International Business Machines Corporation · NYSE:IBM
International Business Machines — Q4 2008 Earnings Presentation
47 slides from International Business Machines's earnings presentation, Jan 20, 2009
Slide 1: 4Q 2008 Earnings Presentation
® 4Q 2008 Earnings Presentation January 20, 2009 www.ibm.com/investor
Slide 2: Forward Looking Statements
Forward Looking Statements 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 concerni
Slide 3: 2008 Summary
2008 Summary 4Q 2008 Highlights Full Year Highlights ¾ PTI Margin +2.5pts yr/yr ¾ PTI Margin 16.1%, +1.5 pts yr/yr GTS +4.1 pts yr/yr GTS +1.9 pts yr/yr GBS +3.6 pts yr/yr GBS +2.2 pts yr/yr SW +4.2 pts yr/yr SW +1.7 pts yr/yr ¾ EPS $3.28 +17% yr/yr ¾ EPS $8.93 +24% yr/yr ¾ $7.9B Free Cash Flow* ¾ $
Slide 4: 2008 – Demonstration of IBM's Transformation
2008 – Demonstration of IBM’s Transformation Transformational Highlights 2002 - 2008 ¾ Shift to higher value business ¾ Pre-Tax Profit: +$10B ¾ Invest in Growth Markets ¾ Margin: More than doubled ¾ Global Integration ¾ Earnings Per Share: More than tripled ¾ Invest in Innovation ¾ Free Cash Flow: $
Slide 5: IBM Financial Performance History
IBM Financial Performance History $20 $10 Revenue ($B) $18 $9 104 Pre-tax income 99 Pre-tax Income & Free Cash Flow ($B) 96 $16 $8 Free Cash 91 91 89 Flow* 85 83 EPS 81 $14 $7 EPS $12 $6 $10 $5 $8 $4 $6 $3 $4 $2 * Excluding GF Receivables 2000 2001 2002 2003 2004 2005 2006 2007 2008 www.ibm.com/inve
Slide 6: Transformational Impact on Segment PTI Mix
Transformational Impact on Segment PTI Mix 100% 25% 28% 34% 35% 80% 44% 42% 40% 40% 40% 43% 60% Software 40% Services 46% 35% 41% 30% Financing 40% 37% 37% 42% 42% 39% Hardware 10% 13% 14% 20% 10% 12% 11% 9% 24% 9% 9% 16% 14% 13% 18% 15% 13% 14% 1% 9% 8% 0% ** * * 02 03 04 06 07 08 05 00 01 08 20 20
Slide 7: 4Q / FY 2008 Financial Summary
4Q / FY 2008 Financial Summary $ in Billions, except EPS B/(W) B/(W) 4Q08 Yr/Yr FY08 Yr/Yr Revenue $27.0 (6%) $103.6 5% @CC (1%) 2% GP % 47.9% 3.0 pts 44.1% 1.8 pts Expense $7.1 5% $28.9 (6%) Pre-Tax Income $5.8 6% $16.7 15% PTI Margin 21.5% 2.5 pts 16.1% 1.5 pts Tax Rate 23.8% 4.2 pts 26.2% 1.9 pts
Slide 8: Revenue by Geography
Revenue by Geography $ in Billions B/(W) Yr/Yr 4Q08 Rptd @CC Americas $11.5 (2%) 2% Canada/ LA Europe/ME/A 9.5 (12%) (1%) U.S. EMEA Asia Pacific 5.5 (1%) (1%) Flat Total Geographies $26.4 (6%) Flat APac Japan +6% -10% @CC IBM $27.0 (6%) (1%) @CC OEM Major Markets (5%) (1%) (32%) @CC Growth Markets (
Slide 9: Revenue by Key Industry Sales Unit
Revenue by Key Industry Sales Unit $ in Billions B/(W) Yr/Yr 4Q08 Rptd @CC Financial Services $7.9 (6%) (1%) Public Fin’l - Industrial Public 4.2 (1%) 5% U.S. Industrial 3.1 (8%) (5%) Financial - Distribution Distribution 2.6 (6%) (1%) Rest of World Comms Communications 2.7 (4%) 3% SMB Small / Mediu
Slide 10: Revenue by Segment
Revenue by Segment $ in Billions B/(W) Yr/Yr 4Q08 Rptd @CC Global Systems Global Technology Services $9.6 (4%) 3% Business & Services Technology Global Business Services 4.7 (5%) Flat Global Systems & Technology 5.4 (20%) (16%) Technology Software 6.4 3% 9% Services Software Global Financing 0.7 (1%
Slide 11: Expense Summary
Expense Summary B/(W) Yr/Yr Drivers B/(W) $ in Billions 4Q08 Yr/Yr Currency Acq.* Ops SG&A $5.8 3% 6 pts (5 pts) 3 pts RD&E 1.5 4% 4 pts (6 pts) 6 pts IP and Development Income (0.3) 39% Other (Income)/Expense (0.1) (1%) Interest Expense 0.2 11% Total Expense & Other $7.1 5% 8 pts (6 pts) 2 pts Inco
Slide 12: Margins by Segment
Margins by Segment External Total Gross Profit Margins Pre-Tax Margins B/(W) B/(W) 4Q08 Yr/Yr Pts 4Q08 Yr/Yr Pts Global Technology Services 34.9% 4.8 pts 14.4% 4.1 pts Global Business Services 28.7% 5.6 pts 14.9% 3.6 pts Systems & Technology 39.9% (5.8 pts) 12.7% (6.7 pts) Software 87.7% 0.6 pts 39.
Slide 13: Services Segments
Services Segments Global Technology Services (GTS) Global Business Services (GBS) $ in Billions B/(W) Yr/Yr $ in Billions B/(W) Yr/Yr 4Q08 Rptd @CC 4Q08 Rptd @CC Revenue (External) $9.6 (4%) 3% Revenue (External) $4.7 (5%) Flat Gross Margin (External) 34.9% 4.8 pts Gross Margin (External) 28.7% 5.6
Slide 14: Software Segment
Software Segment B/(W) Yr/Yr $ in Billions 4Q08 Rptd @CC Revenue (External) $6.4 3% 9% Gross Margin (External) 87.7% 0.6 pts PTI Margin 39.1% 4.2 pts 4Q08 Revenue Yr/Yr 4Q08 Revenue Rptd @CC (% of Total Software) WebSphere Family (1%) 5% Information Management 18% 25% Other Tivoli (4%) 4% Key Middle
Slide 15: Systems & Technology Segment
Systems & Technology Segment $ in Billions B/(W) Yr/Yr 4Q08 Rptd @CC Revenue (External) $5.4 (20%) (16%) Gross Margin (External) 39.9% (5.8 pts) PTI Margin 12.7% (6.7 pts) 4Q08 Revenue Yr/Yr 4Q08 Revenue Rptd @CC (% of Total S&TG) System z (6%) 1% Converged System p 8% 14% Legacy System i (92%) (91%
Slide 16: Cash Flow Analysis
Cash Flow Analysis B/(W) B/(W) $ in Billions 4Q08 Yr/Yr FY08 Yr/Yr Net Cash from Operations $6.6 $1.5 $18.8 $2.7 Less: Global Financing Receivables (2.3) 1.3 0.0 1.3 Net Cash from Operations 8.9 0.2 18.8 1.4 (excluding GF Receivables) Net Capital Expenditures (1.0) 0.4 (4.5) 0.4 Free Cash Flow (excl
Slide 17: Balance Sheet Summary
Balance Sheet Summary $ in Billions Dec. 07 Dec. 08 Cash & Marketable Securities $16.1 $12.9 Non-GF Assets* 67.5 61.8 Global Financing Assets* 36.8 34.9 Total Assets 120.4 109.5 Other Liabilities 56.7 62.1 Non-GF Debt 10.7 9.6 Global Financing Debt 24.5 24.4 Total Debt 35.3 33.9 Total Liabilities 92
Slide 18: EPS Bridge – 4Q07 to 4Q08
EPS Bridge – 4Q07 to 4Q08 $0.15 $3.28 $0.41 ($0.07) $0.17 $2.80 ($0.18) Includes +$0.08 Includes pension +$0.16 benefit pension benefit 2007 EPS Revenue Gross Margin Expense Tax Share 2008 EPS Growth @ Productivity Rate Repurchases Actual www.ibm.com/investor 18
Slide 19: EPS Bridge – 2007 to 2008
EPS Bridge – 2007 to 2008 $0.42 $8.93 $0.94 ($0.18) $0.22 Includes +$0.20 pension $0.35 benefit $7.18 Includes +$0.39 pension benefit 2007 EPS Revenue Gross Margin Expense Tax Share 2008 EPS Growth @ Productivity Rate Repurchases Actual www.ibm.com/investor 19
Slide 20: Well-Positioned Entering 2009
Well-Positioned Entering 2009 2010 $10-$11 ¾ Leadership through innovation and transformation • Strategic shift to high end offerings and products • Capture opportunity in growth and major markets • Flexible model that addresses all market conditions 2008 $8.93 ¾ Stable base of business • Large annu
Slide 21: www.ibm.com/investor
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Slide 22: Supplemental Materials
Supplemental Materials Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding ¾ Currency – Year/Year Comparison ¾ Supplemental Segment Information – Global Services ¾ Supplemental Segment Information – Systems & Technology, Software ¾ Global Financ
Slide 23: Currency – Year/Year Comparison
Currency – Year/Year Comparison Quarterly Averages per US $ 1/19 Yr/Yr @ 1/19 Spot 3Q08 Yr/Yr 4Q08 Yr/Yr Spot 1Q09 2Q09 3Q09 4Q09 Euro 0.67 8% 0.76 (10%) 0.76 (14%) (19%) (14%) 0% Pound 0.53 (7%) 0.64 (31%) 0.69 (37%) (36%) (31%) (8%) Yen 108 9% 96 15% 90 14% 14% 16% 6% IBM Revenue 4 pts (5 pts) (7
Slide 24: Supplemental Segment Information – 4Q 2008
Supplemental Segment Information – 4Q 2008 Revenue Growth Signings ($B) Global Services Yr/Yr @CC Global Services 4Q08 Yr/Yr Strategic Outsourcing (3%) 3% Global Services Signings @ Actual $17.2 (5%) Business Transformation (19%) (11%) GBS Short-Term 4.5 (1%) Outsourcing GTS Short-Term 2.8 (15%) Int
Slide 25: Supplemental Segment Information – 4Q 2008
Supplemental Segment Information – 4Q 2008 Revenue Revenue Growth Systems & Technology Group Yr/Yr @CC GP% Share Software Yr/Yr @CC System z (6%) 1% = WebSphere Family (1%) 5% Converged System p 8% 14% Information Management 18% 25% Legacy System i (92%) (91%) Tivoli (4%) 4% System x Servers (32%) (
Slide 26: Global Financing Portfolio
Global Financing Portfolio 4Q08 - $26.1B External Receivables Investment Grade Non-Investment Grade 59% 41% 35% 30% 25% 20% 15% 32% 27% 10% 21% 5% 12% 6% 2% 0% Aaa-A3 Baa1-Baa3 Ba1-Ba2 Ba3-B1 B2-B3 Caa-C 4Q 08 4Q 07 Identified L os s R ate 1.4% 0.8% Anticipated L os s R ate 0.6% 0.5% R es erve C ove
Slide 27: Summary and Selected Items – FY 2008
Summary and Selected Items – FY 2008 $ in Billions, except EPS B/(W) Pre-Tax FY08 Yr/Yr Includes: Income Revenue $103.6 5% Retirement-Related Benefits (1.4) Pre-Tax Income $16.7 15% PTI Margin 16.1% 1.5 pts Stock-Based Compensation (0.7) Net Income $12.3 18% Amort. of Purchased Intangibles (0.5) EPS
Slide 28: Revenue by Geography – FY 2008
Revenue by Geography – FY 2008 $ in Billions B/(W) Yr/Yr FY08 Rptd @CC Americas $42.8 4% 4% Canada/ LA Europe/ME/A 37.0 7% 3% U.S. EMEA Asia Pacific 21.1 8% 2% +3% Total Geographies $100.9 6% 3% APac Japan +9% -5% @CC IBM $103.6 5% 2% @CC OEM Major Markets 5% 2% (23%) @CC Growth Markets 10% 10% BRIC
Slide 29: Revenue by Key Industry Sales Unit – FY 2008
Revenue by Key Industry Sales Unit – FY 2008 $ in Billions B/(W) Yr/Yr FY08 Rptd @CC Financial Services $29.3 7% 3% Public Fin’l - Industrial Public 15.8 8% 6% U.S. Industrial 12.3 4% Flat Financial - Distribution Distribution 10.2 4% 1% Rest of World Comms Communications 10.4 7% 6% SMB Small / Medi
Slide 30: Revenue by Segment – FY 2008
Revenue by Segment – FY 2008 $ in Billions B/(W) Yr/Yr FY08 Rptd @CC Global Global Technology Services $39.3 9% 6% Business Systems Services & Global Business Services 19.6 9% 5% Technology Global Systems & Technology 19.3 (10%) (11%) Technology Software 22.1 11% 8% Services Software Global Financin
Slide 31: Margins by Segment – FY 2008
Margins by Segment – FY 2008 External Total Gross Profit Margins Pre-Tax Margins B/(W) B/(W) FY08 Yr/Yr Pts FY08 Yr/Yr Pts Global Technology Services 32.6% 2.7 pts 11.3% 1.9 pts Global Business Services 26.7% 3.2 pts 13.0% 2.2 pts Systems & Technology 38.1% (1.7 pts) 7.7% (2.0 pts) Software 85.4% 0.
Slide 32: Expense Summary – FY 2008
Expense Summary – FY 2008 B/(W) Yr/Yr Drivers B/(W) $ in Billions FY08 Yr/Yr Currency Acq.* Ops SG&A $23.4 (6%) (2 pts) (5 pts) 1 pts RD&E 6.3 (3%) (1 pts) (5 pts) 3 pts IP and Development Income (1.2) 20% Other (Income)/Expense (0.3) (52%) Interest Expense 0.7 (10%) Total Expense & Other $28.9 (6%)
Slide 33: Cash Flow (FAS 95)
Cash Flow (FAS 95) $ in Billions 4Q08 4Q07 FY08 FY07 Net Income from Operations $4.4 $4.0 $12.3 $10.4 Depreciation / Amortization of Intangibles 1.3 1.3 5.4 5.2 Stock-based Compensation 0.2 0.2 0.7 0.7 Working Capital / Other 3.0 3.2 0.4 1.1 Global Financing A/R (2.3) (3.5) 0.0 (1.3) Net Cash provid
Slide 34: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials 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 discusses, in its earnings press release and/or earnings presentation materials, the follo
Slide 35: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Non-Recurring and Unique Items Management presents certain financial results excluding the effects of the following items: (1) a one- time gain in 4Q’08 from retirement-related plan costs in Japan, (2) year-to-year improvement in retirement-related expenses in the co
Slide 36: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of Free Cash Flows (excluding GF Receivables) $ in Billions 2000 2001 2002 2003 2004 Net Cash from Operations $8.6 $13.7 $13.8 $14.5 $15.3 Less: Global Financing Receivables (2.5) 2.0 3.3 1.9 2.5 Net Cash from Operations (excluding GF Receivables) 11.1
Slide 37: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of Software Pre-Tax Profit FY 2008 $ in Millions Sum of Software Segments Percentage Pre-Tax profit $7,075 $17,531 40% YTY Impact of retirement-related savings (191) (1,181) Amortization of acquired intangibles 386 520 Pre-Tax profit excluding YTY reti
Slide 38: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of Asia Pacific Revenue Growth 4Q’08 Yr/Yr As Rptd @CC Asia Pacific Revenue, other than Japan (7%) 6% Japan Revenue 7% (10%) FY 2008 Yr/Yr As Rptd @CC Asia Pacific Revenue, other than Japan 8% 9% Japan Revenue 8% (5%) The above serves to reconcile the
Slide 39: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of Revenue Growth in Selected Countries 4Q08 Yr/Yr As Rptd @CC Germany (2%) 7% France (7%) 2% Italy (16%) (8%) United Kingdom (21%) 4% Canada (14%) 6% China 14% 9% Russia (22%) (22%) Chile 5% 20% Egypt 35% 35% The above serves to reconcile the Non-GAAP
Slide 40: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of Revenue Growth in Selected Segments 4Q08 Yr/Yr As Rptd @CC Distributed Relational Database 27% 35% (Software) Converged System P: High-end Servers (Hardware) 9% 16% Mid-range Servers (Hardware) 10% 16% The above serves to reconcile the Non-GAAP fina
Slide 41: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of Managed Labor Costs FY 2008 Yr/Yr Managed labor costs excluding 5% retirement-related expense Managed labor costs including retirement-related expense 1% The above serves to reconcile the Non-GAAP financial information contained in the “Margins by S
Slide 42: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of Revenue of Original Equipment Manufacturer (OEM) 4Q08 Yr/Yr As Rptd @CC Revenue from Original Equipment (31%) (32%) Manufacturer (OEM) FY 2008 Yr/Yr As Rptd @CC Revenue from Original Equipment (22%) (23%) Manufacturer (OEM) The above serves to recon
Slide 43: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of SG&A B/(W) B/(W) Yr/Yr Drivers 4Q08 Yr/Yr $ in Billions Currency Acq. Ops SG&A – Worldwide $5.8 3% 6 pts (5 pts) 3 pts SG&A – Growth Markets (9 pts) SG&A – Rest of World 5 pts The above serves to reconcile the Non-GAAP financial information containe
Slide 44: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of Retirement-Related Plan Costs $ in Billions FY 2008 Yr/Yr Impact Retirement-related plan costs $1.2 Impact of Japan – one time gain 0.1 Retirement-related excluding gain $1.0 The above serves to reconcile the Non-GAAP financial information contained
Slide 45: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of Impact on Segment PTI Mix ($ in millions) As reported in 2000 and 2001 which excludes Stock-based compensation: 2000 %PTI 2001 %PTI Software $2,793 26% $3,168 29% Services 4,517 41% 5,161 47% Financing 1,176 11% 1,143 10% Hardware 2,719 25% 1,854 17
Slide 46: Computation of 2008 Global Financing Return on Equity
Computation of 2008 Global Financing Return on Equity The following are details on the computation of IBM’s Global Financing Return on Equity. The Global Financing segment is in the business of providing financing to IBM’s clients and its business partners, and is measured as if it were a standalone
Slide 47: www.ibm.com/investor
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International Business Machines — Q4 2008 Earnings Presentation on 6ix