International Business Machines Corporation · NYSE:IBM

International Business Machines — Q2 2003 Earnings Presentation

23 slides from International Business Machines's earnings presentation, July 2003

  1. Slide 1: IBM 2Q 2003 Earnings Presentation

    -1- IBM 2Q 2003 Earnings Presentation July 2003

  2. Slide 2: Forward-looking statements

    -2- Certain comments made in this presentation may be characterized as forward looking under the Private Securities Litigation Reform Act of 1995. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is con

  3. Slide 3: IBM Financial Summary

    -3- IBM FINANCIAL SUMMARY Continuing Operations Yr/Yr B/(W) B/(W) w/o $1.6B 1Q03 Yr/Yr 2Q03 Yr/Yr 2Q02 Chgs Revenue $20.1B 11% $21.6B 10% @CC 4% 3% GP% 36.0% (0.1 pts) 37.0% -- E/R% 26.2% (0.2 pts) 25.6% 8.4 pts 0.1 pt Pre-Tax Income 2.0B 9% 2.5B 314% 11% PTI% 9.9% (0.2 pts) 11.4% 8.4 pts 0.1 pt Tax

  4. Slide 4: IBM Revenue

    -4- IBM REVENUE B/(W) Yr/Yr B/(W) Yr/Yr % of ($B) 1Q03 Rptd @CC 2Q03 Rptd @CC 1H Rev Global Services 10.2 24% 15% 10.6 23% 14% 50% Hardware 5.8 (1%) (6%) 6.6 (1%) (6%) 30% Software 3.1 8% 2% 3.5 6% (2%) 16% Global Financing 0.7 (10%) (15%) 0.7 (18%) (24%) 3% Enterprise Inv. / Other 0.3 7% (2%) 0.2 6

  5. Slide 5: IBM Geographic Revenue

    -5- IBM GEOGRAPHIC REVENUE B/(W) Yr/Yr B/(W) Yr/Yr % of ($B) 1Q03 Rptd @CC 2Q03 Rptd @CC 1H Rev Americas 8.6 5% 7% 9.5 5% 5% 43% Europe/ME/A 6.3 23% 3% 6.9 23% 3% 32% Asia Pacific 4.5 14% 5% 4.6 12% 6% 22% OEM 0.7 (15%) (16%) 0.6 (30%) (31%) 3% IBM 20.1 11% 4% 21.6 10% 3% 100%

  6. Slide 6: IBM Revenue - Key Industry Sectors

    -6- IBM REVENUE - KEY INDUSTRY SECTORS B/(W) Yr/Yr B/(W) Yr/Yr% of 1H ($B) 1Q03 Rptd @CC 2Q03 Rptd @CC Geo Rev Financial Services 4.8 11% 3% 5.3 8% -- 25% Public 3.0 19% 11% 3.4 19% 13% 16% Industrial 2.6 13% 4% 2.8 17% 9% 13% Distribution 1.9 12% 4% 1.9 2% (4%) 9% Communications 1.8 8% 2% 2.0 15% 8

  7. Slide 7: IBM Gross Profit Margin

    -7- IBM GROSS PROFIT MARGIN B/(W) B/(W) % of 1Q03 Yr/Yr 2Q03 Yr/Yr 1H Rev Global Services 24.9% (1.1 pts) 25.9% (0.4 pts) 50% Hardware 26.6% 2.1 pts 26.9% 2.1 pts 30% Software 84.6% 3.5 pts 86.2% 1.5 pts 16% Global Financing 58.9% 2.3 pts 54.6% (2.2 pts) 3% Enterprise Inv./Other 36.7% (19.5 pts) 41.

  8. Slide 8: IBM Expense Summary

    -8- IBM EXPENSE SUMMARY ($B) B/(W) B/(W) 2Q02 Yr/Yr 1Q03 Yr/Yr 2Q03 Yr/Yr Charges w/o Chgs SG&A 4.2 (5%) 4.5 16% 1.1** (8%) RD&E 1.2 (5%) 1.2 (2%) IP and Custom Dev. Income (0.3) (5%) (0.2) (18%) Other Income and Expense 0.1 nm -- 99% 0.5 nm Interest Expense -- (32%) -- (25%) Total Expense and Other

  9. Slide 9: IBM Cash Flow

    -9- IBM CASH FLOW ($B) 1H02 FY02 1H03 Net Income from Continuing Ops. 1.7 5.3 3.1 Depreciation / Amortization 2.7 4.4 2.3 Working Capital / Other (1.8) 0.8 (2.7) GF A/R 3.2 3.3 3.2 Net cash provided by operating activities 5.8 13.8 6.0* Capital Expenditures, Net (2.3) (4.6) (2.0) Divestitures -- 1.2

  10. Slide 10: IBM Cash Flow Analysis

    -10- IBM CASH FLOW ANALYSIS ($B) 1H02 FY02 1H03 Net cash from Operations (Cont. Ops.) 5.8 13.8 6.0 Less: GF Accounts Receivable (3.2) (3.3) (3.2) Net cash from Operations (Cont Ops), excl GF rec. 2.6 10.5 2.7* Investing Activities Capital Expenditures, Net (2.3) (4.6) (2.0) GF A/R 3.2 3.3 3.2 GF Deb

  11. Slide 11: IBM Balance Sheet

    -11- IBM BALANCE SHEET June Dec June ($B) 2002* 2002 2003 Cash & Marketable Securities 3.6 6.0 5.8 Non-GF Assets** 47.0 56.4 59.3 Global Fin. Assets** 33.6 34.1 31.8 Disc. Ops. Assets 2.2 Total Assets 86.4 96.5 96.9 Other Liabilities 39.2 47.7 46.5 Disc. Ops. Liabilities 0.2 Non-GF Debt 0.6 2.2 0.9

  12. Slide 12: Global Services

    -12- GLOBAL SERVICES Revenue $10.6B, +23%; +14% @CC Yr/Yr Delta ($B) 2Q03 Yr/Yr @Act. @CC Revenue 10.6 2.0 23% 14% Gross Profit 2.8 0.5 21% Margin 25.9% (0.4 pts) Revenue Strategic Outsourcing 12% 5% Business Consulting Services 66% 53% Integrated Tech Services 7% 0% Maintenance 8% 0% IGS WW Contrac

  13. Slide 13: Technology Group

    -13- TECHNOLOGY GROUP Segment Revenue $0.9B, - 25% yr/yr External Revenue $0.7B, - 34% yr/yr Revenue decline driven by exited businesses Segment loss of $111M 300mm startup costs - yields OEM customer demand IBM Systems Group approximately 1/3 of TG business Technology leadership Actions taken 300mm

  14. Slide 14: Systems Group - eServers & Storage

    -14- SYSTEMS GROUP - eSERVERS & STORAGE Revenue $3.2B, +10% yr/yr; +3% @CC Revenue Actual @CC Share GP% zSeries -5% -11% = + MIPS down 7% - New mainframe functionality & price in 2H pSeries +20% +13% + + Both high-end & low-end strength; p630 sold out iSeries +6% -2% = + High-end strength xSeries Se

  15. Slide 15: Personal Systems Group

    -15- PERSONAL SYSTEMS GROUP Revenue $2.7B, - 3% yr/yr; -8% @CC Segment loss of $8M, better by $27M yr/yr Ongoing benefit of outsourcing strategy Supply chain execution Inventory down 16% yr/yr DSO improved 3 days yr/yr Gross Profit up 1 point yr/yr Average unit revenue down offset by lower commodity

  16. Slide 16: Software

    -16- SOFTWARE Revenue $3.5B, +6%, -2% @CC Act. @CC Act. @CC Brand Act. @CC OS 5% (2%) WebSphere Family 14% 6% Distributed 17% 8% Data Management 1% (6%) Lotus (3%) (12%) Middleware 7% (1%) Host 2% (5%) Tivoli 9% 0% Other Middleware 0% (7%) Rational na na Held or gained share across all key segments

  17. Slide 17: -17-

    -17-

  18. Slide 18: Currency: Year-to-Year Comparison

    -S1- CURRENCY: YEAR-TO-YEAR COMPARISON QUARTERLY AVERAGES PER US$ 7/15 @ 7/15 Spot 1Q03 2Q03 Spot 3Q03 4Q03 Euro 0.93 0.88 0.88 Yr/Yr 18% 19% 13% 12% Pound 0.62 0.62 0.62 Yr/Yr 11% 10% 4% 2% Yen 119 118 117 Yr/Yr 10% 7% 2% 4% IBM Revenue Impact 7 pts 7 pts 4-5 pts 4-5 pts Negative Yr/Yr growth signi

  19. Slide 19: IBM Cash Flow

    -S2- IBM CASH FLOW ($B) 2Q02 FY02 2Q03 Net Income from Continuing Ops. 0.4 5.3 1.7 Depreciation / Amortization 1.6 4.4 1.2 Working Capital / Other 0.2 0.8 0.1 GF A/R 0.9 3.3 0.8 Net cash provided by operating activities 3.1 13.8 3.7* Capital Expenditures, Net (1.1) (4.6) (1.2) Divestitures -- 1.2 --

  20. Slide 20: Non-GAAP Financial Measures

    -S3- NON-GAAP FINANCIAL MEASURES In an effort to provide investors with additional information regarding the Company's results as determined by generally accepted accounting principles (GAAP), the Company also discloses the following non-GAAP information which management believes provides useful inf

  21. Slide 21: Reconciliation for Comparative Trends

    -S4- RECONCILIATION FOR COMPARATIVE TRENDS ($B) B/(W) B/(W) Continuing Ops 2Q02 2Q02 2Q02 Yr/Yr Yr/Yr As Rptd Charges w/o Chgs 2Q03 As Rptd w/o Chgs Revenue 19.7 19.7 21.6 10% 10% SG&A 5.3 1.1* 4.1** 4.5 16% (8%) Other (Income) & 0.4 0.5 (0.1) -- 99% nm Expense Total Expense & 6.7 1.6* 5.0** 5.5 17%

  22. Slide 22: Reconciliation to Net Cash from Operations

    -S5- RECONCILIATION TO NET CASH FROM OPERATIONS ($B) 1Q03 Yr/Yr 2Q03 Yr/Yr Net cash from Operations (0.3) (0.7) 3.0 0.7 (Cont. Ops.), excl GF rec GF Accounts Receivable 2.5 0.2 0.8 (0.1) Net cash from Operations 2.2 (0.5) 3.7* 0.6 (Cont. Ops.) * Rounding

  23. Slide 23: -S6-

    -S6-

International Business Machines — Q2 2003 Earnings Presentation on 6ix