During the past five years, propelled by our belief that the phenomenon of data would reorder technology and business, we have undertaken one of the most ambitious reinventions in IBM’s modern history. This phase is largely complete. IBM is now a cognitive solutions and cloud platform company. IBM now possesses capabilities that are unmatched in our industry to address our clients’ most pressing needs.
In my letter to you this year, I will describe our performance in 2017, which reflects the progress we have made in building these capabilities. And I will explain why we believe this moment marks an inflection point, not just for our company, but for business and society at large.
The substantial progress we made last year
We achieved operating earnings per share of $13.80, up 2 percent. Our revenue for the year was $79.1 billion, with operating pre-tax income of $13.9 billion. In the fourth quarter, we grew revenue 4 percent, 1 percent adjusted for the effects of currency (as are all other revenue numbers in this letter).
We did so in significant part because our strategic imperatives reached critical mass. With revenue of $36.5 billion and growing 11 percent, these products and services now contribute 46 percent of IBM’s revenue. And we expect to achieve our goal of growing these new products and services to $40 billion in 2018.
Watson strengthened its position as the AI platform for business. We are embedding AI into more of what we offer— including security, the Internet of Things, commerce and verticals, such as Watson Health. Together, these helped IBM’s Cognitive Solutions business generate more than $18 billion in revenue in 2017.
We also remained the global leader in cloud for the enterprise. In 2017, our cloud revenue grew 24 percent, to $17 billion. Cloud by itself is now more than 21 percent of our total revenue.
Our reinvented systems franchises generated strong growth. Mainframes enjoyed a very strong fourth quarter, thanks to the launch of the new z14, the world’s first system that can encrypt data pervasively without requiring changes to applications and with no downtime. We expect this breakthrough will drive significant expansion of the mainframe’s already broad market.
Similarly, we are reinventing our services business. Global Business Services saw signings growth throughout the year, as clients engaged with our high-value consulting practices in areas such as AI, blockchain, and digital strategy and design.
In addition, our Technology Services and Cloud Platform team is working with clients worldwide to integrate public, private and managed cloud environments through a single architecture.
IBM is the clear leader in quantum computing. The world’s first (and only) prototype 50-qubit system, announced in 2017, was a major step toward systems that can tackle problems beyond the scope of classical computation. Through IBM Q Experience, the world’s first publicly available quantum computers, more than 75,000 users have run more than 2.5 million quantum experiments. A dozen clients, including partners JPMorgan Chase, Daimler AG, Samsung and JSR, are now exploring practical applications on our latest commercial systems.
We have also achieved global leadership in blockchain. By providing a permissioned and immutable shared ledger, blockchain is doing for trusted transactions what the Internet did for information. Hundreds of leading organizations already have embraced IBM’s blockchain platform. Walmart, Nestlé, Dole, Kroger and others are applying blockchain to improve food safety. Early in 2018, we announced a joint venture with Maersk to apply blockchain to the complex world of international shipping. We also are working with The Depository Trust & Clearing Corporation (DTCC) on new blockchain approaches for complex derivatives, such as credit default swaps.
Finally, 2017 saw a milestone in innovation as IBM, for the 25th year in a row, led the world in U.S. patents earned, setting a new record of 9,043. Importantly, nearly half of those patents were in AI, cloud, blockchain, quantum, security and other technologies that will power our portfolio for years to come.
We did all this while continuing to invest heavily for long-term competitiveness—$5.6 billion in research and development and $3.3 billion in net capital expenditures, adding to the capabilities of our high-growth strategic businesses.
We also returned $9.8 billion to you, our owners, including dividends of $5.5 billion and $4.3 billion in gross share repurchases. We raised our dividend for the 22nd consecutive year—it was IBM’s 102nd straight year of providing one. All of this is due to the creativity and passion of IBMers. They are the reason we have reached an inflection point, and they are our greatest competitive advantage.
Virginia M. Rometty Chairman, President and Chief Executive Officer
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