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IBM Maintains Its Margins through Operational Efficiency

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IBM maintains its pre-tax income margin

In this series, we’ve discussed how IBM’s (IBM) revenue declined by 2% in the last quarter after showing some promise. However, despite this decline, IBM maintained its pre-tax income margin at around 18.8%. As the chart below shows, IBM grew its pre-tax Cognitive Solutions and Global Business Services margins, while its Technology Services & Cloud Platforms and Systems margins narrowed.

IBM credited its margin stability to its operational efficiencies, namely synergies from acquisitions, scale efficiencies in its cloud business, and productivity initiatives such as leveraging agile processes and using automation. IBM maintained its margins despite its continued cloud, security, AI, and blockchain investments.

IBM Pre tax margins

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Analyzing each segment’s pre-tax income margin in Q3 2018

  • IBM’s pre-tax Cognitive Solutions margin from this segment increased YoY (year-over-year) from 32.7% to 34.0%, mainly driven by acquisition synergies.
  • IBM’s pre-tax Global Business Services margin increased YoY from 10.6% to 13.8% due to its continued shift toward high-value cognitive and digital offerings, thereby increasing productivity.
  • IBM’s pre-tax Technology Services & Cloud Platforms margin narrowed YoY from 13.7% to 12.6% due to investments in growing its cloud solution footprint by expanding its capacity and opening new data centers. The launch of innovative hybrid cloud products in the last few months also increased IBM’s cloud expenses.
  • IBM’s pre-tax Systems margin narrowed YoY from 17.3% to 10.9%, mainly due to lower intellectual property income.
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