⚠ Workforce Charges Every YearLow threat

IBM (IBM) — threat to the moat

IBM spends $650 million a year on workforce rebalancing outside the segment accounts, which is part of the price of Consulting's margin.

IBM pays every year to reshape its workforce. Workforce rebalancing charges were $435 million in 2023, $692 million in 2024 and $653 million in 20251. They are deducted in reconciling segment profit to pre-tax income2, so they do not appear in Consulting's reported margin.

IBM annual run-rate savings targets ($bn)2.02023 goal4.5Exit 2025 expectationIBM Q3 2025 prepared remarks
The savings grew; so did the cost of getting them.

The charges are part of how IBM achieved the productivity it reports. It expected $4.5 billion of annual run-rate savings exiting 20253. In a people business, much of that comes from changing who does the work and where.

The threat is that the margin gain is partly paid for outside the segment. A consulting margin of 11.7%4 that needs several hundred million dollars of company-level charges each year is less durable than the number alone suggests.

The charges also recur in the quarterly accounts. In the first half of 2026 IBM said its Consulting segment profit reflected productivity actions5, and the company-wide operating pre-tax margin improved 30 basis points in the second quarter6. The savings are real. The question is whether the charges that produce them are a transition or a permanent cost of running a consulting business inside a software company.

This is a low threat because the charges are stable. Worry more if they grew above $1 billion in a year, since that would mean the savings required to hold Consulting's margin were getting more expensive.

References
  1. ReportedWorkforce rebalancing charges were $435 million in 2023, $692 million in 2024 and $653 million in 2025.
    IBM 2025 Annual Report (Form 10-K exhibit) - management discussion, consolidated financial statements and notes - segment note: segment revenue, segment profit, margins and reconciliation to reported revenue. — FY2025 · publ. 24 February 2026 · source ↗
  2. ReportedThey are deducted in reconciling segment profit to pre-tax income, so they do not appear in Consulting's reported margin.
    IBM 2025 Annual Report (Form 10-K exhibit) - management discussion, consolidated financial statements and notes - financial statements and notes: income statement, cash flow, borrowings, goodwill, acquisitions, pensions and market risk. — FY2025 · publ. 24 February 2026 · source ↗
  3. ReportedIt expected $4.5 billion of annual run-rate savings exiting 2025.
    IBM third-quarter 2025 prepared remarks, Form 8-K exhibit 99.1 - productivity savings and generative AI book of business. — Q3 2025 · publ. October 2025 · source ↗
  4. ReportedA consulting margin of 11.7% that needs several hundred million dollars of company-level charges each year is less durable than the number alone suggests.
    IBM 2025 Annual Report (Form 10-K exhibit) - management discussion, consolidated financial statements and notes - segment note: segment revenue, segment profit, margins and reconciliation to reported revenue. — FY2025 · publ. 24 February 2026 · source ↗
  5. ReportedIn the first half of 2026 IBM said its Consulting segment profit reflected productivity actions, and the company-wide operating pre-tax margin improved 30 basis points in the second quarter.
    IBM Form 10-Q for the quarter ended 30 June 2026 - segment results, revenue categories, RPO, the Confluent acquisition and management discussion - Consulting segment results and signings. — Q2 2026 · publ. 23 July 2026 · source ↗
  6. ReportedIn the first half of 2026 IBM said its Consulting segment profit reflected productivity actions, and the company-wide operating pre-tax margin improved 30 basis points in the second quarter.
    Arvind Krishna's letter to IBM investors with preliminary second-quarter 2026 results, Form 8-K exhibit 99.1. — Q2 2026 · publ. 14 July 2026 · source ↗
Sources
Generated September 28, 2026