IBM Says Nothing About Power Systems In Q4

January 31, 2022 Timothy Prickett Morgan

In the wake of its spinout of the Kyndryl managed services business, which represented about a third of the company’s revenues and employees, Big Blue has changed the way it organizes its groups and divisions which, generally speaking, more accurately reflects what it sells and the underlying systems business that is International Business Machines.

Which is great. We have been kvetching about this since 2016, the last time IBM reorganized its business and its financials, so hooray. And we did a preview of the new financial reporting segments, and how IBM backcast them into 2020, with our own revenue estimates for the finer-grained categories based on some pie charts IBM provided without percentages or financial numbers associated with them, back in October 2021, The Shape of The IBM To Come. But one of the side effects of the reorganization is that IBM is no longer reporting any growth rates about the Power Systems line as it has been doing for decades.

That makes it very difficult for us to update our model of Power Systems revenues, but we will eventually take a whack at it again. It would be helpful if IBM would give us some idea, as it does with System z. Arvind Krishna, IBM’s chief executive officer, and James Cavanaugh, IBM’s chief financial officer, did not say one word about Power Systems in their conference call with Wall Street going over the Q4 2021 financial results. Not even with the high-end Power E1080 servers shipping in the period. Which is odd. And which makes it very difficult for us to build our Power Systems model.

In the meantime, we have built a comprehensive model of IBM’s revenues as it reports them, based on information supplied in charts and tables. IBM does not provide such a complete picture, which it would be easy for it to do. So we have had to fill in some gaps here and there to give you a sense of what the new, leaner IBM looks like. Without further ado, here is our summary table showing the last three years of revenues in the new groups and divisions that IBM has carved its business up into. The items in bold are the new groups, and the finer-grained data shows the different divisions.

The fine-grained revenues for items shown in bold red italics in 2020 and 2021 are based on a series of charts IBM released last December for 2020 and during its Q4 2021 financial presentation for 2021. If you use a protractor, you can calculate the degrees of each pie slice, which corresponds to the share of each group’s revenues. This is not a perfectly accurate way to get these numbers, but it is within a few percent. So it is good enough for some trend analysis. IBM provides revenues for Red Hat as a group separately, which we have carried forward since the Red Hat acquisition, and also provided data for Infrastructure Support, Transaction Processing, Business Transformation, Technology Consulting, Application Operations, Financing, and Other.

The 2021 change column shows the growth from 2020 for each of the new divisions. We only have the means to get down into the full divisional data at the annual level at this point, but perhaps IBM could just give us all the information going forward at the finer level.

For those of you who like to see information graphically, here is a breakdown of sales by the somewhat strange intermediary categories IBM is using:

Hybrid Infrastructure means sales of System z, plus distributed infrastructure, which in turn means Power Systems and storage sales, plus infrastructure support. Hybrid Platforms and Solutions are all of the categories shown under table in what we have labeled Software. Red Hat is self explanatory, and includes Red Hat Enterprise Linux, OpenShift, OpenStack, various storage software, and Ansible automation. Automation includes other automation tools and integration software running on IBM platforms and other platforms. Data & AI includes data management tools, asset and supply chain management software, weather modeling software and services, data governance tools, and various analytics tools such as SPSS and Cognos. Security software is in this hodge-podge of security tools and services. The transition processing software includes CICS middleware for mainframes as well as Db2 and other databases and WebSphere middleware. By the way, operating systems are now bundled with their platforms in the Hybrid Infrastructure category, so System z includes monthly licenses for z/OS and z/VM (but not Linux) and Power Systems as part of Distributed Infrastructure includes IBM i and AIX licenses.

The Consulting group revenues are fairly obvious, as is Financing, which is a lot smaller since IBM is no longer trying to finance the gear from competitors. Other includes intellectual property sales and research contracts.

For the fourth quarter of 2021, IBM’s overall sales for continuing operations rose by 6.5 percent to $16.7 billion. Gross profits rose by 2.8 percent to $9.5 billion and net income more than doubled to $2.46 billion. Net income represented just under 15 percent of revenue, the highest we have seen out of Big Blue for a long time, but some of that came from a huge amount of infrastructure and software that Kyndryl took in Q4 as it was spinning out from IBM. Of the 9 percent revenue growth that IBM calculated at constant currency, 3.5 percent came from incremental sales to Kyndryl.

Within the segments, Infrastructure sales were down a quarter point to $4.41 billion, Software sales were up 8.3 percent to $7.27 billion. Consulting sales were up 13.1 percent to $4.75 billion, while Financing revenues were off 29.5 percent to $172 million; Other revenues were off 9.2 percent to $89 million.

If we calculate IBM’s “real” systems business – servers, storage, networking, operating systems, integration and transaction processing software (but not databases excepting Db2 for i, which is integrated into IBM i), and tech support, we reckon that this base systems business grew by 2.8 percent to $7.88 billion in Q4 2021.

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