What Exactly Does IBM Do?

What Exactly Does IBM Do?

International Business Machines (NYSE: IBM) is an iconic technology company that’s been in operation for more than 110 years. IBM has reinvented and transformed itself multiple times over the past century. Today, the company generates most of its revenue from software and consulting services, with the rest coming from hardware.

Betting on hybrid cloud and AI

IBM has spent the past decade shedding underperforming businesses and doubling down on its best growth opportunities. The two biggest moves were the $34 billion acquisition of software company Red Hat in 2019 and the spinoff of its managed infrastructure services business in 2021.

This rejiggering has remade IBM’s revenue profile. Here’s how the company’s $61.9 billion of revenue in 2023 was derived:

IBM sells a wide variety of enterprise software in the areas of cybersecurity, automation, data analytics, artificial intelligence (AI), and transaction processing. The company’s hybrid cloud platform, with Red Hat at the foundation, ties all of IBM’s offerings together.

The company’s consulting business focuses on helping clients modernize applications and digitally transform their operations. This often involves other IBM products, but the company also has strategic partnerships with other technology providers.

The infrastructure segment isn’t a growth business for IBM, but some industries are still dependent on the company’s mainframe systems. IBM also sells Power servers and storage products.

A return to growth

With IBM now generating three-quarters of its revenue from software and consulting and half its revenue from recurring sources, the company has successfully returned to growth. Revenue is expected to rise in 2024, and free cash flow should improve, as well. IBM has positioned itself as a leader in the enterprise hybrid cloud and AI markets.

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Timothy Green has positions in International Business Machines. The Motley Fool recommends International Business Machines. The Motley Fool has a disclosure policy.