IBM Reports 2008 Third-Quarter Results
-- Diluted earnings of $2.05 per share, up 22 percent;
-- Net income of $2.8 billion, up 20 percent;
-- Total revenues of $25.3 billion, up 5 percent;
-- Global Technology Services revenues up 8 percent; pre-tax income up 16
percent;
-- Global Business Services revenues up 7 percent; pre-tax income up 39
percent;
-- Total services pre-tax margin at six-year high;
-- Services signings of $12.7 billion, down 4 percent; short-term services
signings up 13 percent;
-- Software revenues up 12 percent; pre-tax income up 19 percent;
-- System z mainframe revenues up 25 percent;
-- E/ME/A revenues up 10 percent; Asia Pacific up 6 percent; Americas up 3
percent;
-- Revenues from growth markets up 13 percent.
IBM
IBM (NYSE: IBM) today announced third-quarter 2008 diluted earnings of $2.05 per
share from continuing operations compared with diluted earnings of $1.68 per
share in the third quarter of 2007, an increase of 22 percent. Third-quarter
income from continuing operations was $2.8 billion compared with $2.4 billion in
the third quarter of 2007, an increase of 20 percent. Total revenues for the
third quarter of 2008 of $25.3 billion increased 5 percent (2 percent, adjusting
for currency) from the third quarter of 2007.
'Our results demonstrate that the combination of a steady base of recurring
revenue and profits, a range of products and services that deliver value to
clients worldwide, and a strong and flexible financial foundation give IBM a
competitive edge in good times and tough times,' said Samuel J. Palmisano, IBM
chairman, president and chief executive officer.
'These strengths along with our strategy to manage for productivity in major
markets and to invest for growth in emerging countries have enabled IBM to
thrive despite an economic environment that no one could have predicted. We
remain confident in our full-year 2008 outlook.'
From a geographic perspective, the Americas' third-quarter revenues were $10.5
billion, an increase of 3 percent as reported (2 percent, adjusting for
currency) from the 2007 period. Revenues from Europe/Middle East/Africa were
$8.9 billion, up 10 percent (4 percent, adjusting for currency). Asia-Pacific
revenues increased 6 percent (1 percent, adjusting for currency) to $5.2
billion. OEM revenues were $673 million, down 24 percent compared with the 2007
third quarter. Revenues from the company's growth markets organization increased
13 percent (10 percent, adjusting for currency) and represented 19 percent of
geographic revenues.
Total Global Services revenues grew 8 percent (4 percent, adjusting for
currency). Global Technology Services segment revenues increased 8 percent (5
percent, adjusting for currency) to $9.9 billion, with strong growth in
Integrated Technology Services. Global Business Services segment revenues
increased 7 percent (3 percent, adjusting for currency) to $4.9 billion. IBM
signed services contracts totaling $12.7 billion, at actual rates, a decrease of
4 percent ($11.1 billion, adjusting for currency, down 5 percent). Short-term
signings increased 13 percent, at actual rates, to $6.1 billion (up 8 percent to
$5.2 billion, adjusting for currency). The company ended the third quarter with
an estimated services backlog, including Strategic Outsourcing, Business
Transformation Outsourcing, Integrated Technology Services, Global Business
Services and Maintenance, of $114 billion, adjusting for currency.
Revenues from the Systems and Technology segment totaled $4.4 billion for the
quarter, down 10 percent (11 percent, adjusting for currency). Systems revenues
decreased 7 percent (8 percent, adjusting for currency). Revenues from System z
mainframe server products increased 25 percent compared with the year-ago
period, with double-digit growth in all geographies. Total delivery of System z
computing power, which is measured in MIPS (millions of instructions per
second), increased 49 percent. Revenues from the converged System p server
products increased 7 percent compared with the 2007 period. Revenues from the
System x servers decreased 18 percent, and revenues from the System i servers
decreased 82 percent. Revenues from System Storage decreased 3 percent, and
revenues from Retail Store Solutions decreased 24 percent. Revenues from
Microelectronics OEM decreased 27 percent.
Revenues from the Software segment were $5.2 billion, an increase of 12 percent
(8 percent, adjusting for currency) compared with the third quarter of 2007.
Revenues from IBM's total middleware products, which primarily include
WebSphere, Information Management, Tivoli, Lotus and Rational products, were
$4.1 billion, up 12 percent versus the third quarter of 2007. Operating systems
revenues of $594 million increased 5 percent compared with the prior-year
quarter.
For the WebSphere family of software products, which facilitate customers'
ability to manage a wide variety of business processes using open standards to
interconnect applications, data and operating systems, revenues increased 4
percent. Revenues for Information Management software, which enables clients to
leverage information on demand, increased 26 percent. Revenues from Tivoli
software, infrastructure software that enables clients to centrally manage
networks including security and storage capability, increased 2 percent, and
revenues for Lotus software, which allows collaborating and messaging by clients
in real-time communication and knowledge management, increased 10 percent year
over year. Revenues from Rational software, integrated tools to improve the
processes of software development, increased 23 percent compared with the
year-ago quarter.
Global Financing segment revenues increased 2 percent (down 1 percent, adjusting
for currency) in the third quarter to $633 million. Financing revenues increased
6 percent.
The company's total gross profit margin was 43.3 percent in the 2008 third
quarter compared with 41.3 percent in the 2007 period, led by strong performance
in both services segments and software.
Total expense and other income increased 6 percent to $7.1 billion compared with
the prior-year period. Adjusting for currency and estimated acquisitions
performance, total expense and other income decreased 4 percent year over year.
SG&A expense increased 6 percent to $5.6 billion. RD&E expense increased 4
percent compared with the year-ago period. Intellectual property and custom
development income decreased to $267 million compared with $270 million a year
ago. Other (income) and expense was income of $51 million, down from $95
million. Interest expense decreased to $159 million compared with $193 million.
IBM's effective tax rate in the third-quarter 2008 was 27.5 percent compared
with 28.0 percent in the third quarter of 2007.
Shares repurchased in the third quarter were approximately $2.7 billion on a
cash-paid basis. The weighted-average number of diluted common shares
outstanding in the third-quarter 2008 was 1.38 billion compared with 1.41
billion shares in the same period of 2007. As of September 30, 2008, there were
1.34 billion basic common shares outstanding.
Debt, including Global Financing, totaled $34.4 billion, compared with $35.3
billion at year-end 2007. From a management segment view, Global Financing debt
totaled $24.5 billion at September 30, 2008 and at year-end 2007, resulting in a
debt-to-equity ratio of 7.1 to 1. Non-global financing debt totaled $9.9
billion, a decrease of $0.8 billion since year-end 2007, resulting in a
debt-to-capitalization ratio of 29.1 percent from 30.0 percent at year-end 2007.
The cash balance was $9.8 billion at the end of the third quarter.
Year-To-Date 2008 Results
Income from continuing operations for the nine months ended September 30, 2008
was $7.9 billion compared with $6.5 billion in the year-ago period, an increase
of 22 percent. Diluted earnings per share from continuing operations were $5.68
compared with $4.42 per diluted share for the 2007 period, an increase of 29
percent. Revenues from continuing operations for the nine-month period totaled
$76.6 billion, an increase of 10 percent (4 percent, adjusting for currency)
compared with $69.9 billion for the nine months of 2007.
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, including the company's failure
to continue to develop and market new and innovative products and services and
to keep pace with technological change; competitive pressures; failure to obtain
or protect intellectual property rights; breaches of the company's data security
measures; changes in the economic environment and corporate IT spending budgets;
fluctuations in revenues and purchases, and volatility of stock prices; the
company's ability to attract and retain key personnel and its reliance on
critical skills; adverse affects from tax matters; environmental matters;
currency fluctuations and customer financing risks; customer credit risk on
receivables; risks from investing in growth opportunities; the company's failure
to maintain the adequacy of its internal controls; the company's use of certain
estimates and assumptions; dependence on certain suppliers; changes in the
financial or business condition of the company's distributors or resellers; the
company's ability to successfully manage acquisitions and alliances; failure to
have sufficient insurance; legal, political, health and economic conditions;
risk factors related to IBM securities; and other risks, uncertainties and
factors discussed in the company's Form 10-Q, Form 10-K and in the company's
other filings with the U.S. Securities and Exchange Commission (SEC) or in
materials incorporated therein by reference. The company assumes no obligation
to update or revise any forward-looking statements.
Presentation of Information in this Press Release
In an effort to provide investors with additional information regarding the
company's results as determined by generally accepted accounting principles
(GAAP), the company has also disclosed in this press release the following
non-GAAP information which management believes provides useful information to
investors:
IBM Results -
-- adjusting for currency (i.e., at constant currency).
The rationale for management's use of non-GAAP measures is included as part of
the supplementary materials presented within the third-quarter earnings
materials. These materials are available on the IBM investor relations Web site
at www.ibm.com/investor and are being included in Attachment II ('Non-GAAP
Supplementary Materials') to the Form 8-K that includes this press release and
is being submitted today to the SEC.
Conference Call and Webcast
IBM's regular quarterly earnings conference call is scheduled to begin at 4:30
p.m. EDT, today. Investors may participate by viewing the Webcast at
www.ibm.com/investor/3q08. Presentation charts will be available on the Web site
prior to the Webcast.
Financial Results Attached (certain amounts may not add due to use of rounded
numbers; percentages presented are calculated from the underlying whole-dollar
amounts).
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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
2008 2007 Change 2008 2007 Change
--------- --------- ------- --------- --------- -------
REVENUE
Global
Technology
Services $ 9,864 $ 9,093 8.5% $ 29,640 $ 26,106 13.5%
Gross margin 32.7% 30.6% 31.9% 29.9%
Global
Business
Services 4,900 4,586 6.8% 14,918 13,108 13.8%
Gross margin 27.4% 22.9% 26.1% 23.7%
Systems and
Technology 4,431 4,898 -9.5% 13,862 14,520 -4.5%
Gross margin 36.2% 38.5% 37.3% 36.9%
Software 5,249 4,694 11.8% 15,670 13,723 14.2%
Gross margin 84.7% 84.2% 84.4% 84.3%
Global
Financing 633 623 1.7% 1,900 1,834 3.6%
Gross margin 49.1% 44.6% 51.8% 47.2%
Other 224 225 -0.4% 633 630 0.6%
Gross margin 15.7% 2.7% 0.6% 11.2%
TOTAL REVENUE 25,302 24,119 4.9% 76,623 69,920 9.6%
GROSS PROFIT 10,959 9,956 10.1% 32,725 28,760 13.8%
Gross margin 43.3% 41.3% 42.7% 41.1%
EXPENSE AND
OTHER INCOME
S,G&A 5,644 5,324 6.0% 17,553 16,044 9.4%
% of revenue 22.3% 22.1% 22.9% 22.9%
R,D&E 1,579 1,524 3.6% 4,809 4,568 5.3%
% of revenue 6.2% 6.3% 6.3% 6.5%
Intellectual
property and
custom
development
income (267) (270) -1.3% (825) (721) 14.4%
Other
(income) and
expense (51) (95) -46.0% (201) (528) -61.9%
Interest
expense 159 193 -17.7% 482 396 21.6%
TOTAL EXPENSE
AND OTHER
INCOME 7,064 6,676 5.8% 21,818 19,759 10.4%
% of revenue 27.9% 27.7% 28.5% 28.3%
INCOME FROM
CONTINUING
OPERATIONS
BEFORE
INCOME TAXES 3,895 3,280 18.7% 10,907 9,001 21.2%
Pre-tax
margin 15.4% 13.6% 14.2% 12.9%
Provision for
income taxes 1,071 918 16.6% 2,999 2,534 18.4%
Effective
tax rate 27.5% 28.0% 27.5% 28.2%
INCOME FROM
CONTINUING
OPERATIONS $ 2,824 $ 2,362 19.6% $ 7,907 $ 6,467 22.3%
Net margin 11.2% 9.8% 10.3% 9.2%
DISCONTINUED
OPERATIONS
Loss from
discontinued
operations --- (1) --- (1)
NET INCOME $ 2,824 $ 2,361 19.6% $ 7,907 $ 6,466 22.3%
========= ========= ======= ========= ========= =======
EARNINGS /
(LOSS) PER
SHARE OF
COMMON STOCK:
ASSUMING
DILUTION
CONTINUING
OPERATIONS $ 2.05 $ 1.68 22.0% $ 5.68 $ 4.42 28.5%
DISCONTINUED
OPERATIONS --- (0.00) --- (0.00)
--------- --------- --------- ---------
TOTAL $ 2.05 $ 1.68 22.0% $ 5.68 $ 4.42 28.5%
========= ========= ========= =========
BASIC
CONTINUING
OPERATIONS $ 2.09 $ 1.72 21.5% $ 5.79 $ 4.50 28.7%
DISCONTINUED
OPERATIONS --- (0.00) --- (0.00)
--------- --------- --------- ---------
TOTAL $ 2.09 $ 1.72 21.5% $ 5.79 $ 4.50 28.7%
========= ========= ========= =========
WEIGHTED-
AVERAGE
NUMBER OF
COMMON SHARES
OUTSTANDING
(M's)
ASSUMING
DILUTION 1,379.1 1,405.8 1,393.1 1,463.1
BASIC 1,350.7 1,371.4 1,366.7 1,436.0
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INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
At At
(Dollars in millions) September 30, December 31, Percent
2008 2007 Change
-------------- ------------ -------
ASSETS
Cash, cash equivalents,
and marketable securities $ 9,755 $ 16,146 -39.6%
Receivables - net, inventories,
prepaid expenses 34,432 37,031 -7.0%
Plant, rental machines,
and other property - net 14,659 15,081 -2.8%
Investments and other assets 57,064 52,172 9.4%
-------------- ------------
TOTAL ASSETS $115,910 $120,431 -3.8%
============== ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Short-term debt $ 16,181 $ 12,235 32.2%
Long-term debt 18,232 23,039 -20.9%
-------------- ------------
Total debt 34,413 35,274 -2.4%
Accounts payable, taxes,
and accruals 28,571 32,076 -10.9%
Other liabilities 25,407 24,612 3.2%
-------------- ------------
TOTAL LIABILITIES 88,391 91,962 -3.9%
STOCKHOLDERS' EQUITY 27,519 28,470 -3.3%
-------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $115,910 $120,431 -3.8%
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INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
THIRD-QUARTER 2008
---------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) -------- Revenue -------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- -------- ---------- -------
SEGMENTS
Global Technology
Services $ 9,864 $ 384 $10,248 $ 1,189 11.6%
Y-T-Y Change 8.5% -5.8% 7.9% 15.6%
Global Business Services 4,900 259 5,160 724 14.0%
Y-T-Y Change 6.8% -6.0% 6.1% 38.9%
Systems and Technology 4,431 223 4,654 283 6.1%
Y-T-Y Change -9.5% -5.6% -9.4% -21.7%
Software 5,249 655 5,904 1,527 25.9%
Y-T-Y Change 11.8% 14.8% 12.1% 19.0%
Global Financing 633 456 1,090 349 32.0%
Y-T-Y Change 1.7% 31.3% 12.3% 3.2%
TOTAL REPORTABLE
SEGMENTS 25,077 1,978 27,055 4,072 15.1%
Y-T-Y Change 5.0% 7.6% 5.1% 15.3%
Eliminations / Other 224 (1,978) (1,753) (177)
TOTAL IBM CONSOLIDATED $25,302 $ 0 $25,302 $ 3,895 15.4%
Y-T-Y Change 4.9% 4.9% 18.7%
THIRD-QUARTER 2007
---------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) -------- Revenue -------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- -------- ---------- -------
SEGMENTS
Global Technology
Services $ 9,093 $ 408 $ 9,501 $ 1,028 10.8%
Global Business Services 4,586 276 4,862 521 10.7%
Systems and Technology 4,898 236 5,134 361 7.0%
Software 4,694 571 5,265 1,283 24.4%
Global Financing 623 348 970 339 34.9%
TOTAL REPORTABLE
SEGMENTS 23,894 1,838 25,732 3,532 13.7%
Eliminations / Other 225 (1,838) (1,613) (252)
TOTAL IBM CONSOLIDATED $24,119 $ 0 $24,119 $ 3,280 13.6%
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INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
NINE-MONTHS 2008
---------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) -------- Revenue -------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- -------- ---------- -------
SEGMENTS
Global Technology
Services $29,640 $ 1,162 $30,803 $ 3,171 10.3%
Y-T-Y Change 13.5% -6.4% 12.6% 27.0%
Global Business Services 14,918 776 15,694 1,940 12.4%
Y-T-Y Change 13.8% -14.3% 12.0% 31.4%
Systems and Technology 13,862 633 14,495 829 5.7%
Y-T-Y Change -4.5% -16.6% -5.1% 5.0%
Software 15,670 2,041 17,711 4,286 24.2%
Y-T-Y Change 14.2% 19.8% 14.8% 20.1%
Global Financing 1,900 1,367 3,267 1,165 35.7%
Y-T-Y Change 3.6% 31.8% 13.8% 11.6%
TOTAL REPORTABLE
SEGMENTS 75,990 5,980 81,970 11,391 13.9%
Y-T-Y Change 9.7% 5.9% 9.4% 21.5%
Eliminations / Other 633 (5,980) (5,347) (484)
TOTAL IBM CONSOLIDATED $76,623 $ 0 $76,623 $10,907 14.2%
Y-T-Y Change 9.6% 9.6% 21.2%
NINE-MONTHS 2007
---------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) -------- Revenue -------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- -------- ---------- -------
SEGMENTS
Global Technology
Services $26,106 $ 1,243 $27,348 $ 2,497 9.1%
Global Business Services 13,108 906 14,014 1,477 10.5%
Systems and Technology 14,520 758 15,279 789 5.2%
Software 13,723 1,704 15,427 3,569 23.1%
Global Financing 1,834 1,037 2,871 1,045 36.4%
TOTAL REPORTABLE
SEGMENTS 69,291 5,648 74,939 9,376 12.5%
Eliminations / Other 630 (5,648) (5,018) (375)
TOTAL IBM CONSOLIDATED $69,920 $ 0 $69,920 $ 9,001 12.9%
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IBM
John Bukovinsky, 732/618-3531
jbuko@us.ibm.com
or
Michael Fay, 914/499-6435
mikefay@us.ibm.com
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