International Business Machines Corporation · NYSE:IBM
International Business Machines — Q3 2010 Earnings Presentation
34 slides from International Business Machines's earnings presentation, Oct 18, 2010
Slide 1: 3Q 2010 Earnings Presentation
® 3Q 2010 Earnings Presentation October 18, 2010 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. Forward- looking statements are based on the company's current assumptions regarding future business and financial performance. Th
Slide 3: 3Q 2010 Highlights
3Q 2010 Highlights Revenue $24.3B +3%, 4% yr/yr @CC EPS $2.82 +18% yr/yr ¾ Improving revenue growth, driven by: • Growth markets +13% yr/yr @CC • Systems & Technology +10% yr/yr • Global Business Services +5% yr/yr • Business Analytics +14% yr/yr ¾ Continuing margin expansion ¾ Investing for growth
Slide 4: Financial Summary
Financial Summary $ in Billions, except EPS B/(W) 3Q10 Yr/Yr Revenue $24.3 3% @CC 4% GP Margin 45.3% 0.2 pts Expense $6.3 (1%) Pre-Tax Income $4.7 7% PTI Margin 19.3% 0.7 pts Tax Rate 23.3% 3.2 pts Net Income $3.6 12% Shares (Diluted) (M) 1,272.8 5% EPS $2.82 18% Improving revenue growth and continu
Slide 5: Revenue by Geography
Revenue by Geography 3Q10 Yr/Yr vs. $ in Billions B/(W) Yr/Yr 2Q10 Yr/Yr 3Q10 Rptd @CC @CC Canada/ Americas $10.2 3% 2% +1 pts LA Europe/ME/A 7.4 (6%) 1% +2 pts U.S. EMEA Asia Pacific 5.9 14% 7% +4 pts +1% OEM 0.8 27% 27% +1 pts APac Japan +14% IBM $24.3 3% 4% +2 pts Flat @CC @CC Major Markets (1%)
Slide 6: Growth Markets
Growth Markets Market Expansion ¾ Double-digit growth @CC in over 30 countries ¾ Opened 40 branch offices year-to-date for a total of 103 ¾ Growth led by expansion into new territories IT Infrastructure Development ¾ Systems & Technology grew 25% yr/yr @CC ¾ Gained share in Systems & Technology and
Slide 7: Revenue by Segment
Revenue by Segment 3Q10 Yr/Yr vs. $ in Billions 2Q10 Yr/Yr B/(W) Yr/Yr 3Q10 Rptd @CC @CC Global Global Technology Services $9.5 1% 1% +1 pts Business Systems Services & Global Business Services 4.6 5% 5% +3 pts Technology Software 5.2 4%* 6%* Flat Global Technology Systems & Technology 4.3 10% 11% +
Slide 8: Expense Summary
Expense Summary B/(W) Yr/Yr Drivers B/(W) $ in Billions 3Q10 Yr/Yr Currency Acq.* Ops SG&A $5.1 (3%) 1 pts (3 pts) 0 pts RD&E 1.5 (1%) 0 pts (2 pts) 1 pts IP and Development Income (0.3) (5%) Other (Income)/Expense (0.1) nm Interest Expense 0.1 (12%) Total Expense & Other Income $6.3 (1%) 1 pts (3 p
Slide 9: Margins by Segment
Margins by Segment External Total Gross Profit Margins Pre-Tax Margins B/(W) B/(W) 3Q10 Yr/Yr Pts 3Q10 Yr/Yr Pts Global Technology Services 35.3% (0.2 pts) 15.5% 0.4 pts Global Business Services 28.9% 0.2 pts 14.6% 0.1 pts Software 86.7% 1.1 pts 32.1% Flat Systems & Technology 36.8% 1.2 pts 7.2% 1.9
Slide 10: Services Segments
Services Segments Global Technology Services (GTS) Global Business Services (GBS) $ in Billions B/(W) Yr/Yr $ in Billions B/(W) Yr/Yr 3Q10 Rptd @CC 3Q10 Rptd @CC Revenue (External) $9.5 1% 1% Revenue (External) $4.6 5% 5% Gross Margin (External) 35.3% (0.2 pts) Gross Margin (External) 28.9% 0.2 pts
Slide 11: Software Segment
Software Segment B/(W) Yr/Yr $ in Billions 3Q10 Rptd @CC Revenue (External) - Growth excl. PLM $5.2 4% 6% Growth incl. PLM 1% 2% Gross Margin (External) 86.7% 1.1 pts PTI Margin 32.1% Flat 3Q10 Revenue Yr/Yr 3Q10 Revenue Rptd @CC (% of Total Software) WebSphere Family 14% 16% Information Management
Slide 12: Systems & Technology Segment
Systems & Technology Segment $ in Billions B/(W) Yr/Yr 3Q10 Rptd @CC Revenue (External) $4.3 10% 11% Gross Margin (External) 36.8% 1.2 pts PTI Margin 7.2% 1.9 pts 3Q10 Revenue Yr/Yr Rptd @CC 3Q10 Revenue System z 15% 17% (% of Total Sys & Tech) Power Systems (13%) (13%) System x 30% 31% Storage 7% 8
Slide 13: Cash Flow Analysis
Cash Flow Analysis B/(W) YTD B/(W) $ in Billions 3Q10 Yr/Yr 3Q10 Yr/Yr Net Cash from Operations $4.6 ($0.6) $12.8 ($1.6) Less: Global Financing Receivables 0.4 (0.4) 2.3 (1.6) Net Cash from Operations 4.2 (0.2) 10.5 0.0 (excluding GF Receivables) Net Capital Expenditures (1.0) 0.0 (2.9) (0.3) Free C
Slide 14: Balance Sheet Summary
Balance Sheet Summary $ in Billions Sept. 09 Dec. 09 Sept. 10 Cash & Marketable Securities $11.5 $14.0 $11.1 Non-GF Assets* 61.5 61.7 65.7 Global Financing Assets 30.7 33.3 30.4 Total Assets 103.7 109.0 107.2 Other Liabilities 59.7 60.2 57.4 Non-GF Debt* 2.5 3.7 5.5 Global Financing Debt 22.9 22.4 2
Slide 15: EPS Bridge – 3Q09 to 3Q10
EPS Bridge – 3Q09 to 3Q10 $0.14 $2.82 $0.21 $0.07 $2.40 3Q09 EPS Revenue Growth Operating Share 3Q10 EPS @ Actual Leverage Repurchases www.ibm.com/investor 15
Slide 16: 3Q 2010 Summary
3Q 2010 Summary At Least $11.40 $10.01 $8.89 $7.15 $6.05 3Q EPS +18% +18% +22% Yr/Yr Yr/Yr 3Q EPS +15% Yr/Yr +54% Yr/Yr Yr/Yr 2006 2007 2008 2009 2010 Note: 2006-2008 EPS reflects the adoption of amendments to ASC 260, “Earnings Per Share” ¾ Improving revenue growth ¾ Continuing margin expansion ¾ I
Slide 17: www.ibm.com/investor
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Slide 18: 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 19: Currency – Year/Year Comparison
Currency – Year/Year Comparison Quarterly Averages per US $ 10/15 @ 10/15 Spot 1Q10 Yr/Yr 2Q10 Yr/Yr 3Q10 Yr/Yr Spot 4Q10 FY10 Euro 0.72 6% 0.79 (7%) 0.77 (11%) 0.72 (6%) (4%) Pound 0.64 8% 0.67 (4%) 0.65 (6%) 0.63 (2%) (1%) Yen 91 3% 92 5% 86 8% 81 9% 7% Revenue Impact - Pts 5 pts 0 pts (1 pts) 0-1
Slide 20: Supplemental Segment Information – 3Q 2010
Supplemental Segment Information – 3Q 2010 Revenue Growth Backlog Global Services Yr/Yr @CC Global Services 3Q10 GTS Outsourcing 1% 2% Backlog $134B Integrated Tech Services (2%) (1%) Change in Backlog due to Currency Maintenance 2% 3% Quarter-to-Quarter $7B Global Technology Services 1% 1% Year-to-
Slide 21: Supplemental Segment Information – 3Q 2010
Supplemental Segment Information – 3Q 2010 Revenue Growth Revenue Growth Systems & Technology Yr/Yr @CC GP% Share Software Yr/Yr @CC System z 15% 17% WebSphere Family 14% 16% Information Management 5% 7% Power Systems (13%) (13%) = Tivoli 9% 11% System x 30% 31% Lotus Flat 1% Storage 7% 8% Rational
Slide 22: Global Financing Portfolio
Global Financing Portfolio 3Q10 – $22.5B Net External Receivables Investm ent Grade Non-Investm ent Grade 65% 35% 45% 40% 35% 30% 25% 20% 39% 15% 26% 10% 18% 5% 11% 4% 2% 0% Aaa-A3 Baa1-Baa3 Ba1-Ba2 Ba3-B1 B2-B3 Caa-D 3Q10 2Q10 3Q09 Identified Loss Rate 1.6% 1.8% 1.7% Anticipated Loss Rate 0.3% 0.3%
Slide 23: Revenue by Key Industry Sales Unit
Revenue by Key Industry Sales Unit $ in Billions B/(W) Yr/Yr 3Q10 Rptd @CC Financial Services $7.1 5% 5% Public Public 4.0 2% 2% Industrial Industrial 2.5 (3%) (2%) Financial Distribution Distribution 2.3 5% 6% Services Communications 2.4 1% 1% Comms General Business General Business 4.7 7% 8% All S
Slide 24: Cash Flow (FAS 95)
Cash Flow (FAS 95) $ in Billions QTD QTD YTD YTD 3Q10 3Q09 3Q10 3Q09 Net Income from Operations $3.6 $3.2 $9.6 $8.6 Depreciation / Amortization of Intangibles 1.2 1.3 3.6 3.7 Stock-based Compensation 0.2 0.1 0.5 0.4 Working Capital / Other (0.8) (0.2) (3.1) (2.3) Global Financing A/R 0.4 0.8 2.3 3.8
Slide 25: Supplemental Information – Operating Earnings
Supplemental Information – Operating Earnings The company is including a view of the impact of certain acquisition- related charges and certain retirement-related elements on IBM's earnings results (Operating Earnings). The company believes that providing investors with a view of operating earnings
Slide 26: Supplemental Information – Operating Earnings - 2010
Supplemental Information – Operating Earnings - 2010 $ in Millions, except EPS 1Q10 2Q10 3Q10 As Reported Pre-Tax Income $3,515 $4,575 $4,677 Net Income $2,601 $3,386 $3,589 EPS $1.97 $2.61 $2.82 Adjustments Pre-Tax Income Total $41 $9 $35 Non-Operating Pension* (76) (113) (104) Acquisition-Related
Slide 27: Supplemental Information – Operating Earnings – 3Q 2010
Supplemental Information – Operating Earnings – 3Q 2010 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $11,001 $65 ($53) $11,013 SG&A 5,149 (76) 20 5,094 RD&E 1,464 0 31 1,495 Pre-Tax Income 4,677 139 (104) 4,712 Net
Slide 28: Supplemental Information – Segment Performance – 3Q 2010
Supplemental Information – Segment Performance – 3Q 2010 $ in Millions, except EPS Systems Global Total GTS GBS Software & Tech Financing Segments As Reported External Gross Profit $3,349 $1,322 $4,468 $1,590 $282 $11,011 External Gross Profit Margin 35.3% 28.9% 86.7% 36.8% 53.3% 45.7% Pre-Tax Incom
Slide 29: 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 30: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of Revenue Growth Rates 3Q10 Yr/Yr vs. 2Q10 Yr/Yr As Rptd @CC Global Technology Services (1 pts) 1 pts Global Business Services 2 pts 3 pts Software (1 pts) Flat Software, excluding PLM Sale (2 pts) Flat Systems & Technology 7 pts 7 pts Global Financin
Slide 31: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of Geography Revenue Growth 3Q10 Yr/Yr As Rptd @CC Asia Pacific, other than Japan 19% 14% Japan 9% Flat Brazil 20% 15% Russia 57% 56% India 20% 15% China 37% 36% The above serves to reconcile the Non-GAAP financial information contained in the “Revenue
Slide 32: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of Revenue Growth 3Q10 Yr/Yr As Rptd @CC Growth Markets 20 17% 13% Growth Markets - Systems & Technology 26% 25% Growth Markets – Servers 29% <30% Banking, Energy & Utilities, Healthcare, Transportation 26% 21% & Rail and Natural Resources Industries G
Slide 33: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of Debt-to-Capital Ratio 3Q10 FY09 3Q09 Non-Global Financing Debt / Capital 22% 16% 14% IBM Consolidated Debt / Capital 55% 53% 58% The above serves to reconcile the Non-GAAP financial information contained in the “Balance Sheet Summary” discussion reg
Slide 34: www.ibm.com/investor
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