3rd Quarter & 9 Mths Results
International Bus Mach Corp
16 October 2001
( BW)(NY-IBM)(IBM) IBM Announces Third-Quarter 2001 Results
Business Editors/High Tech Writers
ARMONK, N.Y.--(BUSINESS WIRE)--Oct. 16, 2001--IBM today announced
third-quarter 2001 diluted earnings per common share of $.90, a 17
percent decrease compared with diluted earnings per common share of
$1.08 in the third quarter of 2000. Third-quarter 2001 net income was
$1.6 billion, a 19 percent decline from $2.0 billion in the
year-earlier period. IBM's third-quarter 2001 revenues totaled $20.4
billion, down 6 percent (3 percent at constant currency) compared with
the third quarter of 2000.
Louis V. Gerstner, Jr., IBM chairman and chief executive officer,
said: 'The third quarter saw an acceleration of the fundamental shift
in customer buying behavior that is altering our industry's landscape.
Customers now allocate an increasing percentage of their spending to
solutions, not boxes. The major beneficiary of this change, of course,
has been IBM Global Services. Another very important beneficiary,
however, has been IBM's middleware software, since many of the major
software solutions providers now recommend IBM middleware as their
preferred platform.
'Finally, and perhaps surprising to some, another major
beneficiary of the industry shift has been IBM's powerful high-end
zSeries servers, as customers all over the world see the value of
server consolidation. In the third quarter, zSeries MIPS grew 42
percent and have grown by more than 40 percent in each quarter of
2001.
'Turning to our individual units, Services continued its double-
digit growth, excluding maintenance, and the backlog increased by
nearly $2 billion from last quarter. Software had an outstanding
quarter and we are increasing share in every important area of our
software portfolio. Servers also had a strong quarter with major share
gains in the UNIX market. The PC segment of our industry remains in
trouble, and this negatively affected our PC and hard disk drive
businesses. As expected, our Microelectronics business was weak,' Mr.
Gerstner said.
'IBM's results for the first nine months of this year include $63
billion of revenue, $5.4 billion of net profit -- both even with last
year -- and $2.2 billion of free cash flow, double last year's amount.
This is a remarkable record, given that many technology companies have
been reporting huge revenue declines and vastly lower profits or
losses for the first time in many years. IBM's balance sheet remains
among the strongest in the technology industry or any industry.'
In the Americas, third-quarter revenues were $9.1 billion, a
decline of 6 percent (5 percent at constant currency) from the same
period of 2000. Revenues from Europe/Middle East/Africa were $5.7
billion, up 1 percent (4 percent at constant currency). Asia-Pacific
revenues fell 5 percent (up 5 percent at constant currency) to $4.1
billion. OEM revenues decreased 28 percent (27 percent at constant
currency) to $1.5 billion.
Revenues from Global Services, including maintenance, grew 5
percent (9 percent at constant currency) in the third quarter to $8.7
billion. Global Services revenues, excluding maintenance, increased 7
percent (11 percent at constant currency). IBM signed $10 billion in
services contracts and concluded the quarter with a total services
contract backlog of approximately $97 billion. The overall gross
profit margin in Global Services improved by 1.8 points year over year
to 28.4 percent.
Hardware revenues declined 21 percent (18 percent at constant
currency) to $7.5 billion from the 2000 third quarter. Revenues from
z900 mainframe servers grew strongly. Revenues from the iSeries mid-
market servers increased in all geographic areas, while pSeries
revenues declined in part because customers were awaiting the new
high- end 'Regatta' servers, which were announced in early October.
Personal computer revenues fell significantly, reflecting continued
weakness and price pressures in this market. Revenues from IBM's high-
end storage product family - - known as 'Shark' - - increased year
over year. Microelectronics revenues decreased substantially, as
expected, principally due to the cyclical downturn that is affecting
the worldwide semiconductor and OEM markets.
Software revenues grew 10 percent (14 percent in constant
currency) to $3.2 billion compared to the prior year's third quarter.
Middleware revenues, which comprise approximately 80 percent of IBM's
overall software revenues, grew 18 percent at constant currency and
operating system revenues increased 3 percent year over year.
WebSphere revenues increased 75 percent, MQ Series revenues more than
doubled and DB2 revenues climbed 31 percent (excluding revenues from
the acquisition of the Informix database business, which was
successfully completed in the third quarter).
Global Financing revenues decreased 4 percent (2 percent at
constant currency) in the third quarter to $822 million.
Revenues from the Enterprise Investments/Other area, which
includes products for specialized customer uses, declined 24 percent
(21 percent at constant currency) year over year to $244 million. This
decline was expected, resulting from IBM's strategy to shift
development and distribution of these products to third-party
companies.
The company's total gross profit margin improved to 36.2 percent
in the 2001 third quarter from 35.4 percent in the third quarter of
2000.
Total third-quarter expenses were $5.1 billion, up 5 percent
compared with the year-earlier period. Selling, general and
administrative expenses were flat and include a charge resulting from
workforce-balancing actions. Research and development expenses also
were flat. Other income declined primarily due to writedowns of
certain equity investments. The company continues to focus on expense
reductions through increased use of e-procurement, on-line learning
and other actions related to IBM's ongoing e-business transformation.
IBM's tax rate in the third quarter was 29.5 percent compared with
30.0 percent in the third quarter of last year.
IBM spent approximately $1.8 billion on share repurchases in the
third quarter. The average number of basic common shares outstanding
in the quarter was 1.73 billion compared with 1.76 billion shares in
the same period of 2000. There were 1.72 billion basic common shares
outstanding at September 30, 2001.
Net income for the nine months ended September 30, 2001 was $5.4
billion, or $3.03 per diluted common share, compared with net income
of $5.4 billion, or $2.97 per diluted common share, in the year-
earlier period. Revenues for the nine months ended September 30, 2001
were $63.0 billion, flat (up 5 percent at constant currency) compared
with $62.8 billion for the nine months of 2000.
The company's debt in support of operations, excluding global
financing, increased $1.1 billion from year-end 2000 to $2.2 billion,
reflecting the acquisition of the Informix database business. This
resulted in a debt-to-capitalization ratio of 11 percent at September
30, 2001. Global financing debt declined $1.1 billion from year-end
2000 to a total of $26.4 billion, resulting in a debt-to-equity ratio
of 6.7 to 1.
Forward-Looking and Cautionary Statements
Except for the historical information and discussions contained
herein, statements contained in this release may constitute 'forward-
looking statements' within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve a number of
risks, uncertainties and other factors that could cause actual results
to differ materially, as discussed in the company's filings with the
Securities and Exchange Commission.
Financial Results Attached
-0-
*T
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
Three Months Nine Months
Ended September 30, Ended September 30,
Percent Percent
2001 2000* Change 2001 2000* Change
------- ------- ------- ------- ------- -------
REVENUE
Global Services $8,682 $8,230 5.4% $25,895 $23,966 8.0%
Gross margin 28.4% 26.6% 27.2% 26.5%
Hardware 7,479 9,451 -20.9% 24,678 26,314 -6.2%
Gross margin 24.0% 27.9% 28.2% 27.6%
Software 3,201 2,918 9.7% 9,155 9,027 1.4%
Gross margin 81.5% 81.2% 81.4% 81.3%
Global Financing 822 859 -4.3% 2,499 2,494 0.2%
Gross margin 51.0% 41.7% 48.8% 43.4%
Enterprise Investments/
Other 244 323 -24.2% 813 979 -16.9%
Gross margin 40.8% 47.5% 44.6% 47.6%
TOTAL REVENUE 20,428 21,781 -6.2% 63,040 62,780 0.4%
GROSS PROFIT 7,391 7,704 -4.1% 23,037 22,501 2.4%
Gross margin 36.2% 35.4% 36.5% 35.8%
EXPENSE
S,G&A 3,741 3,726 0.4% 11,314 11,299 0.1%
% of revenue 18.3% 17.1% 17.9% 18.0%
R,D&E 1,261 1,261 0.0% 3,743 3,702 1.1%
% of revenue 6.2% 5.8% 5.9% 5.9%
Other income 73 (173) -141.8% 143 (492) -128.9%
Interest expense 54 86 -36.9% 184 245 -24.9%
TOTAL EXPENSE 5,129 4,900 4.7% 15,384 14,754 4.3%
% of revenue 25.1% 22.5% 24.4% 23.5%
INCOME BEFORE
INCOME TAXES 2,262 2,804 -19.3% 7,653 7,747 -1.2%
Pre-tax margin 11.1% 12.9% 12.1% 12.3%
Provision for
income taxes 667 841 -20.7% 2,263 2,324 -2.6%
Effective tax
rate 29.5% 30.0% 29.6% 30.0%
NET INCOME $1,595 $1,963 -18.7% $5,390 $5,423 -0.6%
Net margin 7.8% 9.0% 8.6% 8.6%
Preferred stock
dividends 0 5 10 15
NET INCOME
APPLICABLE TO COMMON
SHAREHOLDERS $1,595 $1,958 -18.5% $5,380 $5,408 -0.5%
====== ====== ====== ======
EARNINGS PER
SHARE OF COMMON
STOCK - ASSUMING
DILUTION $0.90 $1.08 -16.7% $3.03 $2.97 2.0%
====== ====== ====== ======
EARNINGS PER
SHARE OF COMMON
STOCK - BASIC $0.92 $1.11 -17.1% $3.10 $3.06 1.3%
====== ====== ====== ======
AVERAGE NUMBER OF
COMMON SHARES OUT-
STANDING (M's)
DILUTED 1,767.9 1,809.8 1,775.6 1,819.3
BASIC 1,731.8 1,758.1 1,737.0 1,767.6
* Reclassified to conform with 2001 presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
At At
(Dollars in millions) September 30, December 31, Percent
2001 2000 Change
------------ ----------- -------
ASSETS
Cash, cash equivalents,
and marketable securities $4,012 $3,722 7.8%
Receivables - net, inventories,
and prepaid expenses 36,297 40,158 -9.6%
Plant, rental machines,
and other property - net 16,820 16,714 0.6%
Investments and other assets 27,965 27,755 0.8%
-------- --------
TOTAL ASSETS $85,094 $88,349 -3.7%
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $10,907 $10,205 6.9%
Long-term debt 17,654 18,371 -3.9%
-------- --------
Total debt 28,561 28,576 -0.1%
Accounts payable, taxes,
and accruals 21,969 26,201 -16.2%
Other liabilities 12,587 12,948 -2.8%
-------- --------
TOTAL LIABILITIES 63,117 67,725 -6.8%
STOCKHOLDERS' EQUITY 21,977 20,624 6.6%
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $85,094 $88,349 -3.7%
======== ========
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
THIRD QUARTER 2001
--------------------------------------------
Pre-tax
(Dollars in millions) ------- Revenue ---------- Pre-tax Income
External Internal Total Income Margin
-------- -------- ------- ------- -------
SEGMENTS
Global Services $8,682 $684 $9,366 $1,373 14.7%
% change 5.4% 4.6% 5.4% 19.7%
Technology 1,654 628 2,282 (258) -11.3%
% change -26.5% -6.5% -21.9% -242.5%
Personal and Printing
Systems 2,829 18 2,847 (70) -2.5%
% change -28.8% -18.2% -28.7% -179.5%
Enterprise Systems 3,056 175 3,231 194 6.0%
% change -3.4% 26.8% -2.2% -29.2%
Software 3,201 236 3,437 704 20.5%
% change 9.7% 11.8% 9.8% 36.7%
Global Financing 814 204 1,018 314 30.8%
% change -6.2% -9.3% -6.9% 6.8%
Enterprise Investments 242 1 243 (76) -31.3%
% change -12.6% 0.0% -12.6% -38.2%
TOTAL SEGMENTS 20,478 1,946 22,424 2,181 9.7%
% change -5.5% 1.2% -5.0% -10.8%
Eliminations / Other (50) (1,946) (1,996) 81
TOTAL IBM $20,428 $0 $20,428 $2,262 11.1%
% change -6.2% -6.2% -19.3%
THIRD QUARTER 2000*
--------------------------------------------
Pre-tax
(Dollars in millions) ------- Revenue ---------- Pre-tax Income
External Internal Total Income Margin
-------- -------- ------- ------- -------
SEGMENTS
Global Services $8,230 $654 $8,884 $1,147 12.9%
Technology 2,250 672 2,922 181 6.2%
Personal and Printing
Systems 3,971 22 3,993 88 2.2%
Enterprise Systems 3,164 138 3,302 274 8.3%
Software 2,918 211 3,129 515 16.5%
Global Financing 868 225 1,093 294 26.9%
Enterprise Investments 277 1 278 (55) -19.8%
TOTAL SEGMENTS 21,678 1,923 23,601 2,444 10.4%
Eliminations / Other 103 (1,923) (1,820) 360
TOTAL IBM $21,781 $0 $21,781 $2,804 12.9%
* Reclassified to conform with 2001 presentation.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
NINE MONTHS 2001
--------------------------------------------
Pre-tax
(Dollars in millions) ------- Revenue ---------- Pre-tax Income
External Internal Total Income Margin
-------- -------- ------- ------- -------
SEGMENTS
Global Services $25,895 $1,923 $27,818 $3,748 13.5%
% change 8.0% 4.0% 7.8% 16.6%
Technology 6,091 1,795 7,886 (81) -1.0%
% change 4.5% -17.4% -1.4% -120.9%
Personal and Printing
Systems 9,072 50 9,122 (136) -1.5%
% change -16.2% 13.6% -16.0% nm
Enterprise Systems 9,669 547 10,216 1,111 10.9%
% change 1.8% 15.2% 2.4% 6.3%
Software 9,155 686 9,841 2,001 20.3%
% change 1.4% 15.3% 2.3% 9.2%
Global Financing 2,486 647 3,133 878 28.0%
% change -1.5% -6.9% -2.7% -1.1%
Enterprise Investments 782 2 784 (243) -31.0%
% change -16.7% -33.3% -16.8% -15.7%
TOTAL SEGMENTS 63,150 5,650 68,800 7,278 10.6%
% change 0.9% -3.1% 0.5% 1.7%
Eliminations / Other (110) (5,650) (5,760) 375
TOTAL IBM $63,040 $0 $63,040 $7,653 12.1%
% change 0.4% 0.4% -1.2%
nm - not meaningful
NINE MONTHS 2000*
--------------------------------------------
Pre-tax
(Dollars in millions) ------- Revenue ---------- Pre-tax Income
External Internal Total Income Margin
-------- -------- ------- ------- -------
SEGMENTS
Global Services $23,966 $1,849 $25,815 $3,214 12.5%
Technology 5,826 2,172 7,998 388 4.9%
Personal and Printing
Systems 10,820 44 10,864 (4) 0.0%
Enterprise Systems 9,500 475 9,975 1,045 10.5%
Software 9,027 595 9,622 1,832 19.0%
Global Financing 2,525 695 3,220 888 27.6%
Enterprise Investments 939 3 942 (210) -22.3%
TOTAL SEGMENTS 62,603 5,833 68,436 7,153 10.5%
Eliminations / Other 177 (5,833) (5,656) 594
TOTAL IBM $62,780 $0 $62,780 $7,747 12.3%
* Reclassified to conform with 2001 presentation.
*T
--30--sds/ny*
CONTACT: IBM
Rob Wilson, 914/499-6565
wilsonr@us.ibm.com
Carol Makovich, 914/499-6212
makovich@us.ibm.com
KEYWORD: NEW YORK
INDUSTRY KEYWORD: COMPUTERS/ELECTRONICS HARDWARE NETWORKING
SOFTWARE EARNINGS
SOURCE: IBM
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