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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT

pursuant to Section 13 or 15 (d) of the

Securities Exchange Act of 1934

FOR THE YEAR ENDED DECEMBER 31, 20172019

1-2360

(Commission file number)

INTERNATIONAL BUSINESS MACHINES CORPORATION

(Exact name of registrant as specified in its charter)

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914-499-1900
914-499-1900

(Registrant'sRegistrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:

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Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ý☒ No o☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o☐No ý☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý☒ No o☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý☒ No o☐

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated” “accelerated filer," "smaller” “smaller reporting company"company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o☐ No ý☒

The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant'sregistrant’s most recently completed second fiscal quarter was $143.3$122.1 billion.

The registrant had 888,408,023 shares of common stock outstanding at February 10, 2020.

Documents incorporated by reference:

Portions of IBM'sIBM’s Annual Report to Stockholders for the year ended December 31, 20172019 are incorporated by reference into Parts I, II and IV of this Form 10-K.

Portions of IBM'sIBM’s definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to stockholders in connection with the Annual Meeting of Stockholders to be held April 24, 201828, 2020 are incorporated by reference into Part III of this Form 10-K.

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PART I

Item 1. Business:

International Business Machines Corporation (IBM or the company) was incorporated in the State of New York on June 16, 1911, as the Computing-Tabulating-Recording Co. (C-T-R), a consolidation of the Computing Scale Co. of America, the Tabulating Machine Co. and The International Time Recording Co. of New York. Since that time, IBM has focused on the intersection of business insight and technological innovation, and its operations and aims have been international in nature. This was signaled over 90 years ago, in 1924, when C-T-R changed its name to International Business Machines Corporation. And it continues today—the company createswe create value for clients throughby providing integrated solutions and products that leverageleverage: data, information technology, deep expertise in industries and business processes, with trust and security and a broad ecosystem of partners and alliances. IBM solutions typically create value by enabling new capabilities for clients that transform their businesses and help them engage with their customers and employees in new ways. These solutions draw from an industry-leading portfolio of consulting and IT implementation services, cloud, digital and cognitive offerings, and enterprise systems and software;software which are all bolstered by one of the world'sworld’s leading research organizations.

IBM Strategy

        TheIBM’s strategy begins with our clients. IBM strategy startsis distinguished as being first and foremost an Enterprise company, serving the world’s leaders in their industries.

Serving enterprises requires a distinct set of skills as our clients entrust us with its clients.building, integrating and running the world’s mission-critical systems. These are systems that cannot fail, systems that require the highest levels of privacy and security. They are built with our software and on our systems, designed and managed by IBM services. For example, we manage approximately ninety percent of the credit card transactions and half of the world’s wireless connections. We do this with an unparalleled commitment to our clients’ data security.

        As a uniquely integratedWe are unique in bringing innovative technology and services company, IBM helpsindustry expertise on a foundation of trust and security as an integrated proposition to our clients. This integrated proposition allows us to deliver business impact that matters to our clients, change the way the world works by building smarter businesses.

        IBM's clients include many of the world's most successful enterprises. These clients are at an inflection point, facing tremendous new opportunity and incredible competition. Digitalimpact that requires bringing together technologies are unlocking unparalleled insight from previously inaccessible data. Work processes are being reimagined for speed and vastly smarter decision-making.

        To win in these disruptive times requires that businesses learn—learn by extracting insights from theirsuch as hybrid cloud, data and by applying those insightsAI insight with workflow and advanced industry skills. This integrated proposition helps our clients transform themselves from traditional businesses to how work is done. Smarter businesses do this fasterwhat we call Cognitive Enterprises.

Furthermore, as technology becomes more central for business, as well as in our personal lives, trust matters more than ever. For decades we have followed core principles grounded in commitments to trust and more effectively supported by IBM's combinationtransparency that guide our responsible development and deployment ofInnovative Technology,Industry ExpertiseandTrust new technologies. These values ground our business decisions, inspire our employees, and Security.

        The company's capabilities include:

Cloud

        Cloud is enablingsustain our client relationships. We have not only followed guidelines around the emergenceresponsible handling of platforms through standardization, agility and innovation in both IT and business processes. Enterprise cloud is very different from consumer cloud: enterprises must bridge together mission-critical assets from on-premise systems with private cloud and public cloud. Hybrid cloud technology provides that bridge. All three must coexist and interoperate as a single platform.

        The IBM Cloud is uniquely:

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Built for all applications: Applications require data. That data is in on-premise systems, in private clouds and in the public cloud. The IBM Cloud enables one data platform that, regardless of data's location, can run all applications. IBM's hybrid cloud capabilities make this single platform operate seamlessly.



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Artificial intelligence (AI)-ready: The IBM Cloud is built from the ground up to handle the demanding data and computational requirementsthe stewardship of AI.



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Securenew technology, but created them, published them and invited others to the Core: IBM has a long history of helping clients keep data and transactions secure. Securityadopt similar commitments. Our focus is even more important in an increasingly connected world, and IBM has extended this unparalleled level of securitynot just on our direct client work, but extends to the cloud. For example, IBM's cybersecurity offerings actsociety at large, as a business immune system, with AI technology at its core, delivered from the IBM Cloud. These

systems help to defend and respond to cyber-attacks across an organization's data, applications, mobile and endpoint devices.

        The IBM Cloud is delivered with leading edge technology, including:

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Modern infrastructure: IBM's systems, including servers, storage and operating system software,we have been refreshed and redesigned for cloud and enterprise AI workloads. IBM's new z14 is the world's first system to offer pervasive encryption of data without requiring changes to applications, and with no performance degradation. With IBM's systems, clients can build an IT infrastructure that is optimized for the scalability, reliability and growth that businesses need in today's data-driven world.



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Future infrastructure: The Q Network on the IBM Cloud enables clients around the world to explore quantum computing capabilities. IBM is the leader in quantum computing. Clients are signing on to explore how to overcome foreseen constraints in traditional computing models.

AI and Data

        Artificial intelligence can help clients extract insight and make intelligent decisions from data. Like cloud, enterprise AI is very different from consumer AI. Enterprise applications deal with more complex use cases that benefit from expert knowledge, such as in healthcare or in the identification of business risk. Enterprise AI applications are trained by expert data, through data sets of all sizes and with more specialization than those in the general-knowledge consumer world. IBM AI—through the Watson platform:

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Learns more from less data: The ability to extract deep insights from both large and small data sets is essential for enterprise applications. Watson excels at this and can produce more insights with less data than other AI systems. That means clients can get started more quickly and begin to gain experience deploying AI in the enterprise.



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Protects clients' insights: While Watson builds on cumulative experience and knowledge, IBM recognizes that data and insights are clients' most important assets and a true competitive advantage. Watson is built to safeguard this type of information.



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Reimagines your workflows: Watson has been built for—and trained in—areas requiring deep expertise. Watson brings AI to professionals so that work can be done more efficiently, and even more importantly, can improve as the systems learn from the data.

Solutions

        Creating smarter businesses requires reimagining a company's core processes—for example, in healthcare, managing risk or optimizing a supply chain. In addition to building solutions based on IBM's experience, IBM is also creating a series of AI solutions—cognitive solutions—that embed artificial intelligence and data to change how work is done. Examples include:

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Global Industry Platforms: provides cognitive, analytics, security and cloud technology in comprehensive industry-specific platforms to remove much of the cost and complexity of delivering core business functions. For example: Banking, wealth management, and insurance are some of the areas poised for dramatic change by using cognitive and AI solutions from IBM Watson Financial Services. Watson Health provides technology and expertise to empower leaders, advocates and influencers in health to accelerate discovery, make essential connections and gain confidence on their path to solving the world's biggest health challenges.



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Blockchain Solutions: IBM is working with clients and developers across multiple industries to use blockchain to transform how business is doneactive in areas such as bankingeducation, sustainability and security. This is reinforced through a culture of inclusion and diversity. All of IBM treats this “responsible stewardship” as core to our mission.

A New Chapter in Technology

2019 ushered in Chapter 2 of our clients’ digital journeys in which the two predominant technology forces of our day—hybrid cloud and data/AI—are moving from “start-up” to “production at scale”. These two forces work together to help companies become what we call Cognitive Enterprises—companies that are powered by innovation, agility and data-driven intelligent decision making.

We describe below how IBM is leading the way in Chapter 2.

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Hybrid Cloud

Chapter 1 marked the early stages of cloud with the rise of public cloud. This stage was focused on new end-user applications, including applications that have allowed consumers to check their bank balances, access social media, make online purchases and receive online support. While movement to public cloud has been strong, only twenty percent of workloads have been addressed in Chapter 1. Clients are merely at the beginning of a multi-stage journey.

Chapter 2 is about clients modernizing the remaining eighty percent of workloads, moving mission-critical workloads to the cloud and infusing AI deep into the decision-making of their businesses. These mission-critical workloads include core financial servicestransaction systems, customer databases and supply chain. For example, blockchain technology can be usedEnterprise Resource Planning systems. Some of these workloads will gravitate to digitize global trade

processes, providingthe public cloud in Chapter 2, while others will move to a more efficientprivate cloud or remain in traditional IT environments for security, compliance and/or performance reasons.

Wherever clients’ workloads reside, these environments must work together seamlessly to communicate, share data and share capacity. With enterprises having accumulated as many as fifteen public clouds, each with its own means of management, harmonizing these different clouds has become a necessity. Bringing these multiple public clouds, private cloud and traditional IT together is what we call hybrid cloud. Hybrid cloud defines the mission for Chapter 2 in IT.

We are a leader in hybrid cloud, and our mission in Chapter 2 is to bring our expertise and experience in building and managing mission-critical systems to lead our enterprise clients along this multi-stage journey.

Our public cloud is built on a foundation of open source software and enterprise grade infrastructure. It is the most open and secure method of moving goods across borders and trading zones.

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Watson IoT: includes both a cloud-based platform and industry solutions infused with AI, helping organizations mine intelligence from billions of connected devices.

Enterprise Services

        Through Global Business Services and Global Technology Services, IBM has helped the world's most successful enterprises transition from era to era. Using proven methods, IBM Services bring globally delivered outcomes using proven methods by focusing on:

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Digital Reinvention for growth: a unique framework for business transformation focused on growth opportunities.



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End-to-end Services integration: Global Technology Services brings the ability to connect previously disconnected parts of an organization. By embedding Watson into these mission critical services, new levels of quality, resiliency and automation are achieved.



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Pragmatic journey to Cloud and AI: Global Business Services brings its deep experience when guiding clients through the journey topublic cloud, and AI. Clients gain fromit is built for the thorough understandingenterprise with Cloud Paks—enterprise-ready, containerized software solutions for applications, automation, data, integration and multi-cloud management.

To accelerate our clients’ success, we acquired Red Hat in 2019, further strengthening our leadership in hybrid cloud. Red Hat is the world’s leader in open source technology, including Enterprise Linux, the operating system of the cloud, as well as containers and OpenShift, technology platforms that create seamless integration between traditional and cloud environments. As the leader in open source, Red Hat brings capability that enables applications to be “written once and run anywhere”, in turn helping companies avoid lock-in to a single cloud provider, thereby taking advantage of the entire industry’s innovation. These technologies are central to the next era of computing.

Our systems and services play a large role in these hybrid cloud offerings as well. We have introduced new versions of our systems that work securely and seamlessly in the hybrid cloud, bringing mission-critical workloads into our clients’ digital journeys. Through our services, we play a large role in helping our clients map out their digital journeys, and then helping them build, manage and run the technology and the best waysworkflows.

This integrated value proposition of innovative technology and industry expertise built on trust and security, and now together with Red Hat, is helping our clients realize the full potential and competitive advantage of the hybrid cloud.

Data and AI

A new era of business reinvention is emerging as leading companies are moving from merely improving their processes to utilize it.

        AsWe have been a pioneer of technologies and services that help clients reinventcollect, organize, and analyze their businessesvast data stores and then operationalize AI across their business. Our long-running innovation in automation, data science, and natural language processing is helping clients manage their data as a strategic resource and deploy AI for greater insight and more accurate, trusted predictions.

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Our data offerings help clients organize, collect, analyze and embed their data into their workflow. IBM software spans areas ranging from data management and discovery to be smarter, they need allreporting, governance, compliance and risk management. Our systems process our clients’ data with unparalleled speed, accuracy and security and our services help clients capture and embed the value of thistheir data into their business.

Our IBM Watson AI system has been named by industry analysts as the worldwide market leader in AI for three consecutive years. Watson is not only a leading AI technology, but a leader in enterprise deployments in production and at scale. In addition to extracting deep insight from data, IBM Watson allows clients to trace the origins of the data that their AI models use, explain what is behind their recommendations and ensure that bias has not crept into results. Furthermore, IBM Watson is the only system that is built for the hybrid cloud, able to work together. Thison numerous public and private clouds. These innovations are making AI more consumable by everyday users, not just data scientists.

Creating intelligent workflows relies on our integrated proposition of technology, services and industry expertise, built on a foundation of trust and security. The way in which we bring these together is what they expect fromthrough an interactive process with our clients that we call the IBM what they need from IBMGarage, a process of deep collaboration, co-creation and what sets IBM apart.innovation.

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        Responsible stewardship is an enduring principle that underscores all IBM endeavors. While IBM is constantly ushering in new technology it does so by:

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Leading in data responsibility, ethics and transparency;



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Preparing workforces of the world;



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Continuing the company's century-long commitment to diversity and inclusion, and



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Remaining grounded in a set of enduring IBM Values:



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Dedication to every client's success



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Innovation that matters—for our company and for the world



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Trust and personal responsibility in all relationships

        IBM has built a reputation and track record of trust with its clients for more than a century. IBM safeguards a client's privacy, data and insights. For example, IBM was one of the first companies to appoint a Chief Privacy Officer, to develop and publish a genetics privacy policy, to be certified under the APEC Cross Borders Privacy Rules system and to sign the EU Data Protection Code of Conduct for Cloud Service Providers.

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        This isWe are in an era where being faster, more productive and lower costwhen our clients are embedding technology into their businesses in ways they have never done before. Technology is important but frankly not enough. To win,no longer merely a business must be smarter: Being smarter means having deeper expertise, extracting better insights from data and being capable of rapidly changing the way in which one does work.

        This is core to the strategy of IBM's clients and“tool”, it is at the heartcenter of their businesses, the source of their competitive advantage and the force behind their emerging business models.

In Chapter 2, IBM strategy.is bringing hybrid cloud and data/AI together to help our clients reinvent themselves as Cognitive Enterprises. The most challenging and complex work still lies ahead. With our strong commitment to responsible stewardship and our integrated value proposition, this makes us unique in helping our clients on their transformative digital journeys.

Business Model

        The company'sOur business model is built to support two principal goals: helpingprovide long-term value to stakeholders. We bring together innovative technology, industry expertise and a commitment to trust and transparency to help enterprise clients to move from one era to the next by bringing together innovative technologynext. We provide integrated solutions and industry expertise,platforms, leveraging global capabilities that include services, software, systems, related financings and providing long-term value to shareholders.fundamental research. The business model has been developed over time through

strategic investments in capabilities and technologies that have long-term growth and profitability prospects based on the value they deliver to clients.

        The company's global capabilities include services, software, systems, fundamental research and related financing. The broad mix of businesses and capabilities are combined to provide integrated solutions and platforms to the company's clients.

The business model is dynamic, adapting to the continuously changing industry and economic environment, including the company's transformation intoour shift to cloud and as-a-Service delivery models. The company continuesWe continue to strengthen itsour position through strategic organic investments and acquisitions in higher-value areas, broadening itsour industry expertise and integrating AI into more of what the company offers.we offer. In addition, the company iswe are transforming into a more agile enterprise to drive innovation and speed, as well as helping to drive productivity, which supports investments for participation in markets with significant long-term opportunity. We also regularly evaluate our portfolio and investments, proactively bringing products to end of life, engaging in intellectual property (IP) partnerships and executing divestitures to optimize our portfolio.

This business model, supported by the company'sour financial model, has enabled the companyIBM to deliver strong earnings, cash flows and returns to shareholders over the long term.

Business Segments and Capabilities

        The company'sOur major operations consist of five business segments: Cloud & Cognitive Solutions,Software, Global Business Services, Global Technology Services, & Cloud Platforms, Systems and Global Financing.

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Cloud & Cognitive Solutions comprises a broad portfolio of capabilities that help IBM's clientsSoftware brings together IBM’s software platforms and solutions, enabling us to identify actionable new insightsdeliver integrated and inform decision-making for competitive advantage. Leveraging IBM's research, technology and industry expertise, this business delivers a full spectrum of capabilities, from descriptive, predictive and prescriptive analytics to cognitive systems. Cognitive Solutions includes Watson, the first commercially available AI platform that has the ability to interact in natural language, process vast amounts of bigsecure cloud, data and learn from interactions with people and systems. TheseAI solutions are provided throughto our clients. It includes all software, except operating system software reported in the most contemporary delivery methods including through cloud environments and "as-a-Service" models.Systems segment.

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Cloud & Cognitive Solutions consists of Solutions Software comprises three business areas — Cognitive Applications, Cloud & Data Platforms, and Transaction Processing Software.Platforms.

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Cloud & Cognitive SolutionsSoftware Capabilities

        Solutions Software: provides the basis for many of the company's strategic areas. IBM has established the world's deepest portfolio of dataCognitive Applications: includes software that address vertical and analyticsdomain-specific solutions, including analytics and data management platforms, cloud dataincreasingly infused with AI, enabled by IBM’s Watson technology. Application areas such as health, financial services, talent management solutions, and solutions tailored by industry. Watson Platform, Watson Health and Watson Internet of Things (IoT) solutions, weather, and security software and services are certain capabilities included in Solutions Software. IBM's world-class security platform delivers integrated security intelligence across clients' entire operations, including their cloud, applications, networksamong the offerings.

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Cloud & Data Platforms: includes the company’s distributed middleware and data helping themplatform software, including Red Hat, which enables the operation of clients’ hybrid multi-cloud environments, whether on-premise or in public and private clouds. It also includes product areas such as Cloud Paks, WebSphere distributed, analytics platform software such as DB2 distributed, information integration, and enterprise content management, as well as IoT, Blockchain and AI/Watson platforms.

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As clients increasingly move more of their mission-critical workloads to prevent, detectthe cloud, their multi-cloud environments will be based on a foundation of Linux, with Kubernetes open-source software to deploy, manage and remediate potential threats.scale container-based applications. Red Hat, which provides the leading Linux operating system — Red Hat Enterprise Linux — and the leading hybrid cloud platform — Red Hat OpenShift — is at the center of this transformational shift among clients.

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Transaction Processing Software: includesPlatforms: the software that primarily runs mission-critical systemssupports client mission critical on-premise workloads in industries such as banking, airlines and retail. Most of thisThis includes transaction processing software is on-premisesuch as Customer Information Control System and annuity in nature.storage software, as well as the analytics and integration software running on IBM operating systems (e.g., DB2 and WebSphere running on z/OS).

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Global Business Services (GBS) provides clients with consulting, business process and application management services and business process services. These professional services deliver value and innovation to clients through solutions which leverage industry, technology and business strategy and process expertise. GBS is the digital reinvention partner for IBM clients, combining industry knowledge, functional expertise, and applications with the power of business design and cognitive and cloud technologies. The full portfolio of GBS services is backed by its globally integrated delivery network and integration with technologies, solutions and services fromacross IBM units including IBM Watson, IBM Cloud, IBM Research and Global Technology Services.

        In 2017, GBS deployed a new operating model designedassists clients on their journeys to address specific client digital transformation imperativesbecoming Cognitive Enterprises, helping them build business platform strategies and take full advantage of IBMexperiences, transform processes to intelligent workflows using AI and GBS's competitive differentiators in industry, cognitiveother exponential technologies, and cloud. The operating model features Digital Strategy and iX, Cognitive Process Transformation and Cloud Application Innovation. To bring value at scale to clients around the world, GBS has implemented global service lines within each of the three focus areas, which are populated with new practices staffed by practitioners with deep domain skills and industry expertise.build hybrid, open cloud infrastructures.

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GBS Capabilities

Consulting: provides business consulting services focused on bringing to market solutions that help clients shape their digital blueprints and customer experiences, define their cognitive operating models, unlock the potential in all data to improve decision-making, set their next-generation talent strategies and create new technology architectures in a cloud-centric world.

Application Management: delivers system integration, application management, maintenance and support services for packaged software, as well as custom and legacytraditional applications. Value is delivered through advanced capabilities in areas such as security and privacy, application testing and modernization, cloud application migration and automation.

Global Process Services:Services (GPS): delivers finance, procurement, talent and engagement, and industry-specific business process outsourcing services. These services deliver improved business results to clients through our a

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consult-to-operate model which includes the strategic change and/or operation of the client'sclient’s processes, applications and infrastructure. GBS is redefining process services for both growth and efficiency through the application of the power of cognitive technologies like Watson, as well as the IoT, blockchain and deep analytics.

Global Technology Services & Cloud Platforms(GTS) provides comprehensive IT infrastructure and platform services creatingthat create business value for clients. By leveraging insights and experience drawn from IBM's global scale, skills and technology, with applied innovation from IBM Research, clientsClients gain access to leading-edge, high-quality services, with improved outcomes in productivity,and realize greater flexibility and cost.economic value. This is enabled through insights drawn from IBM’s decades of experience across thousands of engagements, the skills of practitioners, advanced technologies, applied innovation from IBM Research and global scale.

Technology ServicesGTS Capabilities

Infrastructure & Cloud Platforms Capabilities

        Infrastructure Services: delivers a portfolio of cloud, project-based,project, managed, outsourcing and other managedcloud-delivered services focused on clients'clients’ enterprise IT infrastructure environments to enable digital transformation and deliverwith improved quality, flexibility risk management and financialeconomic value. The portfolio includescontains the IBM Cloud and a comprehensive set of hybrid cloud services and solutions that include resiliency, network and security capabilities to assist enterprise clients in building and running enterprisecontemporary, software-defined IT environments that utilize public and private clouds and traditional IT. The IBM Cloud Platform offers leading-edge services to developers and IBM's Cloud Infrastructure-as-a-Service covers a wide variety of workloads with high-quality performance.environments. These offerings integrate long-standing expertise in service management and technology with the ability to utilize the power of newemerging technologies, drawn from across IBM'sIBM’s businesses and ecosystem partners. The portfolio is built around a key set of predictiveleveraging platforms, such as the IBM Services Platform with Watson, which augment human intelligence with cognitive technologies and proactive solutions addressing systems, mobility, resiliency, networking,address complex, hybrid cloud and security. The company'senvironments. IBM’s services capabilities includingintegrate IBM Cloud, cognitive computing and hybrid cloud implementation,multi-cloud management to provide clients with high-performance, end-to-end innovation and an improved ability to achieve business objectives.

        TechnicalTechnology Support Services: delivers comprehensive support services to maintain and improve the availability of clients'clients’ IT infrastructures. These offerings include maintenance for IBM products and other technology platforms, as well as open-source and cross-vendor software and solution support, drawing on innovative technologies and leveraging theIBM Services Platform with Watson platform's predictive capabilities.

        Integration Software: delivers industry-leading hybrid cloud solutions that empower clients to achieve rapid innovation, hybrid integration, and process transformation with choice and consistency across public, dedicated and local cloud environments, leveraging the IBM Platform-as-a-Service solution. Integration Software offerings and capabilities help clients address the digital imperatives to

create, connect and optimize their applications, data and infrastructure on their journey to become cognitive businesses.

Systems provides clients with innovative infrastructure platforms to help meet the new requirements of hybrid cloudmulti-cloud and cognitiveenterprise AI workloads. Approximately half of Systems Hardware's server and storage sales transactions are through the company's business partners, with the balance direct to end-user clients. IBM Systems also designs advanced semiconductor and systems technology in collaboration with IBM Research, primarily for use in the company'sour systems.

Systems Capabilities

Systems Hardware: includes IBM’s servers and Storage Systems.

Servers: a range of high-performance systems designed to address computing capacity, security and performance needs of businesses, hyperscale cloud service providers and scientific computing organizations. The portfolio includes IBM Z aand LinuxONE, trusted enterprise platformplatforms for integrating data, transactions and insight,insight; and Power Systems, a system designed from the ground up for big data and analytics,enterprise AI, optimized for scale-outhybrid cloud and Linux, and delivering open innovation with OpenPOWER.Linux.

        Storage:Storage Systems: data storage products and solutions that allow clients to retain and manage rapidly growing, complex volumes of digital information and to fuel data-centric cognitive applications. These solutions address critical client requirements for information retention and archiving, security, compliance and storage optimization, including data deduplication, availability and virtualization. The portfolio consists of a broad range of software-defined storage solutions, flash storage, disk and tape storage solutions.

Operating Systems Software: The company'sIBM Z operating system environments include z/OS, is a security-rich, scalable, high-performance enterprise operating system, for IBM Z.as well as Linux. Power Systems offers a choice of AIX, IBM i or Linux operating systems. These operating systems leverage POWER architecture to deliver secure, reliable and high performing enterprise-class workloads across a breadth of server offerings.

Global Financing encompasses two primary businesses: financing, primarily conducted through IBM Credit LLC (IBM Credit), and remanufacturing and remarketing. In 2017, the company reorganized its client and commercial financing business asIBM Credit is a wholly owned subsidiary of IBM Credit LLC, and it began accessingthat accesses the capital markets directly in September 2017.directly. IBM Credit, through its financing solutions, facilitates IBM clients'clients’ acquisition of information

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technology systems, software and services in the areas where the company has thewe have expertise. The financing arrangements are predominantly for products or services that are critical to the end users'users’ business operations. The companyGlobal Financing conducts a comprehensive credit evaluation of its clients prior to extending financing. As a captive financier, Global Financing has the benefit of both deep knowledge of its client base and a clear insight into the products and services financed. These factors allow the business to effectively manage two of the major risks associated with financing, credit and residual value, while generating strong returns on equity. Global Financing also maintains a long-term partnership with the company'sIBM’s clients through various stages of the IT asset life cycle—from initial purchase and technology upgrades to asset disposition decisions.

Global Financing Capabilities

Client Financing: lease, installment payment plan and loan financing to end users and internal clients for terms up to seven years. Assets financed are primarily new and used IT hardware, software and services where the company haswe have expertise. Internal financing is predominantly in support of Global Technology Services & Cloud Platforms'Services’ long-term client service contracts. All internal financing arrangements are at arm's-lengtharm’s-length rates and are based upon market conditions.

Commercial Financing: short-term working capital financing to suppliers, distributors and resellers of IBMIBM. Beginning in the second quarter of 2019 and OEM productscontinuing throughout the year, we wound down the portion of our commercial financing operations which provides short-term working capital solutions for Original Equipment Manufacturer (OEM) IT suppliers, distributors and services.resellers. This wind down is consistent with IBM’s capital allocation strategy and high-value focus. Commercial Financing also includes internal activity where Global Financing factors a selected portion of the company'sIBM’s accounts receivable primarily for cash management purposes, at arm's-lengtharm’s-length rates. This program was suspended in the second quarter of 2019.

Remanufacturing and Remarketing: assets include used equipment returned from lease transactions, or used and surplus equipment acquired internally or externally. These assets may be refurbished or upgraded, and sold or leased to new or existing clients both externally orand internally. Externally remarketed equipment revenue represents sales or leases to clients and resellers. Internally remarketed equipment revenue primarily represents used equipment that is sold internally to Systems andGlobal Technology Services & Cloud Platforms.Services. Systems may also sell the equipment that it purchases from Global Financing to external clients.

IBM Worldwide Organizations

The following worldwide organizations play key roles in IBM'sIBM’s delivery of value to its clients:

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Global Markets

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Research, Development and Intellectual Property

Global Markets



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Research, Development and Intellectual Property

Global Markets

IBM has a global presence, operatingoperates in more than 175 countries with a broad-based geographicbroad distribution of revenue. The company'sTo manage this global footprint, Global Markets organization manages IBM's global footprint, working closely withleads our dedicated country-based operating unitsIBM operations in order to serve clients, locally.develop markets, and ultimately, ensure IBM is led through a client lens.

These integrated teams serve our clients locally, complemented by digital capabilities, global talent and resources, and an extensive partner ecosystem. These country teams have client relationship managers at their center, who lead integratedintegrate teams of IBM consultants, solution specialists, and delivery professionals and business partners on behalf of clients. Their mission is to enable clients' growthprovide insights and innovation.innovation and co-create with clients to help them address their most pressing business challenges and opportunities.

        By complementing localIn this way, we serve as a trusted partner to clients, establishing and maintaining relationships that deliver long- term value based on industry expertise, with global experienceinnovative technologies and digitalan ability to deliver mission critical capabilities IBM builds deep and broad-based client relationships. This local management focus fosters speed in supporting clients, addressing new markets and making investments in emerging opportunities. The Global Markets organization serves clients with expertise in their industry as well as through the products and services that IBM and partners supply. IBM is also expanding its reach to new and existing clients through digital marketplaces, digital sales and local Business Partner resources.an enterprise at scale.

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Research, Development and Intellectual Property

        IBM'sOur research and development (R&D) operations differentiate the companyus from itsour competitors. IBM annually invests 7 toIn 2019, we invested approximately 8 percent of total revenue for R&D, focusing on high-growth, high-value opportunities. IBM Research works with clients and the company'sour business units through global labs on near-termnear- and mid-term innovations. It delivers many new technologies to IBM'sour portfolio every year and helps clients address their most difficult challenges. IBM Research scientists are conducting pioneering work in artificial intelligence, quantum computing, blockchain, security, cloud, nanotechnology, silicon and post-silicon computing architecturessystems and more—applying these technologies across industries including financial services, healthcare, IoT, educationmanufacturing and financial services.automotive.

In 2017,2019, for the 25th27th consecutive year, IBM was awarded more U.S. patents than any other company. IBM's 9,043IBM’s 9,262 patents awarded in 20172019 represent a diverse range of inventions in strategic growth areas for the company, including more than 4,500 patents related to work in artificial intelligence, cloud, cybersecurity and other strategic growth areas for the company.quantum computing.

        The company continuesWe actively continue to actively seek IP protection for itsour innovations, while increasing emphasis on other initiatives designed to leverage itsour IP leadership. Some of IBM'sour technological breakthroughs are used exclusively in IBM products, while others are licensed and may be used in IBM products and/or the products of the licensee. As part of itsour business model, the company licenseswe license certain of its intellectual property,our IP assets, which isconstitute high-value technology, but may be applicable in more mature markets. The licensee drives the future development of the IP and ultimately expands the customer base. This would generategenerates IP income for the companyIBM both upon licensing, and with any ongoing royalty arrangements between it and the licensee. While the company'sour various proprietary IP rights are important to itsour success, IBM believes itswe believe our business as a whole is not materially dependent on any particular patent or license, or any particular group of patents or licenses. IBM owns or is licensed under a number of patents, which vary in duration, relating to its products.

Competition

COMPETITION

        The companyIBM is a globally-integratedglobally integrated enterprise operating in more than 175 countries. The companythat participates in a highly competitive environment, where itsour competitors vary by industry segment, and range from large multinational enterprises to smaller, more narrowly focused entities. Overall, across itsour business segments, the company recognizeswe recognize hundreds of competitors worldwide.

        Across its business, the company'sOur principal methods of competition are: technology innovation; performance; price; quality; brand; itsour broad range of capabilities, products and services; client relationships; the ability to deliver business value to clients; and service and support. In order to maintain leadership, a corporation must continue to invest, innovate and integrate. The company hasOver the last several years, we have been executing amaking investments and shifting resources, embedding AI and cloud into our offerings while building new solutions and modernizing our existing platforms. These investments not only drive current performance, but will extend our innovation leadership into the future. Our key differentiators are built around three pillars–innovative technology, industry expertise and trust and security, uniquely delivered through an integrated model. As we execute our strategy, to transform its business, including shifting to higher value market segments and offerings and increasing its capabilities through organic investments, partnerships and strategic acquisitions. As the company executes its strategy, it haswe have entered into new markets, such as hybrid cloud, digital, analytics, AI, blockchain and cognitive,quantum, and deployed new delivery models, including business analytics and "as-a-service"as-a-Service solutions, each of which exposes the companyexpose us to new competitors. Overall, the company is the leader or among the leaders in each of itsour business segments.

A summary of the competitive environment for each business segment is included below:

Cloud & Cognitive Solutions:Software:

        The Cognitive Solutions segment leads the burgeoning market for artificial intelligence infused software solutions. Increasingly, technology companies are looking to implement software solutions that will take advantage of the massive amounts of data businesses hold in order to improve business outcomes for their clients. The Watson platform is integrated throughout the Cognitive Solutions segment. Watson is the first commercially available cognitive computing capability, representing a new era in computing. Delivered through the cloud, the platform analyzes data, understands complex questions posed in natural language, and proposes evidence-based answers. Watson continuously learns in three ways: by being taught by its users, by learning from prior interactions, and by being presented with new information.

        The segment's key competitive factors include a wide range of powerful Watson AI services—machine learning to deep learning. IBM is unique in that it allows clients to retain ownership of their data and AI insights, trains with small specialized data sets, and is focused on embedding AI into business workflows. The insights produced by IBM's cognitive systems are trained and designed for specific industries including Health, Financial Services, Education, Retail and others.

        Specifically, Cognitive Solutions includes solutions software, delivered both on-premise and "as-a-Service", and transaction processing software. The solutions software portfolio, which spans data management, analytics, security, and social capabilities, provides comprehensive business and industry-specific offerings to IT decision makers. IT buyers include chief information officers as well as line of business buyers, such as chief marketing and procurement officers, chief information security officers and chief financial officers. The transaction processing software portfolio, mostly delivered on-premise, runs mission-critical systems in industries such as banking, airlines and retail.

The depth and breadth of theour software offerings, coupled with the company'sour global markets, deep industry expertise and technical support infrastructure help differentiate its capabilitiesour offerings from itsour competitors. The company'sIBM’s research and development capabilities and intellectual propertyIP patent portfolio also contribute to its differentiation. The company's principal competitors in this segment include Alphabet Inc. (Google), Amazon.com, Inc. (Amazon), BMC, Cisco Systems, Inc. (Cisco), Microsoft Corporation (Microsoft), Oracle Corporation (Oracle), Salesforce.comSalesforce, SAP and SAP. The companyVMware. We also competescompete with smaller, niche competitors in specific geographic or product markets worldwide.markets.

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Global Business Services and Global Technology Services & Cloud Platforms:Services:

        The company'sOur services segments, Global Business ServicesGBS and Technology Services & Cloud Platforms,GTS, operate in a highly competitive and continually evolving global market. Competitive factors in these business segments include: quality of services, innovative offerings, financial value, technical skills and capabilities, innovative service and product offerings, industry knowledge and experience value and speed price, client relationships, quality of sales and delivery, reliability, security and the availability of resources. The company'sexecution. Our competitive advantages in these businesses comes from itsour ability to deliverdesign, implement, manage and support integrated solutions that address clients'complex client needs leveragingacross hybrid cloud environments. These solutions leverage automation, and AI, its global reach and scale, a global delivery model, best-of-breed process and industry skills, extensive expertise in technology and innovation, services assets, and a strong set of relationships with clients and strategic business partners worldwide. The IBM Cloud is built for the enterprise-designed for all data, AI-ready and secure to the core.

Global Business Services:

GBS competes in consulting, systems integration, application management and business process outsourcing services. The company competesWe compete with broad based competitors including: Accenture, Capgemini, DXC Technology (DXC), Fujitsu,Fujitsu; cloud services providers, such as Google and Microsoft; India-based service providers; the consulting practices of public accounting firms; and many companies that primarily focus on local markets or niche service areas.

Global Technology Services & Cloud Platforms:Services:

        Technology Services & Cloud PlatformsGTS competes in strategicproject services, managed and outsourcing cloudservices, cloud-delivered services, and a wide range of technical and IT support services. The company competes with broad basedOur competitors including: Amazon,include: Atos, DXC, Fujitsu, Google, Microsoft and Oracle; India-based service providers;HCL, Tata Consulting Services, Wipro and many companies that primarily focus on local markets or niche service areas. We also compete with the ecosystems of cloud platform vendors such as Amazon, Google, Microsoft and Oracle.

        This segment also includes the company's Integration Software offerings. Integration Software helps clients address the digital imperatives to create, connect and optimize their applications, data and infrastructure on their journey to become cognitive businesses. The company competes with Amazon, BMC, Microsoft, Oracle, VMWare as well as companies that primarily focus on niche solutions and offerings.Systems:

Systems:

The enterprise server and storage market ismarkets are characterized by competition in technology and service innovation focused on value, function, reliability, price and cost performance. The company'sperformance and as-a-Service delivery. Our principal competitors include Dell Technologies, Hewlett-Packard Enterprise (HPE), Intel Pure Storage, Oracle, and lower cost original device manufacturer systems that are often re-branded. Also, alternative as-a-serviceas-a-Service providers are leveraging innovation in technology and service delivery both to compete with traditional providers and to offer new routes to market for server and storage systems. These alternative providers include Amazon, Google, Microsoft, and IBM'sIBM’s own cloud-based services.

        The company gainsWe gain advantage and differentiation through investments in higher value capabilities—from semiconductor through software stack innovation—that increase efficiency, lower cost and improve performance. The company'sOur research and development capabilities and intellectual propertyIP patent portfolio contribute significantly to this segment'ssegment’s leadership across areas as diverse as high performancehigh-end and high-performance computing, virtualization technologies, software optimization, power management, security and resiliency, multi-operating system capabilities and open technologies like interconnect standards to be leveraged by broad ecosystems.

Global Financing:

Global Financing provides client financing, commercial financing and participates in the remanufacturing and remarketing of used equipment. Global Financing'sFinancing’s access to capital and its ability to manage increased exposurescredit and residual value risk generates a competitive advantage for the company. The key competitive factors include interest rates charged, IT product experience, client service, contract flexibility, ease of doing business, global capabilities and residual values. In client and commercial financing, Global Financing competes with three types of companies in providing financial services to IT customers: other captive financing entities of IT companies such as Cisco and HPE, non-captive financing entities and banks or financial institutions. In remanufacturing and remarketing, the company competes with local and regional brokers plus original manufacturers in the fragmented worldwide used IT equipment market.

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Forward-looking and Cautionary Statements

Certain statements contained in this Form 10-K may constitute "forward-looking statements"“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 ("(“Reform Act"Act”). Forward-looking statements are based on the company'scompany’s current assumptions regarding future business and financial performance. These statements by their nature address matters that are uncertain to different degrees. The company may also make forward-looking statements in other reports filed with the Securities and Exchange Commission (SEC), in materials delivered to stockholders and in press releases. In addition, the company'scompany’s representatives may from time to time make oral forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Words such as "anticipates," "believes," "expects," "estimates," "intends," "plans," "projects,"“anticipates,” “believes,” “expects,” “estimates,” “intends,” “plans,” “projects,” and similar expressions, may identify such forward-looking statements. Any forward-looking statement in this Form 10-K speaks only as of the date on which it is made. TheExcept as required by law, the company assumes no obligation to update or revise any forward-looking statements. In accordance with the Reform Act, set forth under Item 1A. "Risk Factors"“Risk Factors” on pages 1110 to 1715 are cautionary statements that accompany those forward-looking statements. Readers should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and from historical trends. Those cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this Form 10-K, in the company'scompany’s filings with the Securities and Exchange CommissionSEC or in materials incorporated therein by reference.

The following information is included in IBM's 2017IBM’s 2019 Annual Report to Stockholders and is incorporated herein by reference:

Segment information and revenue by classes of similar products or services—pages 14289 to 146.93.

        Financial information by geographic areas—page 146.

        Amount spent during each of the last three years on R&D activities—page 124.

Financial information regarding environmental activities—page 115.pages 113 and 114.

The number of persons employed by the registrant—page 75.64.

The management discussion overview—pages 27 to 30.29.

        Available information—Website information and company reporting—page 151.142.

Also refer to Item 1A. entitled "Risk Factors" in Part I of this Form.

Executive Officers of the Registrant (at February 27, 2018)25, 2020):