Slide 1: IBM Investor Briefing 2016
IBM Investor Briefing 2016
Slide 2: Financial Overview - Martin Schroeter
IBM Financial Overview Investor Briefing Martin Schroeter 2016 Senior Vice President and Chief Financial Officer ©2016 IBM Corporation 2
Slide 3: Agenda
Agenda 01 02 03 IBM Continuous Unit Focus Segments Transformation • Software & IBM Model • Global Business Services ©2016 IBM Corporation 3
Slide 4: IBM Continuous Transformation
IBM Continuous Transformation Key Drivers $91B $82B Last 10 Years ($9B) (1%) CAGR Divestitures (~$13B) (~1.5pts) Acquisitions ~$8B <1pt 51% Currency (~$5B) (>0.5pts) 40% Last 5 Years ($16B) (4%) CAGR Divestitures (~$7B) (~1.5pts) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Acquisitions ~$
Slide 5: Performance Dynamics
Performance Dynamics Strategic 2015 Imperatives 22% 27% 35% Gross Profit revenue mix: Margin 26% Strategic 19% 19% Imperatives: 53% Revenue growth IBM: Yr/Yr -2% -1% -1% 51% Core -7% -7% Content: -11% 50% 2013 2014 2015 Strategic Imperatives Total IBM Core Content Note 3 ©2016 IBM Corporation Revenu
Slide 6: Strategic Imperatives Capabilities and Investments
Strategic Imperatives Capabilities and Investments Over the last 3 years New Capabilities Reinventing the Core >$6B Investment 200K Developers & Analytics 13 Acquisitions 1,500 Partners Hybrid Cloud >$7B Investment 46 Cloud Datacenters Cloud 15 Acquisitions 1M Bluemix users IBM Digital Practice $3B
Slide 7: Gross Profit Margin Performance
Gross Profit Margin Performance Over the last 10 years ~2pts (<1/2pt) 51% ~4pts ~5pts 40% 2005 Software Services Hardware / as-a-Service 2015 Other build out Note 2 ©2016 IBM Corporation 7
Slide 8: Gross Profit Margin Performance
Gross Profit Margin Performance ~2pts (<1/2pt) 51% ~4pts ~5pts 40% 2005 Software Services Hardware / as-a-Service 2015 Other build out Note 2 ©2016 IBM Corporation 8
Slide 9: Pre-tax Income
Pre-tax Income Key Drivers Last 10 Years ~$5B Software & Services >$5B $18B Hardware (~$1.5B) $13B Currency <$1B 22% 14% Last 5 Years (~$2.5B) Hardware (>$1B) Currency (<$1B) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Pre-tax Income Margin % Note 4 ©2016 IBM Corporation 9
Slide 10: Cash Flow and Cash Utilization
Cash Flow and Cash Utilization Over the last 10 years • Cash from Operations: $186B • R&D: $58B, reflected in income statement • Free Cash Flow: $144B Reinvestment Capital $42B $17B Net Acquisitions $27B $13B Return to shareholders Dividends $33B Share count reduction 37% 2005 2006 2007 2008 2009 20
Slide 11: IBM Capabilities and Partnerships
IBM Capabilities ~80% of IBM revenue is from clients who have deployed cross-IBM solutions Industry Services Watson Internet of Things Watson Health Partnerships Technology Services Cognitive, Analytics, Data Security Cloud / Systems ©2016 IBM Corporation 11
Slide 12: IBM Continuous Transformation Summary
IBM Continuous Transformation Summary • Significant IBM transformation over the last 10 years Longer-term financial model • Stable revenue performance • Low single-digit revenue growth • Divested lower margin businesses • Mid single-digit pre-tax income growth • Invested for higher value • High sing
Slide 13: Unit Focus
02 Unit Focus ©2016 IBM Corporation 13
Slide 14: 2015 Revenue by Segment
2015 Revenue by Segment Declined in 2015 Grew in 2015 Global Business Engineered shift to Services 21% Strategic Imperatives (4%) Yr/Yr Global Technology 39% Services 1% Yr/Yr $81.7B Impacted by flexibility Software Systems Hardware provided to clients (4%) Yr/Yr 28% 8% Yr/Yr 2% 9% Global Financing
Slide 15: Software Flexibility Dynamics
Software Flexibility Dynamics Software transaction performance impacted by flexibility provided to clients Limited Flexibility High Flexibility • Individual product purchases and usage limits • Purchase provides access to a broad catalog • Subscription & Support payment based on • Subscription & Sup
Slide 16: 2015 Software Performance
2015 Software Performance Transactional Revenue Annuity Revenue (14%) Yr/Yr Software Revenue +1% Yr/Yr Non-Top 250 clients’ revenue growing low single digits Driven by deployment ~15% Growth across the client base — In aggregate, Top 250 clients’ Top 250 & Non-Top 250 Clients revenue impacted by fle
Slide 17: Global Business Services Transformation
Global Business Services Transformation Revenue Mix Consulting • Driving engineered shift to Strategic Imperatives 30% Engineered Shift: • Supported by aggressive skills shift 45% +15pts of mix • Activity declining in traditional consulting areas +30K Resources Adjusted for currency 2015 Revenue Yr/
Slide 18: Unit Focus Summary
Unit Focus Summary • 2015 software transactional performance impacted by additional flexibility • Stable annuity revenue • Enables long term client commitment to the platform • Global Business Services performance driven by engineered shift to growth opportunities in consulting ©2016 IBM Corporation
Slide 19: Segments & IBM Model
03 Segments & IBM Model ©2016 IBM Corporation 19
Slide 20: 2016 Segment Structure
2016 Segment Structure 2015 Structure Software • Key Branded Middleware • Other Middleware • Operating Systems Global Business Services Global Technology Services Systems Hardware Global Financing ©2016 IBM Corporation 20
Slide 21: 2016 Segment Structure
2016 Segment Structure Software value 2015 Structure shifting to new areas Software Software • Key Branded Middleware • Solutions Software • Other Middleware • Transaction Processing Software • Operating Systems • Integration Software • Operating Systems Global Business Services Global Technology Se
Slide 22: Cognitive Solutions & Industry Services
2016 Segment Structure 2016 structure reflective of management system and consistent with IBM’s Platform & Solutions focus Software value 2015 Structure shifting to new areas 2016 Structure Cognitive Solutions & Industry Services Software Software Cognitive Solutions • Key Branded Middleware • Solut
Slide 23: 2016 Segment Disclosures
2016 Segment Disclosures Revenue Additional Revenue Gross Profit Pre-tax Income New Segments Details Disclosures Details Details Cognitive Solutions & Industry Services Cognitive Solutions • Solutions Software • Strategic Imperatives • Total • Total • Transaction Processing • Cloud Software • as-a-S
Slide 24: New Segments: 2015 Results
New Segments: 2015 Results Additional Revenue Pre-tax Income, New Segments Revenue Disclosures Margin Cognitive Solutions & Cognitive Solutions $17.8B Strategic Imperatives: $11.0B $7.2B, 36.1% Industry Services Cloud: $1.4B as-a-Service run rate: $1.2B Global Business Services $17.2B Strategic Impe
Slide 25: IBM Level Disclosures: 2015 Results
IBM Level Disclosures: 2015 Results Additional Revenue Pre-tax Income, Revenue Disclosure Margin $81.7B Strategic Imperatives: $28.9B $17.7B, 21.6% Cloud: $10.2B as-a-Service run rate: $5.3B Software: $24.5B Strategic Imperatives Engagement ~$6B Mobile: ~$3B Social: ~$1B Analytics Security: ~$2B $28
Slide 26: Strategic Imperatives & Core Content Revenue by Segment
Strategic Imperatives & Core Content Revenue by Segment $17.8B Cognitive Solutions $35.1B Technology Services & (3%) Yr/Yr Flat Yr/Yr Cloud Platforms • Cognitive capabilities underpins ~20% Solutions software • Strategic Imperatives driven by ~60% • New industry opportunity – Infrastructure-as-a-Ser
Slide 27: Strategic Imperatives & Core Content Revenue by Segment
Strategic Imperatives & Core Content Revenue by Segment Cognitive Solutions Technology Services & $17.8B $35.1B Cloud Platforms • Cognitive capabilities underpins ~20% +7pts Solutions software • Strategic Imperatives driven by ~60% +4pts • New industry opportunity – Infrastructure-as-a-Service – Hea
Slide 28: Strategic Imperatives & Core Content Revenue by Segment
Strategic Imperatives & Core Content Revenue by Segment Cognitive Solutions Technology Services & $17.8B $35.1B Cloud Platforms • Cognitive capabilities underpins ~20% Solutions software • Strategic Imperatives driven by ~60% • New industry opportunity – Infrastructure-as-a-Service – ~75% ~80% Publi
Slide 29: Cognitive Solutions Segment
Cognitive Solutions Segment 2015 Performance 2015 Yr/Yr • Cognitive capabilities significantly expand Revenue $17.8 (3%) market opportunity Gross Margin 85.1% (2 pts) • Building platforms for Watson, Watson Health PTI $7.2 (12%) and Watson Internet of things PTI Margin 36.1% (1 pt) Segment Revenue E
Slide 30: Global Business Services Segment
Global Business Services Segment 2015 Performance 2015 Yr/Yr • Industry centric skills, depth of design thinking Revenue $17.2 (4%) drives client value Gross Margin 28.2% (2 pts) • Lead with cognitive capabilities across PTI $2.6 (22%) offerings PTI Margin 14.7% (2 pts) Segment Revenue Elements 2015
Slide 31: Technology Services & Cloud Platforms Segment
Technology Services & Cloud Platforms Segment 2015 Performance 2015 Yr/Yr • Transforming GTS model from systems Revenue $35.1 Flat integration to services integration Gross Margin 42.7% (2 pts) • Enabling clients digital transformation through PTI $5.7 (20%) the cloud – Hybrid, Private, Public PTI M
Slide 32: Systems Segment
Systems Segment 2015 Performance 2015 Yr/Yr • Transforming Systems for growth – Revenue $9.5 4% IBM OpenPOWER, IBM FlashSystem, IBM Spectrum Storage, Object Storage for cloud Gross Margin 55.8% 7 pts PTI $1.7 24% • New cognitive and cloud centric capabilities PTI Margin 16.7% 6 pts Segment Revenue E
Slide 33: Systems Hardware Transformation
Systems Hardware Transformation Power z Systems Storage ~40% 2015 ~60% ~55% 2015 ~45% ~45% 2015 ~55% Open innovation platform z13 Mainframe designed FlashSystem, with Power8, Power for for mobile, analytics Object Storage Linux, OpenPOWER and cloud Core Content Strategic Imperatives ©2016 IBM Corpor
Slide 34: IBM Financial Model
IBM Financial Model • 2016 segment structure reflective of Longer-term financial model management system and consistent • Low single-digit revenue growth with IBM’s platform and solutions focus • Mid single-digit pre-tax income growth • Significant investment levels over the • High single-digit EPS
Slide 35: IBM Investor Briefing 2016
IBM Investor Briefing 2016
Slide 36: 2016 Guidance
2016 Guidance The company reaffirms 2016 Operating Earnings and Free Cash Flow guidance, including the quarterly earnings skew, as described in the January 2016 earnings call. As discussed, not presented ©2016 IBM Corporation 36
Slide 37: Notes
Notes Note 1 Note 4 2010-2015 Revenue from Continuing Ops 2005-2015 Operating PTI, 2010-2015 from Continuing Ops Note 2 2006-2015 Operating GP%, 2010-2015 from Note 5 Continuing Ops Cash from Operations excludes GF receivables. Share count reduction 2006 to 2015, reflects Note 3 weighted average sha
Slide 38: Non-GAAP disclaimer
These charts and the associated remarks and comments are integrally related, and they are intended to be presented and understood together. In an effort to provide additional and useful information regarding the company’s financial results and other financial information as determined by generally a
Slide 39: Non-GAAP Supplemental Materials
IBM Non-GAAP Investor Briefing Supplemental Materials 2016 ©2016 IBM Corporation 39
Slide 40: Non-GAAP Supplemental Materials
Non-GAAP Supplemental 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 Investor Briefing materials and presentations, the following Non-GAAP inf
Slide 41: Non-GAAP Supplemental Materials: Cash Flow
Non-GAAP Supplemental Materials Cash Flow Management uses a free cash flow measure to evaluate the company’s operating results, plan share repurchase levels, evaluate strategic investments and assess the company’s ability and need to incur and service debt. The entire free cash flow amount is not ne
Slide 42: Reconciliation of Free Cash Flow (excluding GF Receivables)
Non-GAAP Supplemental Materials Reconciliation of Free Cash Flow (excluding GF Receivables) $ Billions 2006 - 2015 Net Cash from Operations $181 Less: Global Financing Receivables (5) Net Cash from Operations (excluding GF Receivables) 186 Net Capital Expenditures (42) Free Cash Flow (excluding GF R
Slide 43: Reconciliation of Revenue Growth
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth FY15 Yr/Yr FY14 Yr/Yr FY13 Yr/Yr @CC excl. @CC excl. Divested Divested GAAP @CC Businesses GAAP @CC Businesses GAAP @CC Strategic Imperatives 17% 24% 26% 16% 18% 19% 17% 19% Total IBM (12%) (4%) (1%) (6%) (4%) (1%) (4%) (2%) Core Conte
Slide 44: Reconciliation of Revenue Growth Software Performance
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth Software Performance FY15 Yr/Yr GAAP @CC Transactional (19%) (14%) Annuity (6%) 1% The above serves to reconcile the Non-GAAP financial information contained in “IBM Investor Briefing” contained in the “Financial Overview” presentation
Slide 45: Reconciliation of Revenue Growth within Global Business Services
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth within Global Business Services Segment Consulting @CC excl. Divested Adjusted for FY15 Yr/Yr GAAP @CC Businesses FY15 Yr/Yr GAAP currency Strategic Imperatives 32% 44% 44% Strategic Imperatives $0.5B $1.0B Core Content (31%) (25%) (25
Slide 46: Reconciliation of Revenue Growth by Segment
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth by Segment @CC excl. Divested FY15 Yr/Yr GAAP @CC Businesses FY15 Yr/Yr GAAP @CC Technology Services & Cloud Platforms (10%) Flat Flat Cognitive Solutions (9%) (3%) Systems (22%) (18%) 4% The above serves to reconcile the Non-GAAP fina
Slide 47: Reconciliation of Revenue Growth Cognitive Solutions Segment
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth Cognitive Solutions Segment FY15 Yr/Yr GAAP @CC Strategic Imperatives (3%) 4% Cloud 45% 52% The above serves to reconcile the Non-GAAP financial information contained in “IBM Investor Briefing” contained in the “Financial Overview” pre
Slide 48: Reconciliation of Revenue Growth Technology Services & Cloud Platforms
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth Technology Services & Cloud Platforms Segment @CC excl. Divested FY15 Yr/Yr GAAP @CC Businesses Strategic Imperatives 44% 59% 59% Cloud 45% 59% 59% The above serves to reconcile the Non-GAAP financial information contained in “IBM Inve
Slide 49: Reconciliation of Revenue Growth Systems Segment
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth Systems Segment @CC excl. Divested FY15 Yr/Yr GAAP @CC Businesses Strategic Imperatives 20% 27% 41% Cloud 27% 35% 45% The above serves to reconcile the Non-GAAP financial information contained in “IBM Investor Briefing” contained in th
Slide 50: Reconciliation of Revenue Growth FY15 Yr/Yr
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth FY15 Yr/Yr FY15 Yr/Yr @CC excl. Divested GAAP @CC GAAP @CC Businesses Integration Software (9%) (2%) Technical Support Services (10%) (1%) 1% Infrastructure Services (10%) 1% Global Process Services (15%) (10%) (7%) Consulting (15%) (8
Slide 51: IBM Investor Briefing 2016
IBM Investor Briefing 2016