.4 $60 $55.0 uncertainty in the public sector, TBR believes they will not 15% $50 have a major overall impact on IGS’ revenue performanceIn $ Billions $40 $30 5% in the near term. $20 $13.7 $14.1 $14.9 $14.6 $15.1 $15.2 -5% • The operational improvement levers being implemented $8.8 $9.7 $10 $2.1 $2.2 $2.4 $1.9 $2.2 $2.3 $8.1 $8.1 across the GTS and GBS businesses – the Global Delivery $0 -15% Framework at GTS and assets that drive productivity and 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 CY09 CY10 CY11 CY12 Est. Est. Est. globally optimized service delivery at GBS – will positively IGS External Revenue Pre-tax Income Revenue Growth Year-to-Year Operating Margin affect IBM Global Services’ long-term profitability. SOURCE: TBR AND IBM6 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 7. Executive Summary TBRIBM will continue driving growth across business units by deliveringanalytics and workload-optimized systemsSegment Performance and Strategies IBM SEGMENT REVENUE Increased traction in growth geographies TBR will contribute to overall services revenue $30,000 $519 $190 Investments/ growth through 2015. Outsourcing will Eliminations $25,000 $544 $201 IBM Global see stable near-term growth, while the $4,681 transactional business (largely for GBS Revenue in $ Millions $3,985 Financing $20,000 Services $5,277 $6,169 consulting and SI) may see a slowdown $15,000 STG due to tight public sector spending; $10,000 however, TBR does not anticipate this $13,717 $15,107 $5,000 Software slowdown will have a major overall impact $0 on IGS’ growth. 2Q10 2Q11 Services IBM IBM SW will continue to invest in high- Calendar Quarter growth areas, including BI/analytics, cloud SOURCE: TBR AND IBM Software and Smarter Planet, to drive revenue Group growth beyond 2011. TBR IBM SEGMENT GROWTH 30.0% Systems & Demand for analytics, cloud and 20.0% workload-optimized systems will continue Year-to-Year Growth 10.0% Technology to drive revenue and profit growth across 0.0% Group (STG) the IBM STG solution set in 2H11. -10.0% -20.0% TBR believes IBM will wrap hardware and -30.0% Global 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 software together with financing as a IGS IBM SW STG Global Financing Est. Financing value-add to drive solutions sales. SOURCE: TBR AND IBM7 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 8. Strategy Overview TBRFollowing IBM’s overall growth agenda will be a core focus for IGSFunction Key Strategies TBR Assessment  IGS is returning to pre-recession growth rates as global IT services demand stabilizes. A focus on higher-value Build a resilient, global business services, growth investments that are closely aligned model that generates revenueOverall with IBM’s four growth areas (cloud computing, and profit improvement analytics, Smarter Planet, emerging markets), and opportunities. margin improvement activities support the organization’s financial performance.  TBR believes IGS will achieve its growth and operating Grow services business margin targets as it works on its 2015 Roadmap. IGS at/above market and expandFinancial continues to gain traction in its four growth areas, operating margin by 8% to 10% notably in 2Q11 in business analytics, cloud computing CAGR through 2015. and growth markets.  IGS is seeing increased traction in the emerging growth geographies and expects to see growth through 2015. Gain traction in outsourcing; Outsourcing will see stable growth in the near term, benefit from improving while the transactional business (i.e., consulting, SI and consulting & SI demand. integrated technology services) will benefit from a return to discretionary spending. There may be a slightGo to Market Invest in the same four growth slowdown in the public sector for GBS consulting & SI, areas as parent IBM: business but TBR does not expect that to have a major overall analytics, Smarter Planet, cloud impact on IGS. Following IBM’s overall growth agenda computing and growth will help IGS develop its offerings portfolio and provide geographies. cross-IBM solutions that combine services with software, hardware and research. Key:  Working: Short-term impact expected on bottom / top line  Not working: No major impact or differentiation expected8 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 9. Strategy Overview TBRIBM is leveraging alliances, acquisitions and integrated global servicedelivery to support growth in major and emerging markets Function Key Strategies TBR Assessment  IBM will continue to enter strategic alliances to provide a full range of services and to strengthen its Partner with IT companies as Smarter Planet, analytics and cloud computing well as educational and offerings. government institutions. Alliances &  IBM will continue to acquire companies with Acquisitions intellectual property that provide high-growth and Support investments with margin opportunities to help shift its overall business inorganic growth to expand mix and position the company for growth. TBR capabilities. expects IBM to continue to invest profit dollars in software and services acquisitions to support its business analytics and Smarter Planet offerings. Leverage integrated global  IBM has a strong nearshore/offshore presence and a delivery capabilities to improve well-integrated global service delivery model, which is productivity and efficiency. a strong differentiator for the company. Lower-cost resources remain largely located in India (60%+ of Resource & nearshore/offshore headcount) but are growing in Investments other APAC countries, LATAM and Eastern Europe. Invest in skills and capabilities in emerging markets to  While the major markets will remain IBM’s leading diversify revenue and service service revenue contributor, the company will delivery network. continue to win clients in emerging markets. Key:  Working: Short-term impact expected on bottom / top line  Not working: No major impact or differentiation expected9 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 10. Corporate SWOT Analysis TBRIBM’s strength in services lies in its well-developed resources, industryand research expertise, and ability to adjust its offerings to demandCorporate SWOT AnalysisStrengths Opportunities• Able to successfully integrate acquisitions • Demand for analytics brings investments in IBM’s• Strong relationships with alliance partners business analytics and optimization• Strong IBM brand associated with reliability; backing • Growth potential of cloud computing can help IBM 1 from IBM as a whole gain traction• IBM’s strong industry expertise allows it to gain a • European markets are now more open to outsourcing leading position with its Smarter Planet concept functions to outside vendors• Integrated global delivery network and presence in • Gain traction in emerging markets due to demand low-cost locations and IBM’s growth investments• Ability to adjust its offerings to demand and create • Stabilizing consulting/SI demand can help IBM Global value for the client Business Services grow in the long runWeaknesses Threats• Partnership network is difficult to manage • Uneven economic performance across European• Perceived as biased toward “Big Blue” solutions 1 countries and tight public sector spending may• IBM/IGS’ size can sometimes slow decision-making challenge IGS’ near-term performance and implementation processes • Indian vendors are becoming more active in business• Disjointed go-to-market approach in smaller consulting and remote management ITO geographies may decrease win rate • Competition from other MNCs and European and Indian firms for top clients 1 • Attrition and intensifying competition in the labor market, especially in lower-cost locations and in service areas with increased demand10 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 11. Scenario Discussion TBR IBM is already generating returns from its aggressive investment in analytics and will see growth in the segment through 2015 Scenario Discussion: IBM is developing its business analytics capabilities and the company is in a strong position to capture growth opportunities through 2015 Scenario SWOT Assessment • Analytics is a core growth driver for IBM as a whole. Not only Strength: Ability to grow through a combination of services, is analytics considered one of IBM’s four growth engines software and hardware through 2015, but it is also embedded into IBM’s other three growth initiatives (Smarter Planet, cloud computing and Weakness: May not be perceived as an agnostic analytics emerging markets), allowing a multi-level expansion. services vendor • Analytics is a cross-IBM business that covers services, Opportunity: Strong demand in an emerging and fast- software, hardware and research. On the services side, the growth market segment Business Analytics and Optimization practice that is part of Threat: Increasing competition for market share and talent IBM Global Business Services is a true differentiator. IBM is from other MNCs, European and Indian vendors able to go in with a consulting-led proposition and design/ Key client buying agendas implement industry-specific solutions, often pulling software • Enhance understanding to drive profitable growth and hardware (e.g., TBR estimates nearly half of analytics • Drive real-time decision optimization consulting involves software). IBM builds a case for change • Foster informed and collaborative decision making and often takes a phased adoption approach to drive success • Enable enterprise and operational visibility for the client. IBM Global Technology Services is also part of • Build a strategic information management foundation the services mix, supporting the delivery/management of Industry solutions & assets (go-to-market by industry) analytics environments as well as providing hosting, analytics as a service and cloud. With this wide range of BAO Service Offerings offerings, IBM has a competitive edge at providing an • BAO strategy enterprise-wide approach, capable of transforming all of a • Business intelligence & performance managementSOURCE: IBM AND TBR client’s functions. • Advanced analytics and optimization • Given strong demand growth and IBM’s investment, TBR • Enterprise information management • Enterprise content management believes the company will reach its ambition to have analytics account for $16 billion in revenue (services, Analytics Solutions Team software, hardware) by the end of 2015, up from ~$11 BAO Center of Competence and Global Delivery billion in 2010, and contribute ~20% of IBMs growth 11 IGS 2Q11 | Professional Services Business Quarterly through 2015. ©2011 Technology Business Research, Inc.
  • 12. Scenario Discussion TBR IBM will see growth in IT consulting as demand improves Scenario Discussion: IBM will see traction in IT strategy and design consulting (part of GTS) as clients invest in business growth Scenario SWOT Assessment • IBM’s scale, industry expertise and history of providing high- Strength: Defined link between IT consulting and value transformation to clients create a formidable competitor management consulting, enabling an end-to-end in the IT consulting space. IBM combines its technology approach that addresses business and IT needs consulting capabilities (offered by Global Technology Services) with management consulting (offered by Global Business Weakness: Fewer IT consulting services are delivered Services) to provide a holistic transformation aligned with from low-cost regions than from the major markets business priorities and support growth and innovation. (e.g. North America, Europe) • A key strength for IBM is its focus on using common methods, Opportunity: Increased demand for high-value services tools, asset base and cross-training consultants across the three like cloud computing IT strategy and design domains. This creates efficiencies for IBM Threat: Intense competition from other MNCs, as the same set of consultants can work on any of the areas. European and Indian IT service providers • IBM also utilizes its strong research capabilities to create differentiated IT consulting solutions. For example, the Cloud IT strategy and design consulting domains Workload Analysis tool, developed by IBM Research, is used for Datacenter deployment of cloud environments. • IT transformation strategy & design • IBM has adopted a practice model as part of its go-to-market, • Infrastructure strategy & design for cloud computing which helps link the practice and Sales/Delivery in each • Middleware strategy & design geography and drives communication and opportunity. Workplace • Demand is increasing alongside changes in IT infrastructure and • Workplace optimization consulting the delivery of IT, and IBM has been building its portfolio and Enterprise pipeline around the high end for its IT consulting business.SOURCE: IBM AND TBR • Service management strategy & design While the major markets are IBM’s core region for IT • Networking strategy & optimization (also for cloud) consulting, IBM is increasing its capabilities to serve clients in • Converged communications services – cloud emerging markets – a key focus area for the company as a • Resiliency consulting services whole. IBM will see more traction going forward as IBM has • Security consulting services invested in integrating and unifying its consulting portfolio and is looking to expand its consulting capabilities globally. 12 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 13. Scenario Discussion TBR Industrialized delivery and improving demand will drive profitable growth for IBM in applications outsourcing Scenario Discussion: Application Assembly Optimization, IBM’s innovative and industrialized approach to application development and management will help it grow profitably in application outsourcing Scenario SWOT Assessment • Application Assembly Optimization (AAO) is a process automation Strength: Globally integrated service delivery and method for application development, enhancement, testing and differentiated assets maintenance (ADM) that is used in IBM GBS’ global delivery model. Weakness: AAO is not yet utilized onshore, which The modular set of services is attractive to clients as it helps them can add on to productivity improvement achieve greater business value (e.g. faster response to business needs and visibility of delivery, faster time to market and 10%-15% Opportunity: Stabilized demand is creating growth improved quality and productivity). in applications outsourcing • In addition, AAO allows IBM GBS to drive efficiency and productivity, Threat: Other IT service vendors attracting clients creating positive results on the profitability side. Technology through process automation in ADM Assembly Centers (TACs) are the foundation for AAO delivery. TACs form a virtual, global team that uses factory floor concepts and automated processes for ADM. AAO’s component-based workflow, AAO communities that drive productivity in the development and maintenance phase, asset reuse, metrics for outcome-based results, management dashboards and Lean processes make up the list of positive profitability contributors. • AAO is deployed across GBS’ eight global delivery centers (India, Philippines, Vietnam, China, Romania, Egypt, Argentina and Brazil) and Mexico (regional center). GBS is seeing 15%-20% productivity Pervasive improvement in service delivery and is now working on extending the transparency AAO model to its local/on-site delivery, which will help improve New productivity. collaboration • Assets like AAO will help GBS drive operational excellence and grow practices its operating income from $2.5 billion to $4.0 billion in 2015 (Source: IBM Investor Meeting, 2011).SOURCE: IBM AND TBR 13 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 14. Financial Model Strategy: Revenue TBRIGS’ top line will continue to grow due to aggressive investments in its corebusiness and high-growth segments and geographies Revenue Performance and Strategies 2Q11 Revenue: $15.19 billion, 8.0% YTY (as reported)TBR IGS EXTERNAL REVENUE, GROWTH AND PROJECTIONS • Outsourcing remained the largest revenue contributor 30% $60.0 (46.9% of IGS’ external revenue) and growth driver for 64.6 56.4 60.7 20% IGS, mainly driven by revenue from backlog (up 3% in In $ Billions Revenue Growth $40.0 6.2% 8.0% 6.0% 7.6% 6.5% 10% constant currency) and expansion in existing accounts. 2.0% 2.1% 2.0% 2.6% • Return of discretionary spending is positively affecting the $20.0 15.8 0% transactional business (consulting & SI and ITS) and this 13.7 14.1 14.9 14.6 15.2 $0.0 -10% trend will remain in the near term. 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 CY10 CY11 CY12 Est. Est. Est. Revenue and Growth Outlook IGS External Revenue Revenue Growth Year-to-year • IGS will see more wins in business analytics, cloud NOTE: Annual revenue and projections are for calendar 2010, 2011 and 2012, respectively. SOURCE: TBR AND IBM computing and Smarter Planet during 2H11. • Services backlog in emerging growth markets – up about 50% over the previous two years and now nearly 20% of TBR IGS TWO-YEAR TRAILING 12-MONTH REVENUE total services backlog – will support services revenue $75 growth in 2H11. $55.69 $54.70 $55.00 $55.57 $55.84 $56.13 $56.42 $57.28 $58.67 $59.80 • Public sector revenue, down again in 2Q11 due to $50 In $ Billions Government spending declines, may continue to drag down the GBS growth rate. $25 CY09 CY10 • Overall, TBR believes IGS’ revenue growth will continue in $- tandem with the overall IT services market through 2011. 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 • While the major markets will remain the larger Est. contributor to IGS’ revenue, the emerging growth markets SOURCE: TBR AND IBM will increase their contribution in the long term.14 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 15. Financial Model Strategy TBR Positive momentum in outsourcing and transactional services will continue due to increased worldwide demand Service Line Revenue Performance and Strategies GTS outsourcing revenue benefited TBR IGS SERVICE LINE REVENUE (IN $ BILLIONS) from sales in emerging geographies, GTS Outsourcing 100% $946 $985 $1,045 $1,055 $1,064 $1,079 driving revenue up 10% year-to-year% of Externa l Revenue $6.0 billion, 75% $3,537 $3,587 $3,713 $3,655 $3,802 $3,859 up 12.2% year-to-year in constant currency. TBR believes $1,772 $1,802 $1,897 $1,845 $1,896 $1,899 growth markets will continue to drive 50% $2,098 $2,162 $2,381 $2,224 $2,329 $2,325 outsourcing revenue in 2H11. 25% $5,364 $5,532 $5,887 $5,794 $6,016 $6,032 Demand from growth markets, which 0% Integrated Technology is up 14% in constant currency for ITS, 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. Services (ITS) and demand for cloud computing, GBS Outsourcing (AO) GBS Consulting & SI GTS Maintenance GTS ITS $2.3 billion, with cloud-related services up 200%+, SOURCE: TBR AND IBM GTS Outsourcing up 11.0% year-to-year were key drivers for ITS’ double-digit growth. Maintenance will maintain its steady Maintenance TBR IGS SERVICE LINE REVENUE AND PROFITABLITY performance and support GTS’ long- $1.9 billion, 16% up 7.0% year-to-year term growth as clients invest in IT % of Externa l Revenue 14% globally. 12% 10% Stabilizing demand is supporting growth, both in C&SI (78.1% of GBS’ 8% Global Business 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. external revenue) and application Services (GBS) GTS Pre-tax Margin* GBS Pre-tax Margin* $4.9 billion, outsourcing (21.9% of GBS external SOURCE: TBR AND IBM up 8.5% year-to-year revenue). Business analytics revenue * GTS Pre-tax Income as a % of total GTS and GBS Pre-tax Income as a % of total GBS grew over 25% year-to-year in constant currency. 15 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 16. Financial Model Strategy: Expenses TBRIGS’ operational improvement initiatives will help expand its bottom line Expense Performance and Strategies 2Q11 Operating Expenses: $2.72 billion IGS OPERATING EXPENSES AS A PERCENTAGE OFTBR EXTERNAL REVENUE IGS’ cost of services as a percentage of 25.0% revenue fell 10 basis points year-to-year 20.0% to 67.6%, driven by IBM’s integrated 15.0% 2.7% 2.6% 2.6% 4.3% 4.3% 3.7% Cost of Revenue global delivery, higher leverage of 10.0% $10.2 billion, lower-cost resources, and a focus on 14.3% 14.8% 14.0% 14.5% 14.5% 14.3% up 10.1% year-to-year efficient delivery, including delivery 5.0% frameworks in GTS, optimized delivery 0.0% at GBS, standardization and 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. automation. G&A Expense Sales and Marketing ExpenseSOURCE: IBM AND TBR ESTIMATES • GTS’ operating margin was dragged down by workforce rebalancing charges in 1Q11 and 2Q11. The TBR IGS GROSS AND OPERATING PROFIT operational improvement levers being AND PROJECTIONS 40% implemented across the GTS business 32.3% 33.2% 32.7% 32.4% 32.7% 32.5% 32.4% 33.1% will positively affect long-term 31.7% 30% profitability. For example, the 20% 14.8% 15.2% 15.6% Margins and workforce rebalancing charges in 13.9% 14.5% 13.9% 14.0% 14.4% 12.5% Outlook 2Q11 will start to yield results in 10% 2H11, positively affecting GTS’ 0% profitability. 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 CY10 CY11 CY12 • GBS’ operating margin continues to Gross Margin Est. Est. Est. Pre-tax Margin (Operating Margin) see the positive effects from its focus NOTE: Annual gross and operating profit and projections are for calendar 2010, 2011 and 2012, on optimized delivery, operational respectively. Profit calculated as a percentage of IGS external revenue. SOURCE: TBR AND IBM excellence and differentiated solutions. 16 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 17. Go-to-Market & Services Strategies: Sales Strategy TBRIBM utilizes a three-tiered direct sales approach to manage its accountsand generate new business Sales Strategy & Customer Segmentation TBR Assessment Tier 1: Integrated Accounts; Top 100 Accounts IBM’s tiered sales structure enables the company • IBM’s largest accounts, for which it ensures a highly to establish relationships with a breadth of clients integrated experience with dedicated IBM resources. through multiple sales channels as well as cross- • Vertical-specific global sales team works with managing sell opportunities, regardless of the client’s business size and industry focus. account director. The brand category leader assists managing account director with proposals. • Includes the top +/-100 multinational accounts (more than $20 million in IBM revenue) Tier 1 Tier 2: Industry-Aligned Accounts Top ~100 • Industry-specific and likely to have shared IBM resources Accounts • Includes the next +/-1,400 accounts, clustering together one to 10 clients from the same industry Tier 2 Tier 3: Medium Accounts; Territory Specific ~1,400 Accounts • Territory-specific accounts that leverage business partners Aligned by Industry and regional ISVs • Large regional players with annual revenue up to $200 million Tier 3 • Includes 15,000 (growth) focus accounts, 25,000 40k Direct + 120k+ Indirect prospects, and 120,000+ SMB targets; served by IBM Aligned by Geo/Territory partners • Web-enabled sales orders and support play a key role SOURCE: IBM AND TBR ESTIMATES when assisting clients in this category.17 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 18. Go-to-Market & Services Strategies: Service Line Deep Dive TBRHardware and software capabilities enable IGS to reach into marketsand regions that pure-play competitors cannot IGS’ Service Line Deep Dive TBR Assessment: While outsourcing dominates in revenue contribution IGS REPORTED 2Q11 SERVICE LINE DEEP DIVE (46.8% in 2Q11), IGS maintains a well-balanced business mix. IBM’s hardware and software capabilities, AO, 7.0% particularly around analytics, cloud computing and GBS Revenue, Smarter Planet, augment IGS’ service offerings as well as 32.5% provide cross-selling and bundling opportunities to drive C&SI, 34.3% revenue growth. Service Lines Deep Dive Strategies: BPO, 4.1% • C&SI: Shift to higher-value offerings and grow asset- Maintenance, 12.6% based offerings to complement portfolio and support GTS Revenue, growth. Gain traction in high-growth areas, such as 67.5% cloud C&SI and analytics consulting. ITO, 42.0% • ITO: Extend asset-based offerings to complement portfolio and support growth. Benefit from new models, such as cloud computing. • BPO: Grow Global Process Services business (i.e., BPO) faster than the market through horizontal offerings and industry-specific offerings and platforms coupled with SOURCE: IBM AND TBR ESTIMATES forward-looking insights generated through analytics. • AO: Integrate AO services with C&SI, GTS (outsourcing and maintenance) and IBM software. Provide industry- specific offerings and emphasize innovation of solutions and delivery through use of IBM assets.18 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 19. Go-to-Market & Services Strategies TBRIBM’s growing backlog will support revenue growth, especially inemerging marketsServices Contract Signings TBR IGS CONTRACT SIGNINGS $25• Demand in the IT services market continues to grow, benefiting IGS’ outsourcing and transactional $20 (In $ Bi llions) businesses. Notably, previously challenged areas, $15 $14.1 such as consulting and SI, are seeing a stable deal $10 $7.5 $6.5 intake. These areas will continue to grow in the near $5.6 $4.7 $5 term as clients invest in projects to drive business $5.8 $5.4 $8.0 $5.8 $6.7 growth, innovation and cost savings. $0 2Q10 3Q10 4Q10 1Q11 2Q11• Outsourcing/long-term signings (GTS outsourcing, Outsourcing/Long-term (GTS outsourcing, GBS outsourcing (AO)) GBS app. outsourcing) remain uneven, as evidenced Transactional/Short-term (GTS ITS, GBS Consulting & SI) by the outsourcing deal spike in 4Q10, which could SOURCE: TBR AND IBM not be repeated in 1Q11 and 2Q11. As outsourcing deals are not a direct indicator of revenue Key 2Q11 Customer Wins performance, IBM continues to use backlog to predict outsourcing revenue, as backlog makes up ~85% of it. Company TBR Assessment Outsourcing backlog increased 9.1% year-to-year in Bharti Airtel IBM will offer comprehensive IT 2Q11 and will likely grow in a similar fashion in the India solutions (help desk, desk-side support) near term. 10 years in 16 African countries. TBR believes• Services backlog was $144 billion in 2Q11, up 11.6% this strengthens IBM’s position across year-to-year. It has increased in growth markets by Africa’s emerging market. 50% over the past two years, approaching 20% of Sonic IBM will provide managed hosting and services backlog. This is closely related to IBM’s focus Biochem monitoring services from India. This is on expanding revenue in emerging markets as it Extractions another example of IBM’s emphasis on works with clients to build out IT infrastructure and India growing its revenue in emerging growth adopt new technologies, such as cloud computing markets around the world. and business analytics. IBM will continue to gain 10 years traction with clients in emerging regions due to its attractive offerings.19 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 20. Go-to-Market & Services Strategies: Pricing TBRPricing is slightly on the rise in the U.S and APAC as demand increases,but pricing challenges remain in some parts of Europe Pricing Environment & Strategies U.S. GOVERNMENT HOURLY RATES • IGS’ market and pricing environment remains TBR LABOR CATEGORY 10/09 - 09/10 10/10 - 09/11 % GROWTH competitive. TBR believes prices are now more Project Executive Functional Specialist/Subject $338 $348 3.0% stable across a broader share of geographies, Matter Expert $292 $301 3.1% allowing the organization to sustain its growth Director $239 $246 2.9% trajectory. Specifically, TBR believes there were, and Senior Manager $193 $199 3.1% will continue to be, decreased headwinds in terms of Manager $159 $164 3.1% pricing in the Americas, some parts of Europe (e.g., Program Support $156 $161 3.2% Germany and the Nordics), and APAC. Consultant III $126 $130 3.2% • TBR believes IGS will slightly increase prices with Consultant II $102 $105 2.9% clients in geographies with stabilizing economies, Consultant I $79 $81 2.5% Project Assistant $71 $73 2.8% such as the U.S., as demand increases and these Administrative Support $53 $55 3.8% companies seek to improve their IT infrastructures. Interviewer $37 $38 2.7% • We believe IGS will continue to face pricing NOTE: RATES INCLUDE INDUSTRIAL FUNDING FEE (IFF) headwinds in European countries that continue to SOURCE: TBR AND GENERAL SERVICES ADMINISTRATION teeter with economic uncertainty, such as the U.K. and the Netherlands, as public sector spending remains soft.The table above provides hourly pricing rates for IGS from a Mission OrientedBusiness Integrated Services contract with the U.S. government’s General • TBR expects IGS to experience moderate pricingServices Administration. The contract period is from October 1997 through traction through 2H11, albeit at an uneven paceSeptember 2017 and covers such services as consulting, facilitation, survey andprivatization support and documentation. among its primary markets.20 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 21. Go-to-Market & Services Strategies: Verticals TBRIncreased demand for finance and banking services will overshadow anysoftness in spending from the public sector Vertical Performance and Strategies • TBR believes financial services is benefiting from increased demand for finance and banking services from the major markets, particularly the IGS VERTICAL REVENUE U.S., as economies stabilize. TBR Financial Services • TBR believes IBM Global Services is $16.0 $0.21 $0.20 $0.28 $0.25 $0.36 $0.21 seeing growth in financial services in Externa l Revenue i n $ Thousands $1.57 $1.53 $14.0 $1.37 $1.41 $1.51 $1.46 the major and emerging economies in $1.56 $1.55 $12.0 $1.44 $1.55 $1.63 $1.44 both outsourcing and transactional $2.09 $2.06 $2.22 $2.17 services as well as hardware sales, $10.0 $2.12 $1.97 $8.0 $2.22 $2.34 $2.17 $2.24 $2.32 driving services opportunities. $2.19 $6.0 $2.42 $2.58 $2.55 $2.60 $2.61 $2.35 $4.0 Tight spending in the public sector $2.0 $4.52 $4.53 $4.71 $4.79 $4.05 $4.22 remains, creating a slowdown in GBS $0.0 Public Sector growth (i.e., consulting & SI and 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. application outsourcing). Other Communications Distribution Industrial Public Sector General Business (SMB) Financial ServicesSOURCE: TBR AND IBM Communications, Growth at IBM GBS remains driven by Distribution, verticals such as distribution, general General business business (SMB) and communications as (or SMB) global demand stabilizes.21 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 22. Alliance & Acquisition Strategies TBRIBM will continue to acquire companies with complementary skill setsand client bases to drive companywide growth Acquisition Assessment Recent Acquisitions • TBR believes IBM is focusing on the quality of an Tririga Inc. acquisition and the opportunities it can provide • IBM acquired Tririga Inc., a privately held real estate rather than the quantity of companies it can acquire. and facilities management software company. The • Increasing demand for cost efficiency and acquisition will help IBM speed up its smarter sustainability within organizational facilities has buildings initiative. Tririga will also help IBM gain driven IBM’s Smarter Planet projects. traction with hospitals, public sector and life sciences organizations as well as insurance providers, aiding IBM/IGS Acquisition Strategy them in improving real estate performance and cost. • IBM has not been as aggressive in pursuing new • Through this acquisition, IBM will be able expand its acquisitions as it was in 2010. Instead, IBM has customer base and grow into the smarter buildings focused on leveraging and expanding previously made market by building on Tririga’s formidable customer acquisitions to enable increased market share. base. About 200 Tririga employees will be added to • IBM plans to spend $20 billion on acquisitions IBM. through 2015, or $4 billion per year, focusing on the • TBR believes this acquisition will contribute to software and services segment. growth acceleration in the smarter buildings market, • A key driving force behind each of the company’s stemming from IBM’s Smarter Planet projects. acquisitions is improving EPS in the long run; IBM’s Smarter Planet is expected to be a $10 billion goal is to nearly double EPS in the next four years business for IBM in 2015 (includes services, software from $11.67 in 2010 to at least $20 in 2015. and hardware).22 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 23. Alliance & Acquisition Strategies TBRIGS leverages partners to capitalize on growing customer demand forcloud and SmartGrid technology services Alliance Assessment Recent Alliances TBR believes IGS leverages strategic alliances to SmartGrid Alliances: support global outreach; it is investing heavily in • The Bureau of Energy Efficiency (BEE) and IBM will partnerships to endorse innovative technologies and partner to determine India’s SmartGrid potential as expand brand awareness worldwide, particularly in well as to create tool kits that assess SmartGrid growth markets. investment decisions. • IBM and Brazil-based CPFL Energia Holdings have IGS Alliance Strategy partnered to augment CPFL’s energy grid with • IBM leverages alliances in hardware, software and SmartGrid technologies to increase efficiency and services to offer a full spectrum of solutions for ultimately lower costs. clients and to enhance the company’s market USAID and CDC: IBM is partnering with the two entities competitiveness. to provide governments and businesses within growth • IGS utilizes its partner programs to strengthen its markets worldwide with healthcare, education, IT global position by partnering with companies that infrastructure and planning and development services complement its own strategies and/or are located in and solutions. strategic geographic areas, such as Ghana, Australia, Maclean: New Zealand-based Maclean and IGS are Switzerland and India. working together to provide small business customers • IGS works in tandem with leading research institutes, with virtual server services, hosted out of IBM’s university programs and international governments to recently opened cloud datacenter in Auckland. develop innovative service and solution offerings. Research and development and thought leadership initiatives help the company develop and shape its go-to-market strategies according to evolving market trends and client demand.23 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 24. Geographic Analysis TBRIGS’ past investments in growth markets continue to drive double-digitrevenue, increasing its presence and brand awareness Geographic Revenue Strategies TBR IGS REVENUE AND YtY GROWTH BY GEOGRAPHY While outsourcing is in demand, TBR believes the $16.0 20.0% return of discretionary spending will drive Revenue Growth Year-to-Year Externa l Revenue in $ Billions $14.0 $12.0 10.0% Major consulting and SI growth in the major markets. $10.0 Markets The recent natural disasters in Japan had a $8.0 0.0% negative effect on GBS, which declined 1% year-to- $6.0 $4.0 -10.0% year (in constant currency) in the major markets. $2.0 $0.0 -20.0% 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. • IGS’ revenue attributable to growth markets was Asia Pacific EMEA Americas Americas YtY Growth up 22% year-to-year in 2Q11 and up 13% in EMEA YtY Growth APAC YtY Growth constant currency. SOURCE: TBR ESTIMATES • IGS reported expansion across all of IBM’s TBR IGS SEQUENTIAL GROWTH BY GEOGRAPHY services areas; GBS’ outsourcing and C&SI revenues were up 10% year-to-year in constant 10% currency, and GTS’ outsourcing revenue was Growth Sequentially Growth External Revenue 5% driven by a 10% increase in growth markets. Markets 0% • For IBM as a whole, the combined BRIC revenue was up 21% from the year-ago quarter, indicating -5% increased demand and traction in these -10% 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 countries. However, growth markets go beyond Est. the BRIC nations. IBM reported double-digit Americas EMEA APAC growth in nearly 40 growth market countries. SOURCE: TBR ESTIMATES24 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 25. Resource Management Strategy: Headcount TBRWhile IBM has a strong offshore presence, its key to success is the globalintegration of capabilities and high use of standardization and assetsHeadcount Strategies & Investments • IBM remains a globally integrated enterprise. A high grade of Total headcount 253,000 in 2Q11 standardization and use of assets/tools that aid/automate service delivery will continue to benefit IGS’ bottom line.~36% of people • As part of its Growth Markets initiative, IBM opened ~12% of people are in North additional offices in India (Coimbatore, Tamil Nadu), Tanzania are in EMEA (Dar es Salaam) and Senegal (Dakar), expanding its global America presence. IBM has 230 branches in 55 growth market countries, which will propel its growth strategy. ~44% of people • IBM plans to invest in the Philippines to increase its BPO staff are in APAC from 1,000 employees to 3,000 employees. TBR expects IBM ~8% of people are to focus on hiring freshers to fill these 2,000 spots, further in South America reducing costs. • As demand for cloud computing continues to grow, IBM is IGS SERVICES HEADCOUNT TBR investing in datacenters, particularly in emerging regions Total headcount: 253000 (+6.8% YTY) 300,000 o IBM announced plans for a cloud datacenter in Makuhari, 250,000 Japan and a LotusLive-dedicated datacenter also in Japan, Total Headcount 200,000 117,000 114,500 Onshore adding to its seven established datacenters in APAC. 150,000 Offshore 100,000 o IBM opened an $80 million datacenter in South Auckland, 120,000 138,500 New Zealand in late May to meet customer demand for 50,000 cloud computing services in Australia and New Zealand. 0 2Q10 2Q11 Calendar Quarter SOURCE: TBR ESTIMATES25 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 26. Resource Management Strategy: Efficiency & Org. Changes TBRIGS’ per employee revenue and operating income are on the rise as thecompany improves operating efficiencies and invests in automation IGS Efficiency Metrics (In $) Organizational Changes TBR 2Q10 2Q11 • TBR believes IGS is gradually hiring across key regions and lower-cost locations as global demand for IT Revenue per Employee $ 237,600 $ 354,581 ↑ services improves. IGS continues to drive productivity Operating Income per Employee $ 33,869 $ 52,850 ↑ initiatives, limiting hiring onshore and rebalancing Utilization 85.0% 86.0% ↑ high-cost headcount (reported workforce rebalancing Turnover 14.6% 15.3% ↑ charges at GTS in 2Q11, largely in Europe). • While IGS’ lower-cost resources remain largely located in India (60%+ of nearshore/offshore headcount), it isEfficiency Performance progressively rising in other APAC countries, LATAM• IBM GTS is implementing a Global Delivery Framework and Eastern Europe, providing IGS a strong and and standardizing and automating delivery processes attractive delivery network with diversified global to improve efficiency and productivity. IBM GBS uses a sourcing options. globally optimized service delivery and assets to drive productivity and operational excellence. As a result, IGS’ operating income per employee continues to increase and will see positive development.• Revenue per employee increased year-to-year due to IGS’ focus on using assets and automation for its service delivery model.• Attrition levels in the IT services industry remain on the rise due to the active hiring efforts of vendors that are adding talent to address growing demand for IT services. TBR believes IGS’ attrition levels increased in 2Q11, largely driven by lower-cost locations.26 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 27. Income Statement TBR TBR IGS PRO FORMA INCOME STATEMENT (IN $ MILLIONS) CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. Global Technology Services Internal Revenue $ 320 $ 332 $ 362 $ 299 $ 307 $ 320 $ 330 Global Technology Services External Revenue $ 9,306 $ 9,234 $ 9,496 $ 10,165 $ 9,863 $ 10,241 $ 10,256 Global Business Services Internal Revenue $ 203 $ 197 $ 199 $ 199 $ 200 $ 205 $ 210 Global Business Services External Revenue $ 4,410 $ 4,483 $ 4,572 $ 4,758 $ 4,710 $ 4,866 $ 4,938 Total IGS Internal Revenue $ 523 $ 529 $ 561 $ 498 $ 507 $ 525 $ 540 Total IGS External Revenue $ 13,716 $ 13,717 $ 14,068 $ 14,923 $ 14,573 $ 15,107 $ 15,193 Total IGS Revenue (Internal + External) $ 14,239 $ 14,246 $ 14,629 $ 15,421 $ 15,080 $ 15,632 $ 15,733 Cost of Services $ 9,334 $ 9,286 $ 9,397 $ 10,049 $ 9,949 $ 10,219 $ 10,233 Gross Profit $ 4,382 $ 4,431 $ 4,671 $ 4,874 $ 4,624 $ 4,888 $ 4,961 Global Technology Services $ 3,183 $ 3,167 $ 3,349 $ 3,527 $ 3,334 $ 3,482 $ 3,518 Global Business Services $ 1,200 $ 1,264 $ 1,322 $ 1,347 $ 1,291 $ 1,406 $ 1,443 Operating Expenses $ 2,980 $ 2,326 $ 2,452 $ 2,471 $ 2,746 $ 2,718 $ 2,682 Total IGS Operating Income (Pre-tax Income) $ 1,402 $ 2,105 $ 2,219 $ 2,403 $ 1,878 $ 2,170 $ 2,279 Global Technology Services Pre-tax Income $ 957 $ 1,422 $ 1,524 $ 1,657 $ 1,238 $ 1,420 $ 1,474 Global Business Services Pre-tax Income $ 445 $ 683 $ 695 $ 746 $ 640 $ 750 $ 805 AS A PERCENTAGE OF TOTAL EXTERNAL IGS REVENUE Global Technology Services External Revenue 67.8% 67.3% 67.5% 68.1% 67.7% 67.8% 67.5% Global Business Services External Revenue 32.2% 32.7% 32.5% 31.9% 32.3% 32.2% 32.5% Total IGS External Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Sales 68.1% 67.7% 66.8% 67.3% 68.3% 67.6% 67.4% Gross Margin 31.9% 32.3% 33.2% 32.7% 31.7% 32.4% 32.7% Global Technology Services 34.2% 34.3% 35.3% 34.7% 33.8% 34.0% 34.3% Global Business Services 27.2% 28.2% 28.9% 28.3% 27.4% 28.9% 29.2% Operating Expenses 21.7% 17.0% 17.4% 16.6% 18.8% 18.0% 17.7% Total IGS Operating Income (as % of IGS External Revenue) 10.2% 15.3% 15.8% 16.1% 12.9% 14.4% 15.0% Global Technology Services Pre-tax Income 7.0% 10.4% 10.8% 11.1% 8.5% 9.4% 9.7% Global Business Services Pre-tax Income 3.2% 5.0% 4.9% 5.0% 4.4% 5.0% 5.3% Total IGS Operating Income (as % of IGS Revenue (Internal + External) 9.8% 14.8% 15.2% 15.6% 12.5% 13.9% 14.5% GTS Pre-tax Income as a % of total GTS* 9.9% 14.9% 15.5% 15.8% 12.2% 13.4% 13.9% GBS Pre-tax Income as a % of total GBS* 9.7% 14.6% 14.6% 15.0% 13.0% 14.8% 15.6% YEAR-TO-YEAR CHANGE Global Technology Services External Revenue 6.3% 1.4% 0.7% 1.1% 6.0% 10.9% 8.0% Global Business Services External Revenue 0.3% 3.3% 5.4% 3.9% 6.8% 8.5% 8.0% Total IGS External Revenue 4.3% 2.0% 2.1% 2.0% 6.2% 10.1% 8.0% Cost of Services 3.5% 2.0% 2.4% 4.2% 6.6% 10.1% 8.9% Gross Profit 6.0% 2.0% 1.7% -2.3% 5.5% 10.3% 6.2% Global Technology Services 7.2% 0.0% 0.0% -2.0% 4.7% 9.9% 5.0% Global Business Services 2.9% 7.3% 6.2% -3.0% 7.6% 11.2% 9.2% Operating Expenses 18.8% -0.2% -0.5% -7.3% -7.8% 16.8% 9.4% Total IGS Operating Income (Pre-tax Income) -13.7% 4.6% 4.2% 3.5% 33.9% 3.1% 2.7% Global Technology Services Pre-tax Income -13.3% 1.2% 3.6% 6.5% 29.4% -0.1% -3.3% Global Business Services Pre-tax Income -14.6% 12.3% 5.5% -2.6% 43.8% 9.8% 15.9% * GTS and GBS pre-tax margins are calculated based on their respective internal and external revenue as reported by IBM. SOURCE: IBM AND TBR27 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 28. Income Statement TBR IBM CORP. Consolidated Statement of Income (i n $ Thous a nds Except per Sha re Da ta ) TBR Jun. 10 Sept. 10 Dec. 10 Mar. 11 Jun. 11 Sept. 11 CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. FISCAL QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. Net Sales $ 23,724,000 $ 24,271,000 $ 29,019,000 $ 24,607,000 $ 26,666,000 $ 27,900,000 Cost of Sales 12,915,000 13,270,000 14,792,000 13,749,000 14,281,000 15,066,000 Gross Profit 10,809,000 11,001,000 14,227,000 10,858,000 12,385,000 12,834,000 SG&A 5,061,000 5,149,000 5,951,000 5,826,000 6,030,000 6,529,000 R&D 1,475,000 1,464,000 1,578,000 1,587,000 1,569,000 1,500,000 IP and Custom Development Income (297,000) (278,000) (318,000) (262,000) (295,000) (288,000) Operating Income 4,570,000 4,666,000 7,016,000 3,707,000 5,081,000 5,093,000 Other (Income) and Expenses* (95,000) (106,000) (42,000) (202,000) 97,000 (63,000) Interest Expense* 90,000 95,000 102,000 93,000 97,000 96,750 EBIT 4,575,000 4,677,000 6,956,000 3,816,000 4,887,000 5,059,250 Income Taxes 1,190,000 1,088,000 1,698,000 954,000 1,221,000 1,095,000 Net Income $ 3,385,000 $ 3,589,000 $ 5,258,000 $ 2,862,000 $ 3,666,000 $ 3,964,250 Net Income Applicable to Common Stock $ 3,385,000 $ 3,589,000 $ 5,258,000 $ 2,862,000 $ 3,666,000 $ 3,964,250 Net Income Per Share of Common Stock $ 2.61 $ 2.82 $ 4.18 $ 2.34 $ 3.00 Common Shares Outstanding 1,296,700,000 1,272,800,000 1,258,400,000 1,222,200,000 1,221,400,000 AS A PERCENTAGE OF REVENUE Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Sales 54.4% 54.7% 51.0% 55.9% 53.6% 54.0% Gross Margin 45.6% 45.3% 49.0% 44.1% 46.4% 46.0% SG&A 21.3% 21.2% 20.5% 23.7% 22.6% 23.4% R&D 6.2% 6.0% 5.4% 6.4% 5.9% 5.4% Operating Margin 19.3% 19.2% 24.2% 15.1% 19.1% 18.3% Other, Net -0.4% -0.4% -0.1% -0.8% 0.4% -0.2% EBIT 19.3% 19.3% 24.0% 15.5% 18.3% 18.1% Income Taxes 5.0% 4.5% 5.9% 3.9% 4.6% 3.9% Net Margin 14.3% 14.8% 18.1% 11.6% 13.7% 14.2% YEAR-TO-YEAR CHANGE Net Sales 2.0% 3.0% 6.6% 7.7% 12.4% 15.0% Cost of Sales 1.9% 2.6% 5.0% 6.7% 10.6% 13.5% Gross Profit 2.2% 3.5% 8.2% 8.8% 14.6% 16.7% SG&A -1.1% 2.7% 7.0% 2.6% 19.1% 26.8% R&D 2.9% 1.2% 8.0% 5.2% 6.4% 2.5% Operating Income 5.4% 4.6% 9.0% 21.5% 11.2% 9.2% Other, Net -106.8% -112.4% 5.3% 76.5% 3980.0% 406.8% EBIT 7.3% 6.9% 9.0% 8.6% 6.8% 8.2% Income Taxes 2.7% -6.1% 8.3% 4.4% 2.6% 0.6% Net Income 9.1% 11.7% 9.3% 10.1% 8.3% 10.5% *Restated with equity options expensed. SOURCE: TBR AND IBM28 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 29. Balance Sheet TBR IBM CORP. Consolidated Balance Sheets (i n $ Thous a nds ) TBR June10 Sept. 10 Dec. 10 Ma rch 11 June 11 FISCAL/CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 ASSETS Current Assets Cash & Equivalents $ 10,325,000 $ 9,859,000 $ 10,661,000 $ 12,763,000 $ 11,714,100 Marketable Securities 1,916,000 1,227,000 990,000 482,000 50,000 Accounts Receivable 10,191,000 10,904,000 11,968,000 11,293,000 11,666,100 Inventory 2,595,000 2,629,000 2,450,000 2,549,000 2,573,100 Short-term Financing Receivables 13,301,000 13,592,000 16,257,000 14,365,000 14,715,100 Deferred Taxes 1,444,000 1,596,000 1,564,000 1,695,000 1,557,100 Prepaid Expenses and Other 5,124,000 4,661,000 4,226,000 4,376,000 4,662,100 Total Current Assets 44,896,000 44,468,000 48,116,000 47,523,000 46,937,600 Property, Plant, Equip. (Net of Dep.) 13,534,000 14,009,000 14,096,000 14,208,000 14,239,100 Long-term Financing Receivables 9,185,000 9,448,000 10,548,000 10,254,000 10,422,100 Prepaid Pension Assets 3,575,000 4,379,000 3,068,000 3,788,000 4,855,100 Intangible Assets 2,526,000 3,048,000 3,488,000 3,324,000 3,205,000 Goodwill 20,544,000 22,703,000 25,136,000 25,408,000 25,609,100 Other, Net 9,160,000 9,119,000 8,998,000 8,456,000 8,206,000 Total Assets $ 103,420,000 $ 107,174,000 $ 113,450,000 $ 112,961,000 $ 113,474,000 LIABILITIES & EQUITY Current Liabilities Accounts Payable $ 26,465,000 $ 26,979,000 $ 29,568,000 $ 29,349,000 $ 29,621,850 Short-term Debt 5,633,000 5,556,000 6,778,000 8,508,000 7,857,850 Income Taxes Payable 2,895,000 2,908,000 4,216,000 2,531,000 2,362,850 Total Current Liabilities 34,993,000 35,443,000 40,562,000 40,388,000 39,842,550 LT Debt, Net of Current 21,017,000 21,899,000 21,846,000 21,749,000 21,914,850 Retirement Obligations 14,598,000 15,145,000 15,978,000 15,995,000 16,013,850 Other Non-current Liabilities 11,636,000 12,329,000 11,892,000 12,054,000 12,492,000 Total Liabilities $ 82,244,000 $ 84,816,000 $ 90,278,000 $ 90,186,000 $ 90,263,250 Common Stock & PIC 43,522,000 44,328,000 45,418,000 46,278,000 46,974,850 Retained Earnings 85,323,000 88,095,000 92,532,000 94,590,000 97,333,900 Translation and Other Adj. (107,669,000) (110,065,000) (114,778,000) (118,093,000) (121,098,000) Total Stockholders Equity 21,176,000 22,358,000 23,172,000 22,775,000 23,210,750 Total Liabilities & Equity $ 103,420,000 $ 107,174,000 $ 113,450,000 $ 112,961,000 $ 113,474,000 FINANCIAL RATIOS Days Sales Outstanding 38.66 40.43 37.12 41.30 39.37 Turns on Inventory 37.08 37.17 45.71 39.38 41.65 Days Inventory Outstanding 9.84 9.82 7.99 9.27 8.76 Fixed Asset Turnover 7.11 7.12 7.11 7.18 7.35 Days Cash Outstanding 85.30 75.19 70.89 86.70 74.14 Total Asset Turnover 0.91 0.92 1.05 0.87 0.94 Debt/Asset Ratio 0.80 0.79 0.80 0.80 0.80 Current Ratio 1.28 1.25 1.19 1.18 1.18 Return on Assets 13.3% 13.6% 13.8% 13.9% 14.0% Return on Equity 70.0% 67.3% 66.4% 67.6% 68.2% Revenue/Employee ($ Thousands) $ 243,776 $ 244,242 $ 246,923 $ 248,470 $ 252,728 Number of Employees 402,000 405,500 410,950 417,500 421,000 SOURCE: IBM29 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 30. Appendix – Financial Models TBR IGS REVENUE BREAKDOWN BY BUSINESS UNIT (IN $ MILLIONS) TBR CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. Global Technology Services External Revenue $ 9,234 $ 9,496 $ 10,165 $ 9,863 $ 10,241 $ 10,256 Outsourcing $ 5,364 $ 5,532 $ 5,887 $ 5,794 $ 6,016 $ 6,032 Integrated Technology Services $ 2,098 $ 2,162 $ 2,381 $ 2,224 $ 2,329 $ 2,325 Maintenance $ 1,772 $ 1,802 $ 1,897 $ 1,845 $ 1,896 $ 1,899 Global Business Services External Revenue $ 4,483 $ 4,572 $ 4,758 $ 4,710 $ 4,866 $ 4,938 Outsourcing (app. outsourcing) $ 946 $ 985 $ 1,045 $ 1,055 $ 1,064 $ 1,079 Consulting & SI $ 3,537 $ 3,587 $ 3,713 $ 3,655 $ 3,802 $ 3,859 Total IGS External Revenue $ 13,717 $ 14,068 $ 14,923 $ 14,573 $ 15,107 $ 15,193 AS A PERCENTAGE OF EXTERNAL IGS REVENUE Global Technology Services External Revenue 67.3% 67.5% 68.1% 67.7% 67.8% 67.5% Outsourcing 39.1% 39.3% 39.5% 39.8% 39.8% 39.7% Integrated Technology Services 15.3% 15.4% 16.0% 15.3% 15.4% 15.3% Maintenance 12.9% 12.8% 12.7% 12.7% 12.6% 12.5% Global Business Services External Revenue 32.7% 32.5% 31.9% 32.3% 32.2% 32.5% Outsourcing (app. outsourcing) 6.9% 7.0% 7.0% 7.2% 7.0% 7.1% Consulting & SI 25.8% 25.5% 24.9% 25.1% 25.2% 25.4% YEAR-TO-YEAR CHANGE Global Technology Services External Revenue 1.4% 0.7% 1.1% 6.0% 10.9% 11.1% Outsourcing 1.6% 1.2% 1.2% 6.2% 12.2% 12.4% Integrated Technology Services -1.8% -1.9% -0.6% 7.3% 11.0% 10.8% Maintenance 4.6% 2.1% 3.0% 3.7% 7.0% 7.2% Global Business Services External Revenue 3.3% 5.4% 3.9% 6.8% 8.5% 10.1% Outsourcing (app. outsourcing) N/A N/A N/A 10.1% 12.4% 14.0% Consulting & SI N/A N/A N/A 5.9% 7.5% 9.1% IGS External Revenue 2.0% 2.1% 2.0% 6.2% 10.1% 10.8% SOURCE: IBM AND TBR ESTIMATES30 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 31. Appendix – Financial Models TBR TBR IGS GEO REVENUE BREAKDOWN (IN $ MILLIONS) CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. FISCAL QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. Total Revenue $ 13,716 $ 13,717 $ 14,068 $ 14,923 $ 14,573 $ 15,107 $ 15,193 AMERICAS Revenue $ 6,059 $ 6,216 $ 6,241 $ 6,710 $ 6,543 $ 6,836 $ 6,913 % of Total Revenue 44.2% 45.3% 44.4% 45.0% 44.9% 45.3% 45.5% EMEA Revenue $ 4,710 $ 4,384 $ 4,519 $ 4,967 $ 4,809 $ 4,774 $ 4,756 % of Total Revenue 34.3% 32.0% 32.1% 33.3% 33.0% 31.6% 31.3% ASIA PACIFIC Revenue $ 2,947 $ 3,117 $ 3,308 $ 3,246 $ 3,221 $ 3,497 $ 3,525 % of Total Revenue 21.5% 22.7% 23.5% 21.8% 22.1% 23.2% 23.2% YEAR-TO-YEAR CHANGE Americas 1.8% 3.5% 3.0% 4.2% 8.0% 10.0% 10.8% EMEA 4.9% -5.0% -6.0% -3.0% 2.1% 8.9% 5.2% Asia Pacific 8.9% 10.3% 13.9% 5.6% 9.3% 12.2% 6.5% SEQUENTIAL CHANGE Americas -5.9% 2.6% 0.4% 7.5% -2.5% 4.5% 1.1% EMEA -8.0% -6.9% 3.1% 9.9% -3.2% -0.7% -0.4% Asia Pacific -4.1% 5.8% 6.1% -1.9% -0.8% 8.6% 0.8% SOURCE: TBR ESTIMATES31 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 32. Appendix – Financial Models TBR TBR IGS REVENUE BREAKDOWN - BY INDUSTRY (IN $ BILLIONS) CALENDAR QUARTER 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. Financial Services $ 4.05 $ 4.22 $ 4.52 $ 4.53 $ 4.71 $ 4.79 Public Sector $ 2.19 $ 2.22 $ 2.34 $ 2.17 $ 2.24 $ 2.32 Industrial $ 2.12 $ 1.97 $ 2.09 $ 2.06 $ 2.22 $ 2.17 Distribution $ 1.44 $ 1.55 $ 1.63 $ 1.44 $ 1.56 $ 1.55 Communications $ 1.37 $ 1.41 $ 1.51 $ 1.46 $ 1.57 $ 1.53 General Business (SMB) $ 2.35 $ 2.42 $ 2.58 $ 2.55 $ 2.60 $ 2.61 Other $ 0.20 $ 0.28 $ 0.25 $ 0.36 $ 0.21 $ 0.21 All Sectors $ 13.72 $ 14.07 $ 14.92 $ 14.57 $ 15.11 $ 15.19 AS A PERCENTAGE OF REVENUE Financial Services 29.5% 30.0% 30.3% 31.1% 31.2% 31.5% Public Sector 16.0% 15.8% 15.7% 14.9% 14.8% 15.3% Industrial 15.4% 14.0% 14.0% 14.2% 14.7% 14.3% Distribution 10.5% 11.0% 10.9% 9.9% 10.3% 10.2% Communications 10.0% 10.0% 10.1% 10.0% 10.4% 10.1% General Business (SMB) 17.1% 17.2% 17.3% 17.5% 17.2% 17.2% Other 1.5% 2.0% 1.7% 2.5% 1.4% 1.4% YEAR-TO-YEAR GROWTH Financial Services 0.3% 5.7% 5.8% 12.8% 16.5% 13.4% Public Sector 14.9% 7.6% 6.8% 2.1% 1.9% 4.6% Industrial 31.1% 7.5% 2.0% -1.1% 5.0% 10.3% Distribution 2.0% 6.0% 7.9% 3.1% 8.0% 0.1% Communications 0.0% -0.8% 2.0% 7.3% 14.5% 9.1% General Business (SMB) -10.7% -8.5% -11.3% 9.4% 10.8% 8.0% Other -57.6% -21.4% 15.6% -10.2% 4.2% -24.4% All Sectors 2.0% 2.1% 2.0% 6.2% 10.1% 8.0% SOURCE: TBR ESTIMATES32 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 33. Appendix – Financial Models TBR TBR IBM GLOBAL SERVICES OPERATING EXPENSE MODEL (IN $ THOUSANDS) CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. FISCAL QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 Est. IGS External Revenue $ 13,716,000 $ 13,717,000 $ 14,068,000 $ 14,923,000 $ 14,573,000 $ 15,107,000 $ 15,193,440 Operating Expenses $ 2,980,018 $ 2,326,468 $ 2,452,000 $ 2,470,769 $ 2,746,234 $ 2,718,214 $ 2,681,642 Sales & Marketing $ 2,221,992 $ 1,961,531 $ 2,082,064 $ 2,089,220 $ 2,113,085 $ 2,160,301 $ 2,142,275 General & Administrative $ 758,026 $ 364,937 $ 369,936 $ 381,549 $ 633,149 $ 557,913 $ 539,367 SALES & MARKETING EXPENSE BREAKOUT Sales Expense $ 1,755,374 $ 1,553,533 $ 1,644,831 $ 1,650,484 $ 1,669,337 $ 1,706,638 $ 1,692,397 Marketing Spending $ 466,618 $ 407,998 $ 437,233 $ 438,736 $ 443,748 $ 453,663 $ 449,878 Advertising $ 150,000 $ 157,920 $ 168,500 $ 185,500 $ 185,000 $ 183,000 $ 185,500 Total Sales & Marketing Expense $ 2,221,992 $ 1,961,531 $ 2,082,064 $ 2,089,220 $ 2,113,085 $ 2,160,301 $ 2,142,275 SPENDING AS A PERCENTAGE OF REVENUE Operating Expenses 21.7% 17.0% 17.4% 16.6% 18.8% 18.0% 17.7% Sales & Marketing 16.2% 14.3% 14.8% 14.0% 14.5% 14.3% 14.1% Sales Expense 12.8% 11.3% 11.7% 11.1% 11.5% 11.3% 11.1% Marketing Spending 3.4% 3.0% 3.1% 2.9% 3.0% 3.0% 3.0% Advertising 1.1% 1.2% 1.2% 1.2% 1.3% 1.2% 1.2% General & Administrative 5.5% 2.7% 2.6% 2.6% 4.3% 3.7% 3.6% SOURCE: TBR ESTIMATES AND IBM33 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 34. Appendix – Financial Models TBR TBR IBM GLOBAL SERVICES OFFSHORE HEADCOUNT CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 EMPLOYEES India 72,700 75,000 80,000 83,000 85,000 87,000 Total Near/Offshore Headcount 115,000 120,000 127,500 130,000 134,500 138,500 Total Headcount 235,000 237,000 242,000 245,000 249,000 253,000 Total Headcount YtY Growth -1.7% 0.9% 3.4% 4.7% 6.0% 6.8% SOURCE: TBR ESTIMATES34 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 35. Appendix – Graphs TBRFinancial Strategy GraphsTBR IGS OPERATING MARGIN TBR IBM CURRENT RATIO 20.0% 2.00 14.8% 15.2% 15.6% 16.0% 13.9% 12.5% 1.50 1.28 1.25 1.18 1.18 1.19 12.0% 1.00 8.0% 4.0% 0.50 0.0% 0.00 2Q10 3Q10 4Q10 1Q11 2Q11 2Q10 3Q10 4Q10 1Q11 2Q11 IGS PSBQ AVERAGE IBM PSBQ AVERAGE SOURCE: TBR AND IBM SOURCE: TBR AND IBM TBR IBM DEBT/ASSET RATIO 1.00 0.80 0.79 0.80 0.80 0.80 0.80 0.60 0.40 0.20 0.00 2Q10 3Q10 4Q10 1Q11 2Q11 IBM PSBQ AVERAGE SOURCE: TBR AND IBM35 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 36. Appendix – Graphs TBRFinancial Strategy Graphs TBR IBM RETURN ON ASSETS 16.0% 13.3% 13.6% 13.8% 13.9% 14.0% 12.0% 8.0% 4.0% 0.0% 2Q10 3Q10 4Q10 1Q11 2Q11 IBM PSBQ AVERAGE SOURCE: TBR AND IBM TBR IBM RETURN ON EQUITY 100.0% 70.0% 67.3% 67.6% 68.2% 75.0% 66.4% 50.0% 25.0% 0.0% 2Q10 3Q10 4Q10 1Q11 2Q11 IBM PSBQ AVERAGE SOURCE: TBR AND IBM36 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 37. Appendix – Graphs TBRGo-to-Market GraphsTBR IGS REVENUE (IN $ BILLIONS) TBR IGS REVENUE GROWTH $20.0 20.0% $14.9 $14.6 $15.1 16.0% $15.0 $13.7 $14.1 12.0% 10.1% $10.0 8.0% 6.2% $5.0 4.0% 2.0% 2.0% 2.1% 0.0% $0.0 2Q10 3Q10 4Q10 1Q11 2Q11 2Q10 3Q10 4Q10 1Q11 2Q11 IGS PSBQ AVERAGE IGS PSBQ AVERAGESOURCE: TBR AND IBM SOURCE: TBR AND IBMTBR IGS BACKLOG/REVENUE RATIO TBR IBM DAYS SALES OUTSTANDING 3.50 80.00 3.00 2.52 Number of Days 2.31 2.39 2.48 2.45 60.00 2.50 38.66 40.43 37.12 41.30 39.37 2.00 40.00 1.50 1.00 20.00 0.50 0.00 0.00 2Q10 3Q10 4Q10 1Q11 2Q11 2Q10 3Q10 4Q10 1Q11 2Q11 IGS PSBQ AVERAGE IBM PSBQ AVERAGESOURCE: TBR AND IBM SOURCE: TBR AND IBM37 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 38. Appendix – Graphs TBRResource Management GraphsTBR IGS GROSS MARGIN TBR IGS OPERATING EXPENSES AS A PERCENTAGE OF REVENUE 40.0% 33.2% 32.7% 31.7% 32.4% 32.3% 25.0% 17.0% 17.4% 16.6% 18.8% 18.0% 30.0% 20.0% 20.0% 15.0% 10.0% 10.0% 5.0% 0.0% 0.0% 2Q10 3Q10 4Q10 1Q11 2Q11 2Q10 3Q10 4Q10 1Q11 2Q11 IGS PSBQ AVERAGE IGS PSBQ AVERAGESOURCE: TBR AND IBM SOURCE: TBR AND IBM IGS REVENUE PER EMPLOYEE TBR (IN $ THOUSANDS AND TTM) $280.0 $237.6 $236.8 $235.3 $235.5 $237.3 $220.0 $160.0 $100.0 2Q10 3Q10 4Q10 1Q11 2Q11 IGS PSBQ AVERAGE SOURCE: TBR AND IBM38 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 39. Appendix – Graphs TBRResource Management GraphsTBR IGS UTILIZATION RATE TBR IGS TURNOVER RATE 100.0% 20.0% 85.0% 86.0% 86.0% 86.2% 86.0% 15.4% 15.2% 15.3% 14.6% 15.0% 80.0% 15.0% 60.0% 10.0% 40.0% 20.0% 5.0% 0.0% 0.0% 2Q10 3Q10 4Q10 1Q11 2Q11 2Q10 3Q10 4Q10 1Q11 2Q11 IGS PSBQ AVERAGE IGS PSBQ AVERAGESOURCE: TBR AND IBM SOURCE: TBR AND IBM TBR IGS OPERATING INCOME PER EMPLOYEE (IN $ THOUSANDS AND TTM) $40.0 $34.0 $33.9 $35.4 $35.1 $33.9 $30.0 $20.0 $10.0 $0.0 2Q10 3Q10 4Q10 1Q11 2Q11 IGS PSBQ AVERAGE SOURCE: TBR AND IBM39 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 40. Appendix – Tables TBRIBM/IGS’ Recent Acquisitions ESTIMATED ACQUISITION ACQUISITION SYNERGIES NO. OFCOMPANY DATE EMPLOYEES Tririga is a leader in providing facility and real estate management software solutions, enhancing IBM’s ability toTririga, Inc. April 2011 200 offer stronger solutions to drive revenue, expand its customer base, and grow in the smarter buildings market. Software and devices that route data and transactions to andBLADE Network October 2010 from servers, helping IBM better integrate networks with its N/ATechnologies systems. Extends IBM’s business analytics capabilities throughOpenPages October 2010 OpenPages software that helps identify and manage risk and 140 compliance. Extends IBM’s business analytics initiatives through Clarity Systems’ financial governance software that helpsClarity Systems October 2010 N/A organizations automate processes for financial statement management. PSS Systems provides software for analyzing, automation and implementation of information governance policies. ThePSS Systems October 2010 acquisition expands IBM’s Information Lifecycle Governance 100 solutions, IBM’s storage management, and Smart Archive strategy.40 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 41. Appendix – Tables TBRIBM/IGS’ Recent Acquisitions ESTIMATED ACQUISITION ACQUISITION SYNERGIES NO. OFCOMPANY DATE EMPLOYEESNetezza Extends IBM’s business analytics initiatives through Netezza’s September 2010 500Corporation analytics and data warehousing appliance. Storwize’s data compression technology reduces storageStorwize August 2010 requirements and augments IBM’s storage and analytics N/A capabilities. Strengthens IBM’s capabilities to digitize, manage andDatacap August 2010 automate information assets in paper-intensive verticals (e.g., 40 healthcare, insurance, public sector and finance).Sterling Software for cross-channel commerce and integration of August 2010 2,500Commerce customers, partners and suppliers across a range of industries. The acquisition of Unica allows IBM to increase its ability to aid August 2010Unica Corporation organizations when predicting and analyzing customer 500 (announced) tendencies. July 2010 Data compression technology that improves storage efficiencyStorwize N/A (announced) and data analytic capabilities. Security and compliance management and automation forBigFix July 2010 N/A desktops across the enterprise.41 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 42. Appendix – Tables TBRIBM/IGS’ Recent Acquisitions ESTIMATED ACQUISITION ACQUISITION SYNERGIES NO. OF COMPANY DATE EMPLOYEES Strengthens IBM’s cloud computing capabilities (cloud Cast Iron Systems May 2010 integration software, appliances and services), business 75 process and integration software portfolio By acquiring the core operating assets of Wilshire Credit Wilshire Credit March 2010 Corporation, including the Wilshire mortgage servicing 900 Corporation platform, IBM strengthens its mortgage BPO capabilities. A provider of intelligent network automation software that Intelliden February 2010 N/A extends IBM’s network management offerings Data integrity software for information sharing among Initiate Systems January 2010 120 healthcare and government organizations National Interest Security January 2010 Advanced analytics and IT solutions for the public sector 1,000 Company Lombardi provides BPM software and services, complements IBMs enterprise-wide process management Lombardi January 2010 180 software, and adds integrated solutions that automate human tasks and workflows.42 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 43. Appendix – Tables TBRIGS’ Portfolio of Services BUSINESS CONSULTING IT SERVICES OTHER SERVICES SERVICES FOR SMALL AND MEDIUM BUSINESS • Business Analytics and • Business Continuity • Outsourcing Services • Application Services Optimization and Resiliency Services • Oracle Consulting • Business analytics • Financial Management • Data center Services Services • Business consulting • Human Capital • Integrated • SAP Consulting Services • Business continuity and Management Communications • Software Services resiliency • Marketing, Sales and Services • Cloud computing Service Management • Maintenance and • Collaboration • Strategy and Technical Support • Green business Transformation Services • Information • Supply Chain • Security Services management Management • IT Strategy and • IT operational Architecture Design efficiency Services • Network and systems • Workplace Services management • Security and privacy • Technical Support • Training43 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 44. Appendix – Tables TBRIBM/IGS’ Recent Services Announcements SERVICE/SOLUTION DATE DESCRIPTION 2Q11 New suite of server recovery, data protection, and backup services IBM SmartCloud enables clients to protect, store and retrieve their most critical data in a June 2011 Resilience Service short period of time following unforeseen events through IBM’s SmartCloud Virtualized Server and SmartCloud Archive. New cloud service offers advanced software, computer lab resources and services to students and researchers at educational institutions without IBM SmartCloud for the need for advanced IT expertise on-site. It offers real-time insights on June 2011 student and institutional performance, lightens demand on physical lab Education resources, and allows schools to analyze their own data using new SPSS models. The new global consulting practice will help companies improve their Consulting Services for core business processes in marketing, human resources and finance in Business Process April 2011 addition to their industry-specific processes. Services will be provided Management from the U.S. and other locations around the world. The SmartCloud Enterprise offers technologies and services for private, public and hybrid cloud-based systems and is a secure platform designed IBM SmartCloud Enterprise to allow businesses to benefit from shared cloud services to drive April 2011 for Business efficiencies, control costs, and improve time to market. The IBM SmartCloud Enterprise will be delivered through IBM’s recently launched Asia-Pacific Cloud Computing Data Centre in Singapore.44 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 45. Appendix – Tables TBRIBM/IGS’ Recent Services Announcements SERVICE/SOLUTION DATE DESCRIPTION 1Q11 This new service will strengthen IBM’s leadership and investments in IBM Smarter Commerce business analytics and optimization. The new offerings will address a Consulting Services and March 2011 multitude of enterprise commerce activities, improving IBM’s position in Software the market. A free website by IBM that will improve the quality of life in cities around the world by showing policy makers how their city is doing as City Forward March 2011 compared to others. It also provides information on how to improve the qualities in which the city may be lagging. IBM provides professional services that enable companies to develop Communication Service new revenue generating services while controlling costs as they build Provider Network February 2011 advanced networks. IBM services include solutions planning, migration, Infrastructure Services architecture, design, project planning, deployment and end-to-end multivendor infrastructures.45 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 46. Appendix – Tables TBRIBM/IGS’ Vertical Industries Communications Retail Banking • Assurance/fulfillment • Marketing and customer • Core banking transformation • Business intelligence management • Customer care and insight • Billing/CRM • Store and channels • Integrated risk management • Infrastructure • Merchandising and product • Payments and securities • Service innovation management • Supply networks Financial Markets Financial Services Solutions Communications Solutions Media & Entertainment • Business and finance admin • Front office Distribution Solutions • Workflow transformation • IT systems and ops • Middle and back office • Dynamic infrastructure • Integrated risk management • Outsourcing Consumer Products • Market & depositories • Consumer behavior analytics Energy & Utilities • Front end optimization Insurance • Power generation optimization • Consumer driven supply chain • Core insurance transformation • Work and asset management • Enterprise information • Customer care and insight • Intelligent utility network management • Integrated risk management • Customer ops transformation • Distribution Travel & Transport • Multichannel sales & service • Reservation system modernization • Asset optimization • Operations control systems • Safety, security and surveillance46 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 47. Appendix – Tables TBRIBM/IGS’ Vertical Industries (cont.) Government Automotive • Integrated citizen-centered services - • Marketing, sales and service differentiation Social Services and Social Security • Operations and supply chain optimization • Green government – energy and • Product innovation environment leadership • Public safety and security Electronics • Resource management • Product lifecycle management • Global supply chain Health & Life Sciences • Manufacturing execution systems • Operational effectiveness • Marketing, sales and service transformation Industrial Solutions • Collaborative care • R&D Aerospace & Defense • Supply chain and processes • Operations and supply chain optimization • Regulatory compliance • Marketing, sales and service differentiationPublic Solutions • Aftermarket services Education • Product innovation solutions • Classrooms and learning • Admin and operations Chemical & Petroleum • Student performance management • Supply chain optimization • Research innovation • Asset life-cycle management • Health, safety and environment • Regulatory risk and compliance • Production operations Metals and Mining • Dynamic inventory optimization • Product design and operations scheduling • Integrated mill planning and tracking Forest and Paper Global integration 47 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 48. Appendix – Tables TBRIBM/IGS’ Quarterly Services Signings CONTRACTCLIENT DATE DESCRIPTION YEARS VALUE3Q11 IBM is establishing a secure platform to provide cyber security controls during United Illuminating Company’sUIL Holdings (a subsidiary of UIL) upcoming advanced meterCorporation July 2011 N/A N/A deployment. IBM secures UI’s 50,000 advanced metersUnited States and is expected to support a total of 80,000 by the end of 2011.2Q11 IBM will provide comprehensive IT solutions (help desk, desk side support) across 16 African countries. ThisBharti Airtel July 2011 builds on a deal signed in 2010 for computing 10 N/AIndia technology and services for Bharti Airtel’s mobile network. IBM will modernize core banking systems (hardware,Commercial Bank software and services) as well as provide training forof Ethiopia (CBE) June 2011 N/A $3 million the bank staff. This contract allows IBM to strengthenEthiopia its global position in Africa.48 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 49. Appendix – Tables TBRIBM/IGS’ Quarterly Services Signings CONTRACTCLIENT DATE DESCRIPTION YEARS VALUE IBM provided consulting services and software toKorea Electric develop an integrated energy management system forPower Company June 2011 N/A N/A KEPCO, contributing to the construction of the TotalKorea Operations Center. IBM’s partner, De Novo, will provide PRAVEX-BANK with a datacenter that includes IBM servers, storage,PRAVEX-BANK software and services. IBM will provide IT support and June 2011 5 N/AUkraine maintenance services to help achieve an automated banking system while strategically placing itself around a large customer base in the Ukraine.New Zealand IBM will develop and integrate a border management 4 $75 millionCustoms June 2011 system to streamline border processing. (2 stages) (stage 1)New ZealandRoyalFriesland IBM will provide BPO services to assist with the May 2011 5 N/ACampina management of global procurement operations.Netherlands49 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 50. Appendix – Tables TBRIBM/IGS’ Quarterly Services Signings CONTRACTCLIENT DATE DESCRIPTION YEARS VALUE IBM will provide a global service model to MT Hojgaard, including international help desk support, serverMT Hojgaard operations and maintenance services. Using IBM’s May 2011 6 N/ADenmark support centers, a network solution that links HT Hojgaard with all international construction sites with headquarters will be installed.Sonic Biochem Sonic will outsource its complete IT infrastructure,Extractions May 2011 10 N/A including storage and security solutions, to IBM.India IBM will integrate and deliver maintenance services for the Interdisciplinary Center for Mathematical and Computational Modeling University of Warsaw’s (ICM’s)ICM May 2011 supercomputer. This supercomputer, called the Blue N/A N/APoland Gene/P system, was established by IBM. This closer collaboration could open up opportunities in areas such as sciences and industry. IBM will continue to manage the delivery center for theCamelot provider of enterprise application services and financialInformation industry IT through this contract renewal that extends May 2011 4 N/ASystems Inc. the previous contract terms with the exception that theChina right for IBM to purchase the delivery center has been removed.50 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 51. Appendix – Tables TBRIBM/IGS’ Quarterly Services Signings CONTRACTCLIENT DATE DESCRIPTION YEARS VALUE IBM will manage design consultancy services for the overall datacenter as well as utilize its EnterpriseTulip May 2011 N/A N/A Modular Data Center (EMDC) design to lead the execution of the first phase of the datacenter.LeasePlan India IBM will provide maintenance services, support andPvt. Ltd. May 2011 management for LeasePlan’s multivendor IT N/A N/AIndia environment. IBM will manage and transform the client’s ITHartford Financial infrastructure by transitioning to IBM’s Smart BusinessServices April 2011 5 N/A Desktop Cloud and by virtualizing its server network atUnited States the Colorado and Connecticut locations.1Q11National IBM will provide consulting services, integration,Broadband Multimillion- March 2011 application support and software solutions related to 3Network (NBN) dollar NBN’s core business and operational support systems.Australia51 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 52. Appendix – Tables TBRIBM/IGS’ Quarterly Services Signings CONTRACTCLIENT DATE DESCRIPTION YEARS VALUE IBM will consolidate and update outdated andCity of New York January 2011 incompatible IT to improve the technology platform N/A N/AUnited States for CITIServ. Provide IT infrastructure and application supportAir India January 2011 services while implementing SAP enterprise software 7 $50 millionIndia to automate numerous processes at Air India4Q10 Deploy and manage IT infrastructure and applications in 16 African countries; consolidate and transform IT environments into an integrated ITBharti Airtel December system, oversee management of all applications, 10 N/AIndia 2010 datacenter operations, servers, storage and desktop services; applications support (CRM, billing, self- service)Federal Health Contract extension to provide communications and DecemberDepartment technology support services as well as oversee the 4 $110 million 2010Australia health department’s technology renovation52 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 53. Appendix – Tables TBRIBM/IGS’ Quarterly Services Signings CONTRACTCLIENT DATE DESCRIPTION YEARS VALUE Implement a new cloud computing model toAllied Command consolidate and integrate technology capabilitiesTransformation December 2010 for Command and Control programs; IBM will N/A N/ANATO develop the computing environment to share a common operating environment. Embed security into online care system toAmerican Well safeguard patient information; integrate security December 2010 services and skills into application development N/A N/AUnited States processes. As part of the Smarter Cape Cod initiative, IBM willBarnstable deploy technology for more efficient management of physical infrastructure, protection of natural Spring 2011County, Mass. December 2010 N/A resources, and opportunities for economic growth. (Phase 1)United States Phase 1 will design a Strategic Information Office and a Center of Excellence for Water Resources. Smarter Healthcare initiative throughout the country; IBM, ActiveHealth Management andGovernment of November 2010 Medens Corporation will deliver cloud services to N/A N/APuerto Rico help physicians share and exchange health information. Working with Finnair to deliver personalized customer service and analyze passenger expertise;Finnair November 2010 IBM is providing consulting expertise, methodology N/A N/AFinland and software to capture, mine and analyze information.53 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 54. Appendix – Tables TBRIBM/IGS’ Quarterly Services Signings CONTRACTCLIENT DATE DESCRIPTION YEARS VALUE IBM will manage the IT operations for over 400Samlink November 2010 bank branches and develop a desktop cloud 5 $37 millionFinland offering.Cabinet Office IBM signed a Memorandum of Understanding to November 2010 N/A N/AUnited Kingdom provide efficiency strategies. IBM will manage Westpac’s main infrastructureWestpac November 2010 services in addition to providing critical risk 5 N/AAustralia mitigation services.StarBev IT infrastructure services (datacenter, help desk, November 2010 5 Multimillion €Czech Republic end-user support) and overall service managementSamlink IBM will manage IT operations for over 400 bank November 2010 5 $37 millionFinland branches and develop a desktop cloud offering. Manage the bank’s IT infrastructure (desktop,Bank of Ireland November 2010 servers, mainframes, local area networks and 5 N/AIreland service desk)54 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 55. Appendix – Tables TBRIBM/IGS’ Quarterly Services Signings CONTRACTCLIENT DATE DESCRIPTION YEARS VALUE Create Smarter Healthcare infrastructure; provideCentral Norway IT support to all of the hospitals in Norway to improve coordination and reporting of healthRegional Health November 2010 information; develop a SAP-based solution to be 4 $120 millionAuthority Norway used for upgrading finance and logistic systems throughout NorwayNevada Clark IBM has been signed to integrate its businessCounty Family October 2010 analytics software into the department’s process N/A N/AServices for efficient delivery of social services.United StatesPyro IBM will develop, test and manage Pyro’s products October 2010 and solutions. 5 $19 millionIndia ABN AMRO extended its services agreement withABN AMRO October 2010 IBM whereby IBM will build and provide an N/A N/ANetherlands integrated IT infrastructure platform. IBM will take over the operation of Petrom’sPetrom datacenter services, including cloud computing, October 2010 hosting, installation, business continuity, on-site 10 N/ARomania backup, and disaster recovery.55 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 56. Appendix – Tables TBRIBM/IGS’ Quarterly Services Signings CONTRACTCLIENT DATE DESCRIPTION YEARS VALUE IBM will provide management services andDanish Defense October 2010 technology infrastructure to the Ministry’s 7 N/ADenmark resource management system.Air New Zealand IBM will provide business and technology services October 2010 through mainframe and virtual hosting services. 5 N/ANew Zealand3Q10Jet Airways Business transformation and IT services September 2010 (infrastructure and application support) 10 $62 millionIndiaBharti Airtel IT infrastructure and application services to support client’s mobile communications networkLimited September 2010 N/A N/A in 16 African countries; deal will be finalized inIndia 4Q10. IBM will provide managed business processSunoco August 2010 services along with application support services to N/A N/AUnited States Sunoco. Orbitz will utilize IBM’s Global Expense ReportingOrbitz Solution to provide corporate travel customers August 2010 more options and flexibility in its management N/A N/AUnited States and documentation of travel expenses.56 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 57. Appendix – Tables TBRRecent IBM/IGS’ Alliances COMPANY SCOPE OF PARTNERSHIP The University of Ghana and IBM have signed an agreement to strengthen skills in information University of technology and to improve access to education by supporting R&D and adoption of new technologies. Ghana Innovations from this educational environment will contribute to Ghana’s competitiveness in a global economy. (USAID)/CDC IBM and CDC together will offer guidance, international knowledge, and operational advice to USAID Development volunteers. This alliance will serve as a powerful resource for the United States Agency for Solutions International Development (USAID) missions by linking corporate volunteer programs. Maclean will offer IBM Virtual Server Services (VSS) and Enfusion (a managed IT support service) to Maclean provide hosted computing environments for midsized companies to take advantage of cloud computing. IBM will provide Maclean with presales and marketing support. Expanding on the Jetstar Airways self-service offering for passengers (SMS boarding), this self-service Jetstar Airways platform is built on IBM WebSphere technologies. IBM managed the integration of the Universal Scanner and retrofitting of camera hardware in the kiosks. IBM will determine Smart Grid potential for The Bureau of Energy Efficiency (BEE) in India and will BEE create tool kits for regulators and utilities for assessing Smart Grid investment decisions. ETH Zurich and IBM open the Binnig and Rohrer Nanotechnology Center located on the campus of IBM Research – Zurich. The facility is the cornerstone of a 10-year strategic partnership in ETH Zurich nanoscience between IBM and ETH Zurich, in which R&D will be carried out to advance both energy and information technologies. IBM is teaming up with CPFL to develop a global Smart Grid strategy that drives operational efficiency CPFL Energia and optimizes the communication network by providing consulting and assessment services. Holdings Involvement with the Smart Grid projects will strengthen IBM’s position in the Brazilian region.57 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 58. Appendix – Tables TBRIBM/IGS’ Application Vendors Partnership Highlights COMPANY SCOPE OF PARTNERSHIP IBM and SAP have helped customers build end-to-end CRM solutions, including mySAP CRM, IBM DB2, WebSphere MQ, IBM eServer iSeries and IBM eServer xSeries. The two also have joint solutions SAP for business intelligence, ERP, PLM and SCM. The latest development of the IBM/SAP relationship is the expansion of the partnership through the introduction of an optimized DB2 Database that improves performance and availability of SAP solutions running on DB2. IGS was one of Oracle’s first global strategic alliance partners and is recognized as an Oracle Global Certified Advantage Partner, a title reserved for partners that have consistently demonstrated the Oracle highest level of competency and commitment to Oracle. IBM BCS has teamed with Oracle for more than 16 years. IBM delivers industry and process expertise, along with implementation methods, tools and accelerators. Since 1999, IBM and Siebel Systems have worked together to deliver a broad range of open, scalable Siebel Systems and carefully integrated solutions. The latest development in the IBM/Siebel relationship is an (part of Oracle) extension of the partnership to offer hosted CRM solutions. IBM and Cisco leverage their strengths in Internet infrastructure, e-business systems (applications, middleware, servers) and services (systems integration, support, outsourcing etc.), delivering end-to-end internet business solutions for e-business transformation. The alliance offers customers Cisco Systems e-business security, availability and applications performance as well as speech-enabled self-service solutions to contact centers. In the alliance’s latest development, Cisco will sell IBM’s Lotus Sametime directly through its 1,200 channel partners spread throughout the world.58 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 59. Appendix – Tables TBRIBM/IGS’ Application Vendors Partnership Highlights COMPANY SCOPE OF PARTNERSHIP IBM BCS and Dassault Systemes provide customers with product lifecycle management services, which optimize product development processes. The partnership provides business transformation Dassault consulting, implementation, integration and managed services for the CATIA, ENOVIA and Systemes SMARTEAM families of products as well as introduces, integrates and implements Dassault Systemes’ software solutions. IBM BCS and i2 manage other companies’ value chains by providing comprehensive solutions for supply and demand chains. The services accelerate optimization and collaboration across the i2 Technologies entire value chain and allow supply and demand management and timely response to unpredictable events. IBM and Red Hat have joined to help customers accelerate Linux adoption on the IBM eServer zSeries mainframe. The solutions include IBM’s Integrated Facility for Linux engine and subscription Red Hat of Red Hat Linux Enterprise v.4 for zSeries systems. The two companies also are working together with educators on Linux skills-building and curriculum development. The alliance will help institutions educate students and develop their skills on Linux and IBM software and servers. IBM and Avaya formed an alliance to integrate Avaya’s VoIP technology with IBM’s enterprise e-mail, web conferencing and instant messaging offerings (Lotus Notes and Domino). The alliance Avaya will enable “click-to-call” capabilities in email and instant messaging products across Lotus Notes, Domino and IBM Lotus Sametime. IBM will use audio conferencing provided by Avaya Meeting Exchange with Lotus’ web conferencing solutions.59 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 60. Appendix – Tables TBRIGS Organization Chart Samuel J. Palmisano Chairman of the Board President & CEO TBR Mark Loughridge Steven A. Mills Michael E. Daniels Virginia Rometty SVP, Chief Financial SVP, SVP and Group Officer, Finance and SVP,text Global Sales, Group Executive Software and Systems Executive, Services Enterprise Marketing and Strategy Transformation Linda Sanford J. Randall MacDonald Rodney C. Adkins Frank Kern SVP, Enterprise on SVP, Demand SVP, Human Resources Systems & Technology SVP, IBM Global Transformation & IT Group Business Services KEY: Dr. John E. Kelly III Jon C. Iwata Corporate SVP & Director of IBM SVP, Marketing/ Functions Research Communications Hardware Group Robert C. Weber Software Group SVP, Legal & Regulatory Affairs & General Services Group Counsel60 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 61. Appendix – Tables TBRPhysical Infrastructure and Worldwide LocationsIGS’ Global Delivery Center Network IBM’s Technology and Business Capabilities Americas EMEA APAC • Slovakia • China • Poland • India Global Delivery • Brazil • Romania • Vietnam Centers • Argentina • Hungary • Philippines • Canada • Egypt • Australia • South Africa • Singapore • San Jose, Calif. • India (New Delhi, • Maryland • Israel (Haifa) Bangalore) Research Labs • New York • Switzerland (Zurich) • China (Beijing) • Austin, Texas • Japan (Tokyo) • Taiwan (Taipei City) • China • Poland • India Software & Hardware • Mexico • Israel • South Korea Labs • Brazil • Egypt • Vietnam • Argentina • Russia • Malaysia • Singapore • Australia • China • South Africa • India Cloud Computing Brazil • Poland • South Korea Centers • Germany • Vietnam • Japan • New Zealand61 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
  • 62. Appendix – Tables TBRPhysical Infrastructure and Worldwide LocationsIGS’ Global Delivery Center Network IBM’s Technology and Business Capabilities Americas EMEA APAC Innovation Centers • Brazil • Czech Republic • Australia • Austin, Texas • Denmark • China • Chicago • France • India • Dallas • Germany • Japan • San Mateo, Calif. • Hungary • South Korea • Waltham, Mass. • Ireland • Malaysia • Mexico • Israel • Philippines • Italy • Vietnam • Morocco • Netherlands • Poland • Romania • Russia • Slovakia • South Africa • Spain • Sweden • Switzerland • Turkey • Ukraine • U.K. Market and Industry • Mexico (retail) Russia (oil & gas) • India (telecom, finance) Leadership Centers • Brazil (finance) • Australia (electricity) • Austin, Texas • South Korea (finance) (communications) • China (rail, telecom, health, electricity)62 IGS 2Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.
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