What changed in this filing

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Item 1A. Risk Factors

2025-02-25 compared with 2024-02-26 · 39 added, 43 removed, 160 unchanged (34% of the section changed)

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Failure of Innovation Initiatives Could Impact the Long-Term Success of the Company:

IBM has moved into areas, including those that incorporate or utilize hybrid cloud, AI (including generative AI), quantum and other disruptive technologies, in which it can differentiate itself through responsible innovation, by leveraging its investments in R&D and attracting a successful developer ecosystem.

IBM has moved into areas, including those that incorporate or utilize hybrid cloud, AI and generative AI, quantum and other disruptive technologies, in which it can differentiate itself through responsible innovation, by leveraging its investments in R&D and attracting a successful developer ecosystem.

If IBM is unable to continue its cutting-edge innovation in a highly competitive and rapidly evolving environment or is unable to commercialize such innovations, expand and scale them with sufficient speed and versatility or is unable to attract a successful developer ecosystem, the company could fail in its ongoing efforts to maintain and increase its market share and its profit margins.

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IBM’s reputation is potentially susceptible to damage by events such as significant disputes with clients, product defects, internal control deficiencies, delivery failures, cybersecurity incidents, government investigations or legal proceedings or actions of current or former clients, directors, employees, competitors, vendors, alliance partners or joint venture partners.

If the company’s brand image is tarnished by negative perceptions, its ability to attract and retain customers, talent and ecosystem partners could be impacted.

company’s brand image is tarnished by negative perceptions, its ability to attract and retain customers, talent and ecosystem partners could be impacted.

Risks from Investing in Growth Opportunities Could Impact the Company’s Business:

The company continues to invest significantly in key strategic areas to drive revenue growth and market share gains.

The company continues to invest significantly in key strategic areas, including AI and generative AI, to drive revenue growth and market share gains.

Client adoption rates and viable economic models are less certain in the high-value, highly competitive, and rapidly-growing segments.

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Further, if open source code that IBM utilizes is no longer maintained, developed or enhanced by the relevant community of independent open source software programmers, most of whom we do not employ, we may be unable to develop new technologies, adequately enhance our existing technologies or meet customer requirements for innovation, quality and price.

Risks to the Company from Acquisitions, Alliances and Dispositions Include Integration Challenges, Failure to Achieve Objectives, the Assumption of Liabilities and Higher Debt Levels:

The company has made and expects to continue to make acquisitions, alliances and dispositions.

Such transactions present significant challenges and risks and there can be no assurances that the company will manage such transactions successfully or that strategic opportunities will be available to the company on acceptable terms or at all.

The related risks include the company failing to achieve strategic objectives, anticipated revenue improvements and cost savings, the failure to retain key strategic relationships of acquired companies, the failure to retain key personnel and the assumption of liabilities related to litigation or other legal proceedings involving the businesses in such transactions, as well as the failure to close planned transactions.

Risks to the Company from Acquisitions, Alliances and Divestitures Include Integration Challenges, Failure to Achieve Objectives, the Assumption or Retention of Liabilities and Higher Debt Levels:

The company has made and expects to continue to make acquisitions, alliances and divestitures.

Such transactions present significant challenges and risks and there can be no assurances that the company will manage such transactions successfully, that strategic objectives will be achieved or that strategic opportunities will be available to the company on acceptable terms or at all.

With respect to acquisitions and alliances, the related risks include the company failing to achieve anticipated revenue improvements and cost savings, the failure to retain key personnel or strategic relationships of acquired companies, the assumption of liabilities related to litigation or other legal proceedings involving the businesses in such transactions, and delays in obtaining, or the failure to obtain, necessary governmental or regulatory approvals, as well as the failure to close planned transactions.

Such transactions may require the company to secure financing and any significant disruption or turmoil in the capital markets could have an adverse effect on IBM’s ability to access the capital markets at favorable terms.

From time to time, the company disposes or attempts to dispose of assets that are no longer central to its strategic objectives.

Any such disposition or attempted disposition is subject to risks, including risks related to the terms and timing of such disposition, risks related to obtaining necessary governmental or regulatory approvals and risks related to retained liabilities not subject to the company’s control.

From time to time, the company divests or attempts to divest assets that are no longer central to its strategic objectives.

Any such transaction is subject to risks, including risks related to the terms and timing of such divestitures, risks related to retained liabilities not subject to the company’s control, and delays in obtaining, or failing to obtain, necessary governmental or regulatory approvals, as well as the failure to close planned transactions.

The Company’s Financial Results for Particular Periods Are Difficult to Predict:

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Due to the Company’s Global Presence, Its Business and Operations Could Be Impacted by Local Legal, Economic, Political, Health and Other Conditions:

The company is a globally integrated entity, operating in over 175 countries worldwide and deriving about sixty percent of its revenues from sales outside the United States.

The company is a globally integrated entity, doing business in over 175 countries worldwide and deriving about sixty percent of its revenues from sales outside the United States.

Changes in the laws or policies of the countries in which the company operates, or inadequate development or enforcement of such laws or policies, could affect the company’s business and the company’s overall results of operations.

Further, the company may

be impacted directly or indirectly by the development and enforcement of laws and regulations in the U.S.

Further, the company may be impacted directly or indirectly by the development and enforcement of laws and regulations in the U.S.

and globally that are specifically targeted at the technology industry.

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dollar and non-U.S.

currencies and adverse changes in trade relationships amongst those countries.

currencies, capital controls, and adverse changes in trade relationships amongst those countries.

Further, as the company expands its customer base and the scope of its offerings, both within the U.S.

and globally, it may be impacted by additional regulatory or other risks, including, compliance with U.S.

and foreign data privacy requirements, AI regulations, data localization requirements, labor relations laws, enforcement of IP protection laws, laws relating to anti-corruption, anti-competition regulations, and import, export and trade restrictions.

and foreign data privacy requirements, outbound investment restrictions, AI and cloud regulations, data localization requirements, labor relations laws, enforcement of IP protection laws, laws relating to anti-corruption, anti-competition regulations, and import, export and trade restrictions.

Further, international trade disputes could create uncertainty.

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(GAAP) requires the company to make estimates and assumptions about certain items and future events that directly affect its reported financial condition.

The company’s most critical accounting estimates are described in the Management Discussion in IBM’s 2023 Annual Report to Stockholders, under “Critical Accounting Estimates.” In addition, as discussed in note R, “Commitments & Contingencies,” in IBM’s 2023 Annual Report to Stockholders, the company makes certain estimates including decisions related to legal proceedings and reserves.

The company’s most critical accounting estimates are described in the Management Discussion in IBM’s 2024 Annual Report to Stockholders, under “Critical Accounting Estimates.” In addition, as discussed in note Q, “Commitments & Contingencies,” in IBM’s 2024 Annual Report to Stockholders, the company makes certain estimates including decisions related to legal proceedings and reserves.

These estimates and assumptions involve the use of judgment.

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Further, many of IBM’s key employees receive a total compensation package that includes equity awards.

Any new regulations, volatility in the stock market and other factors could diminish the company’s use or the value of the company’s equity awards, putting the company at a competitive disadvantage.

Any new regulations, volatility in the

stock market and other factors could diminish the company’s use or the value of the company’s equity awards, putting the company at a competitive disadvantage.

The Company’s Business Could Be Impacted by Its Relationships with Critical Suppliers:

IBM’s business employs a wide variety of components (hardware and software), supplies, services and raw materials from a substantial number of

suppliers around the world.

IBM’s business employs a wide variety of components (hardware and software), supplies, services and raw materials from a substantial number of suppliers around the world.

Certain of the company’s businesses rely on a single or a limited number of suppliers, including for server processor technology for certain semiconductors.

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Product and Service Quality Issues Could Impact the Company’s Business and Operating Results:

The company has rigorous quality control standards and processes intended to prevent, detect and correct errors, malfunctions and other defects in its products and services.

The company has rigorous quality control standards and governance processes intended to prevent, detect and correct errors, malfunctions and other defects in its products and services.

If errors, malfunctions, defects or disruptions in service are experienced by customers or in the company’s operations there could be negative consequences that could impact customers’ business operations and harm the company’s business’s operating results.

The Development and Use of AI and Generative AI, including the Company’s Increased Offerings and Use of AI-based Technologies, Could Impact the Long-Term Success of the Company and its Reputation or Give Rise to Legal or Regulatory Action:

IBM is increasingly applying AI-based technologies, including generative AI, to its services and products, to how it delivers offerings to IBM clients, and to its own internal operations.

Additionally, IBM is investing in and offering new products and services associated with AI development, deployment and management.

As stated more comprehensively and in context of several risk factors throughout this Item 1A., this increasing mix and application of AI-based technologies may impact IBM’s ongoing efforts to maintain and increase its market share and its profit margins or harm IBM’s reputation if the company does not continue to be recognized as an AI leader with strong governance processes.

IBM’s drive for greater agility, productivity, flexibility and cost savings by continuously transforming with the use of AI may not yield intended gains in speed, quality, productivity and enablement of rapid scaling, which may impact the company’s competitiveness.

The evolving global AI regulatory environment, including the enactment of the EU AI Act, may affect the company’s business and the company’s overall results of operations.

Computer hackers and others routinely attack the security of technology products, services, systems and networks using a wide variety of methods, and the increased use of generative AI may introduce novel methods of attack.

In the event of such actions, the company, its customers and other third parties could be exposed to liability, litigation, and regulatory or other government action, including debarment, as well as the loss of existing or potential customers, damage to brand and reputation, damage to IBM’s competitive position, and other financial loss.

The Company Could Be Impacted by Its Business with Government Clients:

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Some of the company’s agreements with these customers may be subject to periodic funding approval.

Funding reductions or delays could adversely impact public sector demand for our products and services.

Funding reductions, delays or work stoppages could adversely impact public sector demand for our products and services.

Also, some agreements may contain provisions allowing the customer to terminate without cause and providing for higher liability limits for certain losses.

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Risks Related to Cybersecurity and Data Privacy

Cybersecurity and Privacy Considerations Could Impact the Company’s Business:

There are numerous and evolving risks to cybersecurity and privacy, including risks originating from intentional acts of criminal hackers, hacktivists, nation states and competitors;

Cybersecurity, Privacy, and AI Considerations Could Impact the Company’s Business:

There are numerous and evolving risks to cybersecurity and privacy, including risks originating from intentional acts of individual and groups of criminal hackers, hacktivists, state-sponsored organizations, nation states and competitors;

from intentional and unintentional acts or omissions of customers, contractors, business partners, vendors, employees and other third parties;

and from errors in processes or technologies, as well as the risks associated with an increase in the number of customers, contractors, business partners, vendors, employees and other third parties working remotely.

Computer hackers and others routinely attack the security of technology products, services, systems and networks using a wide variety of methods, including ransomware or other malicious software and attempts to exploit vulnerabilities in hardware, software, and infrastructure.

Computer hackers and others routinely attack the security of technology products, services, systems and networks, like those we offer, using a wide variety of methods, including ransomware or other malicious software and attempts to exploit vulnerabilities in hardware, software, and infrastructure, and the increased use of generative AI may introduce novel methods of attack.

Attacks also include social engineering and cyber extortion to induce customers, contractors, business partners, vendors, employees and other third parties to disclose information, transfer funds, or unwittingly provide access to systems or data.

The company is at risk of security breaches not only of our own products, services, systems and networks, but also those of customers, contractors, business partners, vendors, employees and other third parties, particularly as all parties increasingly digitize their operations.

Cyber threats are continually evolving, including with the increased use of AI, making it difficult to defend against such threats and vulnerabilities that can persist undetected over extended periods of time.

Cyber threats are increasing in number and sophistication, continually evolving, including with the increased use of AI, making it difficult to anticipate and defend against such threats and vulnerabilities that can persist undetected over extended periods of time.

The company’s products, services, systems and networks, including cloud-based systems and systems and technologies that the company maintains on behalf of its customers, are used in critical company, customer or third-party operations, and involve the storage, processing and transmission of sensitive data, including valuable intellectual property, other proprietary or confidential data, regulated data, and personal information of employees, customers and others.

These products, services, systems and networks are also used by customers in heavily regulated industries, including those in the financial services, healthcare, critical infrastructure and government sectors.

As is common in our industry and for a company our size, we continue to face and prepare for cybersecurity threats.

While the company continues to monitor for, identify, investigate, respond to and remediate a wide range of cybersecurity events, there have not been cybersecurity incidents or vulnerabilities that have had a material adverse effect on the company, though there is no assurance that there will not be cybersecurity incidents or vulnerabilities that will have a material adverse effect in the future.

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In addition, the cost and operational consequences of responding to cybersecurity incidents and implementing remediation measures could be significant.

In the company’s industry, security vulnerabilities are increasingly discovered, publicized and exploited across a broad range of hardware, software or other infrastructure, elevating the risk of attacks and the potential cost of response and remediation for the company and its customers.

In the company’s industry, security vulnerabilities are increasingly discovered, publicized and exploited across a broad range of hardware, software or other infrastructure, including in our own products, services, systems and networks, or third-party data and systems upon which we rely, elevating the risk of attacks and the potential cost of response and remediation for the company and its customers.

In addition, the fast-paced, evolving, pervasive, and sophisticated nature of certain cyber threats and vulnerabilities, as well as the scale and complexity of the business and infrastructure, make it possible that certain threats or vulnerabilities will be undetected or unmitigated in time to prevent or minimize the impact of an attack on the company or its customers.

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The company could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions, as well as third-party claims for property damage or personal injury, if it were to violate or become liable under environmental laws and regulations.

expect climate change or compliance with environmental laws and regulations focused on climate change to have a disproportionate effect on the company or its financial position, results of operations and competitive position.

We do not expect climate change or compliance with environmental laws and regulations focused on climate change to have a disproportionate effect on the company or its financial position, results of operations and competitive position.

Tax Matters Could Impact the Company’s Results of Operations and Financial Condition:

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IBM’s provision for income taxes and cash tax liability in the future could be adversely affected by numerous factors including, but not limited to, income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws, regulations, accounting principles or interpretations thereof, which could adversely impact the company’s results of operations and financial condition in future periods.

The Organization for Economic Cooperation and Development (OECD) is issuing guidelines that are different, in some respects, than long-standing international tax principles.

As countries unilaterally amend their tax laws to adopt certain parts of the OECD guidelines, this may increase tax uncertainty and may adversely impact the company’s income taxes.

Local country, state, provincial or municipal taxation may also be subject to review and potential override by regional, federal, national or similar forms of government.

The Organization for Economic Cooperation and Development (OECD) has issued model rules for a new global minimum tax.

Local country adoption of these rules may increase tax uncertainty and may adversely impact the company’s income taxes.

Furthermore, local country, state, provincial or municipal taxation may also be subject to review and potential override by regional, federal, national or similar forms of government.

In addition, IBM is subject to the continuous examination of its income tax returns by the United States Internal Revenue Service (IRS) and other tax authorities around the world.

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As a company with a substantial employee population and with clients in more than 175 countries, IBM is or may become involved as a party and/or may be subject to a variety of claims, demands, suits, investigations, tax matters and other proceedings that arise from time to time in the ordinary course of its business.

The risks associated with such legal proceedings are described in more detail in note R, “Commitments & Contingencies,” in IBM’s 2023 Annual Report to Stockholders.

The risks associated with such legal proceedings are described in more detail in note Q, “Commitments & Contingencies,” in IBM’s 2024 Annual Report to Stockholders.

The company believes it has adopted appropriate risk management and compliance programs.

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The company’s client base includes many enterprises worldwide, from small and medium businesses to the world’s largest organizations and governments, with a significant portion of the company’s revenue coming from global clients across many sectors.

the company’s sales are on an open credit basis, and the company performs ongoing credit evaluations of its clients’ financial conditions.

Most of the company’s sales are on an open credit basis, and the company performs ongoing credit evaluations of its clients’ financial conditions.

If the company becomes aware of information related to the creditworthiness of a major customer, or if future actual default rates on receivables in general differ from those currently anticipated, the company may have to adjust its allowance for credit losses, which could affect the company’s consolidated net income in the period the adjustments are made.

Risks Related to the Spin-Off of Kyndryl Holdings, Inc.

If the Kyndryl Holdings, Inc.

Spin-off Fails to Qualify for Tax-free Treatment, It Could Result in Substantial Tax Liability for the Company and Its Stockholders:

In connection with the spin-off of Kyndryl Holdings, Inc., the company obtained a private letter ruling from the IRS and an opinion from its tax advisor, in each case to the effect that, for U.S.

federal income tax purposes, the spin-off will qualify as a tax-free reorganization under sections 368(a)(1)(D) and 355 of the Internal Revenue Code of 1986, as amended.

The IRS private letter ruling and the opinion rely on certain facts, assumptions, representations and undertakings from Kyndryl Holdings, Inc.

and the company regarding the past and future conduct of the companies’ respective businesses and other matters.

If any of these facts, assumptions, representations, or undertakings are incorrect or not satisfied, the conclusions reached in the IRS private letter ruling and/or the opinion could be jeopardized.

If the spin-off is determined to be taxable for U.S.

federal income tax purposes, the company’s stockholders that are subject to U.S.

federal income tax and the company could incur significant U.S.

federal income tax liabilities.

Risks Related to Ownership of IBM Securities

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors