Slide 1: Financial Discussion
Financial Discussion Martin Schroeter Senior Vice President and Chief Financial Officer
Slide 2: IBM's Platforms
IBM’s Platforms Industry and Domain Specialization Integrated Solutions Healthcare Financial IoT Analytics Security Customer Global Services ... Engagement ... Ecosystem Services Data (Public, Private, Partner) Hybrid Software and Systems 2
Slide 3: The technology industry and IBM's platforms: Programmable Era
The technology industry and IBM’s platforms 1960-1990: The Programmable Era For example: U.S. Commercial Industry – Rise of the computer industry Bank Assets ~$3T Trends: – Increase in banking and transactions – Primitive and structured data ~$250B 1960 1990 Terabytes The World’s Data: Megabytes 196
Slide 4: The technology industry and IBM's platforms: Digital Era
The technology industry and IBM’s platforms 1990-2010: The Digital Era For example: Internet Traffic 14 Exabytes/ Industry – The Internet and World Wide Web Month Trends: – Beginning of e-commerce and mobile – Clients need help managing their I/T 1 Terabyte/ month 1990 2010 Exabytes The World’s Tera
Slide 5: The technology industry and IBM's platforms: Cognitive Era
The technology industry and IBM’s platforms Going Forward: The Cognitive Era For example: Connected Devices Industry – Cloud as the pervasive delivery platform ~34B Trends: – Complex, unstructured data requires cognitive insights ~10B – Solutions must be tailored to industries 2015 2020 Zettabytes T
Slide 6: Investments to build IBM's platforms and create new opportunities
Investments to build IBM’s platforms and create new opportunities Cognitive Market Decision Opportunity Support (by 2020): >$500B Recent Over 4,000 patents Investment in AI and cognitive computing Examples: (last 5 years) Watson Platform – Foundation for cognitive platform – Organic investment – Jeo
Slide 7: Investments to build IBM's platforms and create new opportunities
Investments to build IBM’s platforms and create new opportunities Cognitive Market Decision Enterprise Opportunity Support Cloud (by 2020): >$500B >$800B Recent Over 4,000 patents Enterprise IBM Investment in AI and cognitive Cloud platform computing including: Examples: (last 5 years) IaaS, PaaS, c
Slide 8: Investments to build IBM's platforms and create new opportunities
Investments to build IBM’s platforms and create new opportunities Cognitive Market Decision Enterprise Healthcare Opportunity Support Cloud Total Industry >$10T (by 2020): >$500B >$800B Addressable >$200B Recent Over 4,000 patents Enterprise IBM Value-based care Investment in AI and cognitive Cloud
Slide 9: Investments to build IBM's platforms and create new opportunities
Investments to build IBM’s platforms and create new opportunities Cognitive Market Decision Enterprise Healthcare Internet of Opportunity Support Cloud Total Industry >$10T Things (by 2020): >$500B >$800B Addressable >$200B >$300B Recent Over 4,000 patents Enterprise IBM Value-based care The Weather
Slide 10: Investments to build IBM's platforms and create new opportunities
Investments to build IBM’s platforms and create new opportunities Cognitive Financial Services Market Decision Enterprise Healthcare Internet of Total Industry >$10T Opportunity Support Cloud Total Industry >$10T Things Addressable (by 2020): >$500B >$800B Addressable >$200B >$300B ~$300B Recent Ove
Slide 11: Investments to build IBM's platforms and create new opportunities
Investments to build IBM’s platforms and create new opportunities Cognitive Financial Services Transforming Market Decision Enterprise Healthcare Internet of Total Industry >$10T the ~$2T Opportunity Support Cloud Total Industry >$10T Things Addressable global payments (by 2020): >$500B >$800B Addre
Slide 12: Investments position us to capitalize on macroeconomic trends
Investments position us to capitalize on macroeconomic trends Cognitive Cloud Industry 34B connected devices by 2020, >85% of enterprise I/T Healthcare – 1.5 billion people of which IoT accounts for 24B organizations will commit to aged 65 or older by 2050, compared multi-cloud architectures by 2018
Slide 13: Our business units are tied into these macroeconomic trends
Our business units are tied into these macroeconomic trends Cognitive Cloud Industry Explosion of data creates a Cognitive workloads optimized Flagship industries in health Cognitive Solutions requirement for cognitive for cloud delivery and financial services Critical infrastructure and skills Glob
Slide 14: Cognitive Solutions Segment
Cognitive Solutions Segment 2016 Performance Highlights: 2016 Longer-term Model – Solutions Software revenue +6% Revenue $18.2B Mid single-digit growth – Strategic Imperatives +8% – Cloud +54% Pre-tax Income $6.4B Mid single-digit growth – Segment as-a-Service exit run rate $1.8B Capabilities and Ad
Slide 15: Global Business Services Segment
Global Business Services Segment 2016 Performance Highlights: 2016 Longer-term Model – Strategic Imperatives +16%, mix of total GBS revenue >50% Revenue $16.7B Low single-digit growth – Cloud +66% Pre-tax Income $1.7B Mid single-digit growth – Segment as-a-Service exit run rate $1.1B Capabilities an
Slide 16: Technology Services & Cloud Platforms Segment
Technology Services & Cloud Platforms Segment 2016 Performance Highlights: 2016 Longer-term Model – Infrastructure Services +3% Revenue $35.3B Low single-digit growth – Strategic Imperatives +40% – Cloud +50% Pre-tax Income $4.7B Mid single-digit growth – Segment as-a-Service exit run rate $5.8B Cap
Slide 17: Systems Segment
Systems Segment 2016 Performance Highlights: 2016 Longer-term Model – Double-digit growth in: Revenue $7.7B – Mainframe shipped MIPs cycle to cycle Stable, high value and – Power Linux Pre-tax Income $0.9B contributes to IBM model – Flash storage Capabilities and Adoption: Going Forward: – z Systems
Slide 18: Global Financing Segment
Global Financing Segment 2016 Performance: Longer-term Model Total Assets $36B Total Debt $28B (66% of IBM) Grow asset base Equity $4B Maintain high return on equity Return on Equity 31% Supports IBM through: Changes in 2017: – Client Financing – Leases and loans to IBM clients – Consolidation of IG
Slide 19: IBM Segment Model Summary
IBM Segment Model Summary Revenue Yr/Yr Pre-tax Income Yr/Yr Cognitive Solutions Mid single-digit Mid single-digit Global Business Services Low single-digit Mid single-digit Technology Services & Low single-digit Mid single-digit Cloud Platforms Stable, adjusting for High value and contributes Syste
Slide 20: Revenue Dynamics
Revenue Dynamics Strategic $21B, $25B, $29B, $33B, Imperatives On track to reach $40B by 2018 22% 27% 35% 41% revenue and mix: As-a-Service annualized $2.2 $3.5 $5.3 $8.6 run rate ($B): 26% Longer-term Model 19% 19% 14% Strategic Imperatives: Double-digit growth Revenue -2.3% -1.5% -1.2% -1.6% IBM:
Slide 21: Pre-tax Income Contribution
Pre-tax Income Contribution Longer-term model: Mid single-digit growth Contribution to IBM pre-tax income growth: IBM Model: Low single-digit revenue growth with mix shifting ~5% / Year toward Cognitive Solutions ~0.5pts PTI dollar PTI dollar growth Margin ~1.5pts growth from: PTI dollar growth ~1pt
Slide 22: Free Cash Flow Realization
Free Cash Flow Realization Above 90% over the long term 108% 107% 103% 103% 101% 100% FCF Realization Adjusted* 98% 97% 98% 94% 98% 97% FCF Realization as Reported 89% 79% 2010 2011 2012 2013 2014 2015 2016 *Adjusted for book/cash tax differential and cash from gains 22 Note 8, 9
Slide 23: Cash Flow and Uses of Cash
Cash Flow and Uses of Cash Last 2 years Longer-term model: Net Cash from Operations: ~$32B Growth in line with profit Free Cash Flow: ~$25B Steady capital investment Free Cash Flow Realization: 98% Above 90% Uses of cash (last 2 years) Allows for return of capital: Share Dividends Returned repurchas
Slide 24: IBM Financial Model
IBM Financial Model – Low single-digit revenue growth – Mid single-digit pre-tax income growth – High single-digit EPS growth with return to shareholders – Free cash flow realization above 90% 24 Note 6, 9
Slide 25: Summary
Summary Investments position Enduring, high value Balanced investment us to capitalize on platforms and return of capital macroeconomic trends to shareholders Industry and Domain Specialization Integrated Solutions Healthcare Financial IoT Analytics Security Customer Global Serv ices ... Engagement
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Slide 27: Notes
Notes Note 1 Note 6 Source: FDIC U.S. Commercial Bank Reports (online database) Currency rate fluctuations not factored into longer-term model revenue growth rates Note 2 Source: Adapted from Cisco report “The History and Future of Internet Traffic,” Note 7 August 2015 GTS backlog growth at constant
Slide 28: Forward-looking statements and Non-GAAP information
Forward-looking statements and Non-GAAP information Certain comments made in this presentation may be In an effort to provide additional and useful information characterized as forward looking under the Private regarding the company’s financial results and other financial Securities Litigation Refor
Slide 29: Non-GAAP Supplemental Materials
Non-GAAP Supplemental Materials
Slide 30: Reconciliation of Revenue Growth
Non-GAAP Supplemental Materials Reconciliation of Revenue Growth FY 16 Yr/Yr FY 15 Yr/Yr FY 14 Yr/Yr FY 13 Yr/Yr GAAP @CC GAAP @CC @CC excl. GAAP @CC @CC excl. GAAP @CC Divested Divested Businesses Businesses Strategic 13% 14% 17% 24% 26% 16% 18% 19% 17% 19% Imperatives Total IBM (2.2%) (1.6%) (11.9
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