Why Global Financing is key to IBM’s operating segments

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IBM’s Global Financing segment

The Global Financing segment, or GFS, is the financing division of IBM Corp. (IBM). It assists potential clients by providing financing facilities. Financing facilities take the form of remanufacturing, remarketing, commercial financing, and client financing. GFS helps with clients’ acquisition of systems, software, and services.

Global financing revenues Corp

The chart above shows you the year-over-year revenue and margin growth of the Global Financing segment. This segment has higher margins. But its contribution to consolidated revenues is very small. In fiscal 2013, it contributed 2% of IBM’s total revenues.

Refurbishing and remarketing

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Refurbishing and remarketing facilities apply to leased or used equipment. When equipment is returned at the end of a lease transaction, these assets are refurbished. They’re then sold to new or existing clients—both internally and externally. Externally, remarketed equipment is sold or leased to clients and resellers. Internally, used equipment is sold to Systems and Technology and Global Services. Internally bought equipment can also be sold to external clients.

Commercial financing

“Commercial financing” refers to short-term inventory and accounts receivable financing to dealers and remarketers of information technology products.

Client financing

In client financing, lease and loan financing are provided to end users and internal clients for one to seven years. Internal financing mostly supports Global Services’ long-term client service contracts.

Cisco Corp. (CSCO),  HP (HPQ), Dell Inc. (DELL), and Cognizant Technology Solutions (CTSH) are leading players that have financing segments to assist their clients. However, unlike IBM and HP, most of the financing arms function as cost centers. IBM’s financing division is a “profit center” in that it generates revenue, incurs costs, and consequently profits.

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