IBM REPORTS 2010 SECOND-QUARTER RESULTS

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ARMONK, N.Y., July 19, 2010 . . . IBM (NYSE: IBM) today announced second-quarter 2010 diluted earnings of $2.61 per share compared with diluted earnings of $2.32 per share in the second quarter of 2009, an increase of 13 percent.

Second-quarter net income was $3.4 billion compared with $3.1 billion in the second quarter of 2009, an increase of 9 percent. Total revenues for the second quarter of 2010 of $23.7 billion increased 2 percent (2 percent, adjusting for currency) from the second quarter of 2009. The impact of changes in currency rates since IBM's first-quarter earnings report in April reduced revenue by approximately $500 million in the second quarter.

The estimated services backlog at March 31 was $134 billion at actual rates compared with $126 billion in the first-quarter 2009.

"In the second quarter we again delivered double-digit earnings-per-share growth, increased margins, as well as improving constant-currency revenue performance in our ongoing software, services and hardware businesses, and in all geographies," said Samuel J. Palmisano, IBM chairman, president and chief executive officer.

"With the benefit of our strategic growth investments, our mix of higher-value business and the introduction of new System z and Power Systems, we are confident of our ability in the second half of the year to continue our strong business performance, grow profit and drive shareholder returns. As a result, we expect full-year 2010 diluted earnings per share of at least $11.25."

From a geographic perspective, the Americas' second-quarter revenues were $10.2 billion, an increase of 3 percent (2 percent, adjusting for currency) from the 2009 period. Revenues from Europe/Middle East/Africa were $7.4 billion, down 6 percent (1 percent, adjusting for currency). Asia-Pacific revenues increased 9 percent (3 percent, adjusting for currency) to $5.4 billion. OEM revenues were $677 million, up 26 percent compared with the 2009 second quarter. Revenues from the company's growth markets organization increased 14 percent (9 percent, adjusting for currency) and represented 20 percent of IBM's total geographic revenue in the quarter. In the first half, revenue for the growth markets organization was as large as the total revenue of the Euro zone countries for the first time.

Total Global Services revenues increased 2 percent (1 percent, adjusting for currency). Global Technology Services segment revenues increased 1 percent (flat, adjusting for currency) to $9.2 billion. Global Business Services segment revenues were up 3 percent (3 percent, adjusting for currency) at $4.5 billion.

IBM signed services contracts totaling $12.3 billion, at actual rates, a decrease of 12 percent (12 percent, adjusting for currency). In the quarter, 15 services contracts greater than $100 million were signed compared with 13 contracts last quarter.

Total Outsourcing services (GTS Outsourcing and Application Management Outsourcing) signings decreased 19 percent (19 percent, adjusting for currency) to $6.5 billion. Signings of larger new-business outsourcing services contracts, which result in more immediate revenue than contract extensions, had strong growth.

Signings in Transactional services (Consulting, Integrated Technology Services and Application Management Systems Integration) were $5.8 billion, a decrease of 3 percent (3 percent, adjusting for currency).

The estimated services backlog at June 30 was $129 billion at actual rates, down $2 billion year over year (up $1 billion, adjusting for currency).

Revenues from the Software segment were $5.3 billion, an increase of 2 percent (2 percent, adjusting for currency), or 6 percent excluding the first-quarter divestiture of the Product Lifecycle Management operations (PLM), compared with the second quarter of 2009. Revenues from IBM's key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.3 billion, an increase of 9 percent (10 percent, adjusting for currency) versus the second quarter of 2009. Operating systems revenues of $544 million increased 3 percent (2 percent, adjusting for currency) compared with the prior-year quarter.

Revenues from the WebSphere family of software products, which delivers capabilities that enable clients to integrate and manage business processes across the organization, increased 17 percent year over year. Revenues from Information Management software, which enables clients to integrate, manage and use information to gain business value, increased 7 percent. Revenues from Tivoli software, which helps clients manage technology and business assets by providing visibility, control and automation across the organization, increased 18 percent, and revenues from Lotus software, which connects people and processes for more effective communication and increased productivity through collaboration, messaging and social networking software, decreased 6 percent. Revenues from Rational software, which supports software development for both IT and embedded system solutions, increased 1 percent.

Revenues from the company's Business Analytics operations within Global Business Services and Software increased 14 percent.

Revenues from the Systems and Technology segment totaled $4.0 billion for the quarter, up 3 percent (4 percent, adjusting for currency) from the second quarter of 2009. Systems revenues increased 1 percent (2 percent, adjusting for currency). Revenues from the System x increased 30 percent. Revenues from Power Systems decreased 10 percent compared with the 2009 period. Revenues from System z mainframe server products decreased 24 percent compared with the year-ago period. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), decreased 14 percent. Revenues from System Storage increased 5 percent, and revenues from Retail Store Solutions increased 31 percent. Revenues from Microelectronics OEM increased 23 percent.

Global Financing segment revenues decreased 4 percent (5 percent, adjusting for currency) in the second quarter to $544 million.

The company's total gross profit margin was 45.6 percent in the 2010 second quarter compared with 45.5 percent in the 2009 second-quarter period, led by improving margins in Software and Global Business Services.

Total expense and other income decreased 1 percent to $6.2 billion compared with the prior-year period. SG&A expense of $5.1 billion decreased 1 percent year over year compared with prior-year expense. RD&E expense of $1.5 billion increased 3 percent compared with the year-ago period. Intellectual property and custom development income decreased to $297 million compared with $302 million a year ago. Other (income) and expense was income of $95 million compared with prior-year income of $28 million. Interest expense decreased to $90 million compared with $101 million in the prior year.

IBM's tax rate in the second-quarter 2010 was 26.0 percent compared with 27.2 percent in the second quarter of 2009.

The weighted-average number of diluted common shares outstanding in the second-quarter 2010 was 1.30 billion compared with 1.34 billion shares in the same period of 2009. As of June 30, 2010, there were 1.26 billion basic common shares outstanding.

Debt, including Global Financing, totaled $26.7 billion, compared with $26.1 billion at year-end 2009. From a management segment view, Global Financing debt totaled $21.2 billion versus $22.4 billion at year-end 2009, resulting in a debt-to-equity ratio of 7.1 to 1. Non-global financing debt totaled $5.5 billion, an increase of $1.7 billion since year-end 2009, resulting in a debt-to-capitalization ratio of 23.1 percent from 16.0 percent.

IBM ended the second-quarter 2010 with $12.2 billion of cash on hand and generated free cash flow of $3.0 billion, down approximately $400 million year over year. Free cash flow for the first half of the year was $4.4 billion, flat year over year. The company returned $4.9 billion to shareholders through $0.8 billion in dividends and $4.1 billion of share repurchases. The balance sheet remains strong, and the company is well positioned to support its full-year objectives.

Year-To-Date 2010 Results
Net income for the six months ended June 30, 2010 was $6.0 billion compared with $5.4 billion in the year-ago period, an increase of 11 percent. Diluted earnings per share were $4.57 compared with $4.02 per diluted share for the 2009 period, an increase of 14 percent. Revenues for the six-month period totaled $46.6 billion, an increase of 4 percent (1 percent, adjusting for currency) compared with $45.0 billion for the six months of 2009.

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. Forward-looking statements are based on the company's current assumptions regarding future business and financial performance. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including the following: a downturn in economic environment and corporate IT spending budgets; the company's failure to meet growth and productivity objectives, a failure of the company's innovation initiatives; risks from investing in growth opportunities; failure of the company's intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; breaches of data security; fluctuations in revenue and purchases, impact of local legal, economic, political and health conditions; adverse effects from environmental matters, tax matters and the company's pension plans; ineffective internal controls; the company's use of accounting estimates; the company's ability to attract and retain key personnel and its reliance on critical skills; impact of relationships with critical suppliers; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; reliance on third party distribution channels; the company's ability to successfully manage acquisitions and alliances; 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. Any forward-looking statement in this release speaks only as of the date on which it is made. 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 -

  • presenting non-global financing debt-to-capitalization ratio;
  • adjusting for free cash flow;
  • adjusting for currency (i.e., at constant currency);
  • excluding divested PLM operations.

The rationale for management's use of non-GAAP measures is included as part of the supplementary materials presented within the second-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/2q10. Presentation charts will be available on the Web site shortly before the Webcast.

Financial Results Below (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                Six Months
                          Ended June 30,             Ended June 30,
                                      Percent                    Percent
                       2010     2009   Change     2010     2009   Change
                    -------  -------  -------  -------  -------  -------
REVENUE
 
 Global Technology
 Services            $9,234   $9,108      1.4% $18,540  $17,862      3.8%
  Gross margin         34.6%    34.8%             34.5%    34.3%
 
 Global Business
 Services             4,483    4,338      3.3%   8,893    8,736      1.8%
  Gross margin         28.5%    27.2%             27.9%    26.8%
 
 Software             5,277    5,166      2.1%  10,296    9,705      6.1%
  Gross margin         87.1%    85.9%             85.9%    85.1%
 
 Systems and
 Technology           3,985    3,855      3.4%   7,370    7,083      4.1%
  Gross margin         36.1%    37.1%             34.9%    35.7%
 
 Global Financing       544      568     -4.1%   1,081    1,146     -5.6%
  Gross margin         50.1%    47.1%             49.9%    46.5%
 
 Other                  200      215     -7.0%     400      429     -6.8%
  Gross margin         17.7%    47.4%             -8.9%    50.1%
 
TOTAL REVENUE        23,724   23,250      2.0%  46,581   44,962      3.6%
 
 
GROSS PROFIT         10,809   10,581      2.2%  20,785   20,012      3.9%
  Gross margin         45.6%    45.5%             44.6%    44.5%
 
 
EXPENSE AND OTHER INCOME
 
 S,G&A                5,061    5,115     -1.1%  10,737   10,379      3.5%
  % of revenue         21.3%    22.0%             23.1%    23.1%
 
 R,D&E                1,475    1,434      2.9%   2,984    2,914      2.4%
  % of revenue          6.2%     6.2%              6.4%     6.5%
 
 Intellectual property
  and custom development
  income               (297)    (302)    -1.8%    (558)    (570)    -2.1%
 Other (income)
   and expense          (95)     (28)      nm     (640)    (331)    93.2%
 Interest expense        90      101    -11.1%     172      237    -27.5% 
 
TOTAL EXPENSE AND
OTHER INCOME          6,234    6,319     -1.4%  12,695   12,628      0.5%
  % of revenue         26.3%    27.2%             27.3%    28.1%
 
INCOME BEFORE
INCOME TAXES          4,575    4,262      7.3%   8,090    7,385      9.6%
  Pre-tax margin       19.3%    18.3%             17.4%    16.4%
 
Provision for
income taxes          1,190    1,159      2.6%   2,103    1,986      5.9%
  Effective tax
  rate                 26.0%    27.2%             26.0%    26.9%
 
NET INCOME           $3,386   $3,103      9.1%  $5,987   $5,398     10.9%
                     ======   ======            ======   ======
  Net margin           14.3%    13.3%             12.9%    12.0%
 
EARNINGS PER SHARE
OF COMMON STOCK:
 
  ASSUMING DILUTION   $2.61    $2.32     12.5%   $4.57    $4.02     13.7%
  BASIC               $2.65    $2.34     13.2%   $4.64    $4.04     14.9%
 
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING (M's):
  ASSUMING DILUTION 1,296.7  1,336.9           1,309.2  1,343.2
  BASIC             1,278.6  1,326.1           1,289.9  1,335.2
 
nm - not meaningful
 

            INTERNATIONAL BUSINESS MACHINES CORPORATION
           CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                         (Unaudited)
 
 
(Dollars in Millions)                                At June 30, At December 31,
                                                       2010          2009
                                                     ----------  --------------
ASSETS
 
Current Assets:
Cash and cash equivalents                              $10,325         $12,183
Marketable securities                                    1,916           1,791
Notes and accounts receivable - trade
    (net of allowances of $291 in 2010 and $217 in
     2009)                                               9,051          10,736
Short-term financing receivables
    (net of allowances of $376 in 2010 and $438 in
     2009)                                              13,301          14,914
Other accounts receivable
    (net of allowances of $11 in 2010 and $15 in  
     2009)                                               1,140           1,143
Inventories, at lower of average cost or market:
  Finished goods                                           493             533
  Work in process and raw materials                      2,102           1,960
                                                      --------        --------
Total inventories                                        2,595           2,494
Deferred taxes                                           1,444           1,730
Prepaid expenses and other current assets                5,124           3,946
                                                      --------        --------
Total Current Assets                                    44,895          48,935
 
Plant, rental machines, and other property              38,292          39,596
   Less: Accumulated depreciation                       24,758          25,431
                                                      --------        --------                                                                                                                                
Plant, rental machines, and other property - net        13,534          14,165
Long-term financing receivables
    (net of allowances of $84 in 2010 and $97 in 
     2009)                                               9,185          10,644
Prepaid pension assets                                   3,575           3,001
Deferred taxes                                           3,122           4,195
Goodwill                                                20,544          20,190
Intangible assets - net                                  2,526           2,513
Investments and sundry assets                            6,038           5,379
                                                      --------        --------
Total Assets                                          $103,420        $109,022
                                                      ========        ========
LIABILITIES AND EQUITY
 
Current Liabilities:
Taxes                                                   $2,895          $3,826
Short-term debt                                          5,633           4,168
Accounts payable                                         7,233           7,436
Compensation and benefits                                4,022           4,505
Deferred income                                         10,671          10,845
Other accrued expenses and liabilities                   4,539           5,223
                                                      --------        --------
Total Current Liabilities                               34,993          36,002
 
Long-term debt                                          21,017          21,932
Retirement and nonpension postretirement
   benefit obligations                                  14,598          15,953
Deferred income                                          3,341           3,562
Other liabilities                                        8,295           8,819
                                                      --------        --------
Total Liabilities                                       82,244          86,267
 
Contingencies and Commitments
 
Equity:
IBM Stockholders' Equity:
  Common stock                                          43,522          41,810
  Retained earnings                                     85,323          80,900
  Treasury stock -- at cost                            (89,276)        (81,243)
  Accumulated other comprehensive income/(loss)        (18,510)        (18,830)
                                                      --------        --------
  Total IBM stockholders' equity                        21,059          22,637
 
Noncontrolling interests                                   117             118
                                                      --------        --------
Total Equity                                            21,176          22,755
                                                      --------        --------
Total Liabilities and Equity                          $103,420        $109,022
                                                      ========        ========


                INTERNATIONAL BUSINESS MACHINES CORPORATION
                          CASH FLOW ANALYSIS
                             (Unaudited)
 
                                            Three Months Ended   Six Months Ended
(Dollars in Millions)                             June 30,            June 30,
                                               2010      2009      2010      2009
                                             -------   -------   -------   -------
Net Cash from Operations                      $3,766    $4,741    $8,203    $9,127
 
     Less: Global Financing (GF) Accounts
           Receivable                           (218)      430     1,883     3,014
 
Net Cash from Operations
     (Excluding GF Accounts Receivable)        3,985     4,311     6,320     6,113
 
     Net Capital Expenditures                   (970)     (864)   (1,873)   (1,624)
 
Free Cash Flow
     (Excluding GF Accounts Receivable)        3,015     3,447     4,446     4,490
 
     Acquisitions                               (185)      (79)   (1,009)     (100)
     Divestitures                                 0         0         0       356
     Share Repurchase                         (4,104)   (1,670)   (8,121)   (3,436)
     Dividends                                  (833)     (732)   (1,551)   (1,407)
     Non-GF Debt                                 920      (266)    1,261    (2,181)
     Other (including GF Accounts Receivable,
            GF Debt)                            (548)     (469)    3,241     1,898
 
Change in Cash and Marketable Securities     ($1,736)     $231   ($1,732)    ($381)
 

                 INTERNATIONAL BUSINESS MACHINES CORPORATION
                               SEGMENT DATA
                                (Unaudited)
 
                                         SECOND-QUARTER 2010
                            ----------------------------------------------
(Dollars in Millions)       --------- Revenue ---------   Pre-tax  Pre-tax
                            External Internal     Total    Income   Margin
                            -------- --------  --------   -------  -------
SEGMENTS
 
Global Technology Services   $9,234     $332    $9,566    $1,422     14.9%
  Y-T-Y Change                  1.4%    -3.0%      1.2%      1.2%
 
Global Business Services      4,483      197     4,680       683     14.6%
  Y-T-Y Change                  3.3%   -12.0%      2.6%     12.3%
 
Software                      5,277      690     5,967     1,988     33.3%
  Y-T-Y Change                  2.1%    12.4%      3.2%      7.4%
 
Systems and Technology        3,985      202     4,187       221      5.3%
  Y-T-Y Change                  3.4%   -16.9%      2.2%    -33.8%
 
Global Financing                544      431       975       463     47.4%
  Y-T-Y Change                 -4.1%    -3.5%     -3.9%     -0.5%
 
TOTAL REPORTABLE SEGMENTS    23,523    1,852    25,376     4,777     18.8%
  Y-T-Y Change                  2.1%    -0.9%      1.9%      2.4%
 
Eliminations / Other            200   (1,852)   (1,652)     (202)
 
TOTAL IBM CONSOLIDATED      $23,724       $0   $23,724    $4,575     19.3%
  Y-T-Y Change                  2.0%               2.0%      7.3%
 
 
                                         SECOND-QUARTER 2009
                            ---------------------------------------------
(Dollars in Millions)       --------- Revenue ---------   Pre-tax  Pre-tax
                            External Internal     Total    Income   Margin
                            -------- --------  --------   -------  -------
SEGMENTS
 
Global Technology Services   $9,108     $343    $9,451    $1,405     14.9%
 
Global Business Services      4,338      223     4,562       608     13.3%
 
Software                      5,166      614     5,780     1,852     32.0%
 
Systems and Technology        3,855      244     4,098       333      8.1%
 
Global Financing                568      447     1,014       465     45.8%
 
TOTAL REPORTABLE SEGMENTS    23,035    1,870    24,905     4,663     18.7%
 
Eliminations / Other            215   (1,870)   (1,655)     (401)
 
TOTAL IBM CONSOLIDATED      $23,250       $0   $23,250    $4,262     18.3%
 
 


                 INTERNATIONAL BUSINESS MACHINES CORPORATION
                                SEGMENT DATA
                                 (Unaudited)
 
                                            SIX-MONTHS 2010
                            ----------------------------------------------
(Dollars in Millions)       --------- Revenue ---------   Pre-tax  Pre-tax
                            External Internal     Total    Income   Margin
                            -------- --------  --------   -------  -------
SEGMENTS
 
Global Technology Services  $18,540     $652   $19,192    $2,387     12.4%
  Y-T-Y Change                  3.8%    -4.7%      3.5%     -4.9%
 
Global Business Services      8,893      400     9,293     1,128     12.1%
  Y-T-Y Change                  1.8%   -12.2%      1.1%     -0.1%
 
Software                     10,296    1,448    11,743     4,040     34.4%
  Y-T-Y Change                  6.1%    18.0%      7.4%     26.8%
 
Systems and Technology        7,370      376     7,746        51      0.7%
  Y-T-Y Change                  4.1%   -10.5%      3.2%    -85.9%
 
Global Financing              1,081      834     1,916       890     46.5%
  Y-T-Y Change                 -5.6%    -0.3%     -3.4%      7.9%
 
TOTAL REPORTABLE SEGMENTS    46,181    3,710    49,891     8,496     17.0%
  Y-T-Y Change                  3.7%     2.4%      3.6%      6.0%
 
Eliminations / Other            400   (3,710)   (3,310)     (406)
 
TOTAL IBM CONSOLIDATED      $46,581       $0   $46,581    $8,090     17.4%
  Y-T-Y Change                  3.6%               3.6%      9.6%
 
 
                                            SIX-MONTHS 2009
                            ----------------------------------------------
(Dollars in Millions)       --------- Revenue ---------   Pre-tax  Pre-tax
                            External Internal     Total    Income   Margin
                            -------- --------  --------   -------  -------
SEGMENTS
 
Global Technology Services  $17,862     $685   $18,547    $2,509     13.5%
 
Global Business Services      8,736      456     9,191     1,130     12.3%
 
Software                      9,705    1,227    10,933     3,186     29.1%
 
Systems and Technology        7,083      420     7,503       361      4.8%
 
Global Financing              1,146      836     1,982       825     41.6%
 
TOTAL REPORTABLE SEGMENTS    44,533    3,624    48,156     8,011     16.6%
 
Eliminations / Other            429   (3,624)   (3,195)     (627)
 
TOTAL IBM CONSOLIDATED      $44,962       $0   $44,962    $7,385     16.4%
 


Contact:  IBM
          Mike Fay, 914/499-6107
          mikefay@us.ibm.com

          John Bukovinsky, 732/618-3531
          jbuko@us.ibm.com