International Business Machines Corporation · NYSE:IBM
International Business Machines — IBM — Q2 2009 Earnings Presentation
38 slides from International Business Machines's earnings presentation, Jul 16, 2009
Slide 1: 2Q 2009 Earnings Presentation
® 2Q 2009 Earnings Presentation July 16, 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: 2Q 2009 Highlights
2Q 2009 Highlights Gross Profit Margin 45.5% +2.3 pts yr/yr Pre-Tax Margin 18.3% +4.1 pts yr/yr EPS $2.32 +18% yr/yr ¾ Delivering value to clients in tough macro environment • Outsourcing signings +12% @CC, strategic outsourcing +38% @CC • Key branded middleware revenue +5% @CC ¾ Accelerating shift
Slide 4: Financial Summary
Financial Summary B/(W) $ in Billions, except EPS 2Q09 Yr/Yr Revenue $23.3 (13%) @CC (7%) GP % 45.5% 2.3 pts Expense $6.3 19% Pre-Tax Income $4.3 12% PTI Margin 18.3% 4.1 pts Tax Rate 27.2% 0.3 pts Net Income $3.1 12% Net Income Margin 13.3% 3.0 pts Shares (Diluted) (M) 1,336.9 5% EPS $2.32 18% Resu
Slide 5: IBM Transformation PTI Margin %
25% IBM Transformation $11 Objective At least $10 to $11 $9.70 in 2010 in 2009 $10 20% PTI Margin % $9 EPS $8 15% PTI Margin % $7 EPS $6 10% $5 $4 5% $3 0% $2 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09e Revenue Divested Revenue: PC, HDD, Printers, Displays, EDI, Interconnectivity Products Business mode
Slide 6: Margin Trends
Margin Trends Financial Trends Late 90s* Financial Trends Today 50% 50% 45% 45% Gross Margin 40% 40% Gross Margin 35% 35% 30% 30% 25% Expense to Revenue 25% Expense to Revenue 20% 20% 1995 1996 1997 1998 1999** 2000 2001 2002** 2003 2004** 2005** 2006 2007 2008 1H09 * 1995-1996 As Reported; 1997-200
Slide 7: Shifting Business Mix
Shifting Business Mix Segment Pre-tax Income ($B) * 20 Software Services Financing 15 Hardware ~8 7.1 Double-digit profit growth 10 2.8 in Software & Services 7.3 ~8 4.5 5 1.2 1.6 2.7 ~3 1.6 0 2000** 2008 2009e * Sum of external segment pre-tax income not equal to IBM pre-tax income ** Stock-based c
Slide 8: Revenue by Key Industry Sales Unit
Revenue by Key Industry Sales Unit $ in Billions B/(W) Yr/Yr 2Q09 Rptd @CC Financial Services $6.5 (14%) (7%) Public Public 4.0 Flat 7% Fin’l - Industrial U.S. Industrial 2.4 (23%) (18%) Financial - Distribution Distribution 2.2 (16%) (11%) Rest of Communications 2.3 (11%) (4%) World Comms General B
Slide 9: Revenue by Geography
Revenue by Geography $ in Billions B/(W) Yr/Yr 2Q09 Rptd @CC Canada/ Americas $9.9 (9%) (7%) LA Europe/ME/A 7.9 (20%) (7%) U.S. EMEA Asia Pacific 4.9 (7%) (5%) -8% Total Geographies $22.7 (13%) (6%) APac Japan +1% -11% @CC IBM $23.3 (13%) (7%) @CC OEM Major Markets (13%) (8%) -24% Growth Markets (11
Slide 10: Revenue and Gross Margin by Segment
Revenue and Gross Margin by Segment Revenue Gross Profit Margin $ in Billions B/(W) Yr/Yr B/(W) 2Q09 Rptd @CC 2Q09 Yr/Yr Pts Global Technology Services $9.1 (10%) (2%) 34.8% 3.2 pts Global Business Services 4.3 (15%) (9%) 27.2% 1.3 pts Software 5.2 (7%) Flat 85.9% 1.2 pts Systems & Technology 3.9 (2
Slide 11: Expense and Investment Summary
Expense and Investment Summary B/(W) Yr/Yr Drivers B/(W) $ in Billions 2Q09 Yr/Yr Currency Acq.* Ops SG&A $5.1 19% 7 pts (1 pts) 12 pts RD&E 1.4 14% 4 pts (1 pts) 10 pts IP and Development Income (0.3) 6% Other (Income)/Expense 0.0 14% Interest Expense 0.1 31% Total Expense & Other $6.3 19% 10 pts (
Slide 12: Margins by Segment
Margins by Segment External Total Gross Profit Margins Pre-Tax Margins B/(W) B/(W) 2Q09 Yr/Yr Pts 2Q09 Yr/Yr Pts Global Technology Services 34.8% 3.2 pts 14.9% 5.4 pts Global Business Services 27.2% 1.3 pts 13.3% 1.5 pts Software 85.9% 1.2 pts 32.0% 8.3 pts Systems & Technology 37.1% (1.5 pts) 8.1%
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 2Q09 Rptd @CC 2Q09 Rptd @CC Revenue (External) $9.1 (10%) (2%) Revenue (External) $4.3 (15%) (9%) Gross Margin (External) 34.8% 3.2 pts Gross Margin (External) 27.2%
Slide 14: Software Segment
Software Segment B/(W) Yr/Yr $ in Billions 2Q09 Rptd @CC Revenue (External) $5.2 (7%) Flat Gross Margin (External) 85.9% 1.2 pts PTI Margin 32.0% 8.3 pts 2Q09 Revenue Yr/Yr 2Q09 Revenue Rptd @CC (% of Total Software) WebSphere Family 8% 17% Information Management (4%) 4% Other Tivoli (2%) 6% Key Mid
Slide 15: Systems & Technology Segment
Systems & Technology Segment $ in Billions B/(W) Yr/Yr 2Q09 Rptd @CC Revenue (External) $3.9 (26%) (22%) Gross Margin (External) 37.1% (1.5 pts) PTI Margin 8.1% 0.8 pts 2Q09 Revenue Yr/Yr 2Q09 Revenue Rptd @CC (% of Total S&TG) System z (39%) (35%) Converged System p (13%) (8%) System x Servers (22%
Slide 16: Cash Flow Analysis
Cash Flow Analysis B/(W) YTD B/(W) $ in Billions 2Q09 Yr/Yr 1H09 Yr/Yr Net Cash from Operations $4.7 $0.5 $9.1 $0.7 Less: Global Financing Receivables 0.4 1.1 3.0 1.2 Net Cash from Operations 4.3 (0.6) 6.1 (0.6) (excluding GF Receivables) Net Capital Expenditures (0.9) 0.3 (1.6) 0.8 Free Cash Flow (
Slide 17: Balance Sheet Summary
Balance Sheet Summary $ in Billions June 08 Dec. 08 June 09 Cash & Marketable Securities $9.8 $12.9 $12.5 Non-GF Assets* 75.8 61.8 60.2 Global Financing Assets* 35.2 34.9 30.9 Total Assets 120.9 109.5 103.7 Other Liabilities 58.3 62.0 58.8 Non-GF Debt 9.1 9.6 6.6 Global Financing Debt 25.2 24.4 22.8
Slide 18: EPS Bridge – 2Q08 to 2Q09
EPS Bridge – 2Q08 to 2Q09 $0.11 $2.32 $0.22 $0.01 $1.97 ($0.26) $0.27 2Q08 EPS* Revenue Growth Gross Expense Tax Share 2Q09 EPS @ Actual Margin Productivity Rate Repurchases * EPS has been restated to reflect the adoption of EITF 03-6-1 www.ibm.com/investor 18
Slide 19: 2Q 2009 Summary
2Q 2009 Summary 25% $11 Objective Transformation At least $10 to $11 $9.70 in 2010 $10 in 2009 PTI Margin % ¾ Shifting portfolio to higher value 20% $9 spaces EPS ¾ Driving productivity and efficiency in $8 our cost structure 15% ¾ Investing in skills and capabilities to PTI Margin % $7 drive future
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Slide 21: 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 22: Currency – Year/Year Comparison
Currency – Year/Year Comparison Quarterly Averages per US $ 7/15 Yr/Yr @ 7/15 Spot 1Q09 Yr/Yr 2Q09 Yr/Yr Spot 3Q09 4Q09 Euro 0.77 (15%) 0.73 (15%) 0.71 (6%) 7% Pound 0.70 (38%) 0.65 (27%) 0.61 (15%) 5% Yen 93 11% 97 7% 93 13% 3% IBM Revenue Impact (8 pts) (7 pts) ~(2-3 pts) ~3-4 pts (US$B) Yr/Yr IBM
Slide 23: Supplemental Segment Information – 2Q 2009
Supplemental Segment Information – 2Q 2009 Revenue Growth Signings ($B) Global Services Yr/Yr @CC Global Services 2Q09 Yr/Yr @CC Strategic Outsourcing (9%) (1%) Global Services (C&SI / ITS) $6.0 (14%) (7%) Business Transformation (17%) (9%) GBS (C&SI) 3.6 (15%) (8%) Outsourcing GTS (ITS) 2.4 (11%) (
Slide 24: Supplemental Segment Information – 2Q 2009
Supplemental Segment Information – 2Q 2009 Revenue Growth Revenue Growth Systems & Technology Group Yr/Yr @CC GP% Share Software Yr/Yr @CC System z (39%) (35%) WebSphere Family 8% 17% Converged System p (13%) (8%) Information Management (4%) 4% Tivoli (2%) 6% System x Servers (22%) (17%) Lotus (14%)
Slide 25: Global Financing Portfolio
Global Financing Portfolio 2Q09 – $22.7B Net External Receivables Investm ent Grade Non-Investm ent Grade 59% 41% 35% 30% 25% 20% 15% 28% 31% 10% 20% 6% 5% 12% 3% 0% Aaa-A3 Baa1-Baa3 Ba1-Ba2 Ba3-B1 B2-B3 Caa-D 2Q09 1Q09 2Q08 Identified Loss Rate 1.7% 1.7% 1.0% Anticipated Loss Rate 0.6% 0.6% 0.5% Re
Slide 26: Cash Flow (FAS 95)
Cash Flow (FAS 95) $ in Billions QTD QTD YTD YTD 2Q09 2Q08 1H09 1H08 Net Income from Operations $3.1 $2.8 $5.4 $5.1 Depreciation / Amortization of Intangibles 1.2 1.4 2.5 2.8 Stock-based Compensation 0.1 0.2 0.3 0.3 Working Capital / Other (0.2) 0.5 (2.0) (1.5) Global Financing A/R 0.4 (0.6) 3.0 1.8
Slide 27: Margin Opportunity
Margin Opportunity 25% of companies in S&P 500 have PTI margins in excess of 20% Pre-tax Income Margin 50% 40% 30% IBM 20% 2Q09 FY08 10% 0% -10% 30% of companies in Tech Universe have PTI margins in excess of 20% -20% -30% -40% S&P 500 Tech Universe * -50% * Includes 333 worldwide technology compani
Slide 28: Supplemental EPS Information – Acquisition-Related Activity
Supplemental EPS Information – Acquisition-Related Activity The company is including a view of the impact of certain acquisition- related charges on IBM’s earnings results. Management’s view is that this supplemental information provides additional insight into the company’s ongoing operations and e
Slide 29: Supplemental EPS Information – Acquisition-Related Activity - 2009
Supplemental EPS Information – Acquisition-Related Activity - 2009 $ in Millions, except EPS 1Q09 2Q09 As Reported Pre-Tax Income $3,122 $4,262 Net Income $2,295 $3,103 EPS $1.70 $2.32 Adjustments Pre-Tax Income Total $125 $122 Amortization of Acquired Intangibles 125 122 In Process R&D 0 0 Acquisit
Slide 30: Supplemental EPS Information – Acquisition-Related Activity - 2008
Supplemental EPS Information – Acquisition-Related Activity - 2008 $ in Millions, except EPS 1Q08 2Q08 3Q08 4Q08 FY08 As Reported Pre-Tax Income $3,198 $3,814 $3,895 $5,808 $16,715 Net Income $2,319 $2,765 $2,824 $4,427 $12,334 EPS* $1.64 $1.97 $2.04 $3.27 $8.89 Adjustments** Pre-Tax Income Total $1
Slide 31: Supplemental EPS Information – Acquisition-Related Activity - 2007
Supplemental EPS Information – Acquisition-Related Activity - 2007 $ in Millions, except EPS 1Q07 2Q07* 3Q07 4Q07 FY07* As Reported Pre-Tax Income $2,579 $3,142 $3,280 $5,489 $14,489 Net Income $1,844 $2,260 $2,361 $3,951 $10,418 EPS** $1.21 $1.54 $1.67 $2.78 $7.15 Adjustments*** Pre-Tax Income Tota
Slide 32: 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 33: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Non-Recurring and Unique Items Management presents certain financial results excluding the effects of special actions taken in 1999, 2002, 2004 and 2005. Given the unique and/or non-recurring nature of these items, management believes that presenting certain financia
Slide 34: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of Gross Margin and Expense to Revenue 1999 2002 2004 2005 Gross Margin, excluding Special Actions 37.2% 36.6% 36.9% 40.1% Special Actions (0.2) - - - Gross Margin, as reported 37.0% 36.6% 36.9% 40.1% Expense to Revenue, excluding Special Actions 26.4%
Slide 35: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of Revenue Growth 2Q09 Yr/Yr As Rptd @CC Public Sector - Education 21% 29% Public Sector – Healthcare 6% 11% Asia Pacific Revenue, other than Japan (10%) 1% Japan Revenue (4%) (11%) The above serves to reconcile the Non-GAAP financial information conta
Slide 36: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of Systems & Technology Revenue Growth 2Q09 Yr/Yr As Rptd @CC System Z – Growth Markets 2% 17% The above serves to reconcile the Non-GAAP financial information contained in the “Systems & Technology Segment” discussion regarding revenue growth in certa
Slide 37: Non-GAAP Supplementary Materials
Non-GAAP Supplementary Materials Reconciliation of Debt-to-Capital Ratio 2Q08 FY08 1Q09 2Q09 Non-GF Debt / Capital 27% 49% 42% 35% IBM Consolidated Debt / Capital 55% 71% 69% 65% The above serves to reconcile the Non-GAAP financial information contained in the “Balance Sheet Summary” discussion rega
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