IBM Reports 2008 First-Quarter Results
IBM (NYSE: IBM) today announced first- quarter 2008 diluted
earnings of $1.65 per share from continuing operations compared with
diluted earnings of $1.21 per share in the first quarter of 2007, an
increase of 36 percent as reported. First- quarter income from
continuing operations was $2.3 billion compared with $1.8 billion in
the first quarter of 2007, an increase of 26 percent. Total revenues
for the first quarter of 2008 of $24.5 billion increased 11 percent (4
percent, adjusting for currency) from the first quarter of 2007.
"IBM had a very good quarter, and a good start to 2008. These
results reinforce our confidence in IBM´s ability to perform well in a
dynamic global economy. Our performance is a tribute to the way we
have repositioned our company over the past several years, as well as
the hard work of IBMers across the globe," said Samuel J. Palmisano
IBM chairman, president and chief executive officer.
"IBM is a different company today, with a number of unique
advantages: our global reach and scale, our strength in profitable
growth segments, strong recurring revenue and profit streams, products
and services that create real value for clients, and the discipline
and financial strength and flexibility that enables us to adjust our
business model as conditions require.
"We feel good about the rest of the year."
From a geographic perspective, the Americas´ first-quarter
revenues were $9.9 billion, an increase of 8 percent as reported (6
percent, adjusting for currency) from the 2007 period. Revenues from
Europe/Middle East/Africa were $8.8 billion, up 16 percent (4 percent
adjusting for currency). Asia-Pacific revenues increased 14 percent (3
percent, adjusting for currency) to $5.1 billion. OEM revenues were
$696 million, down 16 percent compared with the 2007 first quarter.
Revenues from the countries in IBM´s growth markets unit were up 11
percent at constant currency and represent about 17 percent of the
company´s total revenue.
Total Global Services revenues grew 17 percent (9 percent
adjusting for currency) with strong double-digit growth in all lines
of businesses. Global Technology Services segment revenues increased
17 percent (9 percent, adjusting for currency) to $9.7 billion. Global
Business Services segment revenues increased 17 percent (9 percent
adjusting for currency) to $4.9 billion. IBM signed services contracts
totaling $10.8 billion, adjusting for currency, down 2 percent ($12.6
billion, at actual rates, up 6 percent). Short-term signings increased
6 percent to $5.6 billion, adjusting for currency (up 13 percent, at
actual rates, to $6.5 billion). The company ended the first quarter
with an estimated services backlog, including Strategic Outsourcing
Business Transformation Outsourcing, Integrated Technology Services
Global Business Services and Maintenance, of $118 billion, adjusting
for currency, an increase of more than $2 billion year over year.
Revenues from the Systems and Technology segment totaled $4.2
billion for the quarter, down 7 percent (12 percent, adjusting for
currency). Revenues decreased 2 percent excluding the year-to-year
impact of the Printing System Division divestiture in June 2007.
Systems and Technology revenues from System z server products
increased 10 percent versus the year-ago period, which reflects the
successful introduction of the new z10 enterprise class server. Total
delivery of System z computing power, which is measured in MIPS
(millions of instructions per second), increased 14 percent. Revenues
from the System p UNIX server products increased 2 percent compared
with the 2007 period and revenues from the System x servers were flat
year over year. Revenues from the System i servers decreased 21
percent. Revenues from System Storage increased 10 percent and
revenues from Technology decreased 20 percent.
Revenues from the Software segment were $4.8 billion, an increase
of 14 percent (6 percent, adjusting for currency) compared with the
first quarter of 2007. Revenues from IBM´s middleware products, which
primarily include WebSphere, Information Management, Tivoli, Lotus and
Rational products, were $3.8 billion, up 16 percent versus the first
quarter of 2007. Operating systems revenues of $529 million increased
1 percent compared with the prior-year quarter.
For the WebSphere family of software products, which facilitate
customers´ ability to manage a wide variety of business processes
using open standards to interconnect applications, data and operating
systems, revenues increased 20 percent. Revenues for Information
Management software, which enables clients to leverage information on
demand, increased 27 percent and includes growth from the acquisition
of Cognos, which closed in the quarter. Revenues from Tivoli software
infrastructure software that enables clients to centrally manage
networks including security and storage capability, increased 9
percent, and revenues for Lotus software, which allows collaborating
and messaging by clients in real-time communication and knowledge
management, increased 17 percent year over year. Revenues from
Rational software, integrated tools to improve the processes of
software development, increased 3 percent compared with the year-ago
quarter.
Global Financing segment revenues increased 3 percent (down 3
percent, adjusting for currency) in the first quarter to $633 million.
The company´s total gross profit margin was 41.5 percent in the
2008 first quarter compared with 40.2 percent in the 2007 period.
Total expense and other income increased 11 percent to $7.0
billion compared to $6.3 billion in the prior-year period. SG&A
expense increased 10 percent to $5.6 billion. RD&E expense increased 4
percent to $1.6 billion compared with the year-ago period.
Intellectual property and custom development income increased to $274
million compared with $205 million a year ago. Other (income) and
expense contributed income of $125 million in the first quarter of
2008 versus income of $180 million in the first quarter of 2007, which
primarily reflects higher year-to-year hedging losses. Interest
expense increased to $178 million compared with $73 million in the
prior-year period, primarily due to the increase in debt to finance
the company´s accelerated share repurchase agreements.
IBM´s effective tax rate in the first-quarter 2008 was 27.5
percent compared with 28.5 percent in the first quarter of 2007.
Shares repurchased in the first quarter were approximately $2.7
billion. The weighted-average number of diluted common shares
outstanding in the first-quarter 2008 was 1.40 billion compared with
1.52 billion shares in the same period of 2007. As of March 31, 2008
there were 1.37 billion basic common shares outstanding.
Debt, including Global Financing, totaled $35.2 billion, compared
with $35.3 billion at year-end 2007. From a management segment view
Global Financing debt increased $1.7 billion from year-end 2007 to a
total of $26.2 billion at the end of March 31, 2008, resulting in a
debt-to-equity ratio of 6.9 to 1. Non-global financing debt, which
reflects financial leverage associated with accelerated share
repurchase agreements, totaled $8.9 billion, a decrease of $1.8
billion since year-end 2007, resulting in a debt-to-capitalization
ratio of 26.4 percent from 30.0 percent. The cash balance was $12.0
billion at the end of the first quarter.
Forward-Looking and Cautionary Statements
Except for the historical information and discussions contained
herein, statements contained in this release may constitute
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements involve a
number of risks, uncertainties and other factors that could cause
actual results to differ materially, including the company´s failure
to continue to develop and market new and innovative products and
services and to keep pace with technological change; competitive
pressures; failure to obtain or protect intellectual property rights;
breaches of the company´s data security measures; changes in the
economic environment and corporate IT spending budgets; fluctuations
in revenues and purchases, and volatility of stock prices; the
company´s ability to attract and retain key personnel and its reliance
on critical skills; adverse affects from tax matters; environmental
matters; currency fluctuations and customer financing risks; customer
credit risk on receivables; risks from investing in growth
opportunities; the company´s failure to maintain the adequacy of its
internal controls; the company´s use of certain estimates and
assumptions; dependence on certain suppliers; changes in the financial
or business condition of the company´s distributors or resellers; the
company´s ability to successfully manage acquisitions and alliances;
failure to have sufficient insurance; legal, political, health and
economic conditions; risk factors related to IBM securities; and other
risks, uncertainties and factors discussed in the company´s Form 10-Q
Form 10-K and in the company´s other filings with the U.S. Securities
and Exchange Commission (SEC) or in materials incorporated therein by
reference. The company assumes no obligation to update or revise any
forward-looking statements.
Presentation of Information in this Press Release
In an effort to provide investors with additional information
regarding the company´s results as determined by generally accepted
accounting principles (GAAP), the company has also disclosed in this
press release the following non-GAAP information which management
believes provides useful information to investors:
IBM Results -
-- adjusting for revenues from the Printing System Division
divestiture;
-- adjusting for currency (i.e., at constant currency).
The rationale for management´s use of non-GAAP measures is
included as part of the supplementary materials presented within the
first-quarter earnings materials. These materials are available on the
IBM investor relations Web site at www.ibm.com/investor and are being
included in Attachment II ("Non-GAAP Supplementary Materials") to the
Form 8-K that includes this press release and is being submitted today
to the SEC.
Conference Call and Webcast
IBM´s regular quarterly earnings conference call is scheduled to
begin at 4:30 p.m. EDT, today. Investors may participate by viewing
the Webcast at www.ibm.com/investor/1q08. Presentation charts will be
available on the Web site prior to the Webcast.
Broadcast-quality clips of IBM Senior Vice President Frank Kern
discussing IBM´s business are available at www.thenewsmarket.com/ibm.
Financial Results Below (certain amounts may not add due to use of
rounded numbers; percentages presented are calculated from the
underlying whole-dollar amounts).
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INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
Three Months Ended March 31
Percent
2008
2007 Change
----------- --------- -------
REVENUE
Global Technology Services
$ 9,677 $ 8,258
17.2%
Gross profit margin
31.3%
29.2%
Global Business Services
4,911
4,183
17.4%
Gross profit margin
25.0%
23.8%
Systems and Technology
4,219
4,520
-6.7%
Gross profit margin
37.0%
34.8%
Software
4,847
4,251
14.0%
Gross profit margin
83.9%
83.6%
Global Financing
633
614
3.0%
Gross profit margin
50.8%
50.9%
Other
216
203
6.2%
Gross profit margin
-19.9%
12.0%
TOTAL REVENUE
24,502
22,029
11.2%
GROSS PROFIT
10,166
8,866
14.7%
Gross profit margin
41.5%
40.2%
EXPENSE AND OTHER INCOME
S,G&A
5,620
5,089
10.4%
Expense to revenue
22.9%
23.1%
R,D&E
1,569
1,509
4.0%
Expense to revenue
6.4%
6.9%
Intellectual property
and custom development
income
(274)
(205)
33.6%
Other (income) and expense
(125)
(180) -30.4%
Interest expense
178
73
143.7%
TOTAL EXPENSE AND
OTHER INCOME
6,968
6,287
10.8%
Expense to revenue
28.4%
28.5%
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES
3,198
2,579
24.0%
Pre-tax margin
13.1%
11.7%
Provision for
income taxes
879
735
19.6%
Effective tax rate
27.5%
28.5%
INCOME FROM CONTINUING
OPERATIONS
2,319
1,844
25.7%
Net margin
9.5%
8.4%
DISCONTINUED OPERATIONS
Income from discontinued
operations
---
0
NET INCOME
$ 2,319 $ 1,844
25.7%
---------- --------
EARNINGS/(LOSS)PER SHARE
OF COMMON STOCK:
ASSUMING DILUTION
CONTINUING
OPERATIONS
$
1.65 $
1.21
36.4%
DISCONTINUED
OPERATIONS
---
0.00
---------- --------
TOTAL
$
1.65 $
1.21
36.4%
========== ========
BASIC
CONTINUING
OPERATIONS
$
1.68 $
1.23
36.6%
DISCONTINUED
OPERATIONS
---
0.00
---------- --------
TOTAL
$
1.68 $
1.23
36.6%
========== ========
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING (M´s)
ASSUMING DILUTION
1,404.3
1,522.8
BASIC
1,383.0
1,499.5
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INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
At
At
(Dollars in millions)
March 31, December 31, Percent
2008
2007 Change
----------- ------------ -------
ASSETS
Cash, cash equivalents
and marketable securities
$ 12,027
$ 16,146 -25.5%
Receivables - net, inventories
prepaid expenses
36,398
37,031
-1.7%
Plant, rental machines
and other property - net
15,470
15,081
2.6%
Investments and other assets
57,928
52,172
11.0%
----------- ------------
TOTAL ASSETS
$ 121,823
$120,431
1.2%
=========== ============
LIABILITIES AND STOCKHOLDERS´ EQUITY
Short-term debt
$ 15,235
$ 12,235
24.5%
Long-term debt
19,951
23,039 -13.4%
----------- ------------
Total debt
35,186
35,274
-0.3%
Accounts payable, taxes
and accruals
31,813
32,076
-0.8%
Other liabilities
26,096
24,612
6.0%
----------- ------------
TOTAL LIABILITIES
93,095
91,962
1.2%
STOCKHOLDERS´ EQUITY
28,728
28,470
0.9%
----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS´ EQUITY
$ 121,823
$120,431
1.2%
=========== ============
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INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
FIRST-QUARTER 2008
Continuing
Pre-tax
Income
(Loss)
From
(Dollars in millions)
Revenue
Continuing
Pre-tax
---------
--------
External Internal
Total Operations
Margin
--------- -------- -------- ----------
-------
SEGMENTS
Global Technology
Services
$9,677
$388 $10,065
$988
9.8%
Y-T-Y Change
17.2%
-8.7%
15.9%
45.1%
Global Business
Services
4,911
258
5,169
579
11.2%
Y-T-Y Change
17.4%
-14.5%
15.3%
23.4%
Systems and Technology
4,219
195
4,414
145
3.3%
Y-T-Y Change
-6.7%
-27.1%
-7.8%
50.7%
Software
4,847
667
5,514
1,267
23.0%
Y-T-Y Change
14.0%
14.1%
14.0%
22.3%
Global Financing
633
386
1,019
388
38.1%
Y-T-Y Change
3.0%
10.7%
5.8%
3.9%
TOTAL REPORTABLE
SEGMENTS
24,286
1,894
26,180
3,368
12.9%
Y-T-Y Change
11.3%
-1.7%
10.2%
26.8%
Eliminations / Other
216 (1,894) (1,679)
(170)
TOTAL IBM CONSOLIDATED $24,502
$0 $24,502
$3,198
13.1%
Y-T-Y Change
11.2%
11.2%
24.0%
FIRST-QUARTER 2007
Pre-tax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing
Pre-tax
External Internal
Total Operations
Margin
--------- -------- -------- ----------
-------
SEGMENTS
Global Technology
Services
$8,258
$425
$8,683
$681
7.8%
Global Business
Services
4,183
301
4,485
470
10.5%
Systems and Technology
4,520
267
4,787
96
2.0%
Software
4,251
585
4,836
1,036
21.4%
Global Financing
614
349
963
374
38.8%
TOTAL REPORTABLE
SEGMENTS
21,826
1,927
23,753
2,657
11.2%
Eliminations / Other
203 (1,927) (1,724)
(78)
TOTAL IBM CONSOLIDATED $22,029
$0 $22,029
$2,579
11.7%
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