Why Global Services are integral for IBM’s revenue generation

IBM’s Global Services

IBM’s Global Technology and Global Business Services combined form Global Services. Jointly, they contribute 57% of IBM Corp.’s (IBM) consolidated revenues.

The chart above shows you the year-over-year revenue growth Global Technology and Global Business Services experience.

Global Technology & Business Services

Global Technology Services, or GTS, provides technology infrastructure and business process services. Its capabilities include strategic outsourcing services, global process services, integrated technology services, and technology support services and cloud services.

Global Business Services, or GBS, provides Consulting and Application Management services. Consulting services provide business solutions that span strategies, analysis, operations, sales, and supply chain–related issues.

Application Management provides support to the company’s packaged software products and associated maintenance.

Contribution to revenues and profits

In fiscal 2013, Global Technology services contributed ~39% to IBM’s overall revenues. Of this, strategic outsourcing contributed 57%, Integrated Technology Services along with cloud services contributed 24%, and maintenance contributed 18.5% to total GTS revenues. The operating margin for GTS stood at 17.6%.

Leading this segment alongside IBM are Computer Science Corporation (CSC) with its outsourcing and managed services, Accenture (ACN) with its outsourcing operations, and Salesforce.com (CRM) as a market leader in customer relationship management.

In fiscal 2013, Global Business Services contributed ~18.5% to IBM’s overall IBM’s. Of this, outsourcing contributed 22% and consulting and systems integration contributed 78% to total GBS revenues. It contributed 15% towards operating profits. Accenture (ACN) and Hewlett-Packard Company (HPQ) are leaders in this space alongside IBM.

The majority of the revenue is recurring

Global Services contributed ~57% to fiscal 2013 consolidated revenues. Approximately 60% of the revenue for Global Services is annuity-based. It mainly comes from outsourcing and maintenance agreements. This gives you visibility as to future revenues. Increased traction in emerging markets is expected to drive services revenue growth.