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2012 annual meeting of stockholders

IBM's president and CEO reports on the company

 

Ginni Rometty
President and Chief Executive Officer, IBM
April 24, 2012
Charleston, South Carolina

I will now provide a report on your company.

I am pleased to report that IBM had another strong year in 2011. Your company continued to outperform our industry and the market at large. We capped IBM's first century by achieving record revenue, profit, free cash flow and earnings per share. At the same time, we continued to deliver superior returns to you, and we are well positioned for future growth in a globally integrating economy.

2011 Results

Our revenue in 2011 was $107 billion, up 7 percent. IBM's operating pre-tax income margin rose for the ninth consecutive year-to 20.2 percent, up 10 points since 2000.

We have continued to achieve strong EPS growth. Last year was another record, with diluted operating earnings per share of $13.44, up 15 percent. This marked nine straight years of double-digit EPS growth.

Our cash flow has enabled us to invest in the business and to generate substantial returns to investors.

In 2011 we invested $1.8 billion for five acquisitions in key areas of software and $4.1 billion in net capital expenditures. We spent $6.3 billion on R&D.

We were able to return $18.5 billion to you—$15 billion through share repurchases and $3.5 billion through dividends. Last year's dividend increase was 15 percent, marking the 16th year in a row in which we have raised our dividend, and the 96th consecutive year in which we have paid one.

Since the beginning of 2000, we have returned $133 billion to you in the form of dividends and share repurchases, while investing $81 billion in capital expenditures and acquisitions, and spending nearly $70 billion on R&D.

Road Map to the Future

We're off to a solid start in 2012. I trust you saw our results for the first quarter, which we announced last week. We grew revenue by 1 percent at constant currency, and operating earnings per share by 15 percent.

Our continued strong performance despite a difficult global economic environment is the result of disciplined execution by more than 400,000 IBMers and continued leadership in innovation. We have steadily realigned our business, with two goals in mind:

  1. To lead in a new era of computing; and
  2. To enable our clients to benefit from the new capabilities that this era is creating.

A recent example of both goals is the new IBM PureSystems product family, which we announced a few weeks ago. PureSystems integrate IBM expertise and knowledge - in domains such as data center management and application deployment - right into the product.

This is an example of a new computing era, in which data is growing tenfold every 5 years, according to IBM Research's annual Global Technology Outlook. To handle the changing needs of business and society, computing will become information intensive, insight-driven and cognitive.

Your company's business model, which is both sustainable over the long term and fueled by some of the world's most attractive high-growth markets and technologies, provides strong benefits to our shareholders.

You see this expressed in financial terms in our EPS road maps. We introduced our first road map in 2007, and surpassed our 2010 objectives. Now, we are well on track toward our 2015 Road Map goal of at least $20 in operating earnings per share.

As before, the road map is not simply a list of targets. It is a management model, built on exploiting multiple ways to create value.

  • Operating leverage comes from our continuing shift to higher-margin businesses and improving enterprise productivity - which is expected to be $8 billion over the five-year period ending in 2015.
  • In addition, we will create value for shareholders through an anticipated $50 billion in share repurchases and $20 billion in dividends.

Growth strategies

When it comes to growth strategies, we are focused on four high-growth spaces that should drive approximately $20 billion in revenue growth by 2015:

1. Growth Markets. Revenue for our Growth Markets Unit was up 11 percent at constant currency for the second year in a row. Growth markets contributed 22 percent of IBM's geographic revenue in 2011, up from 11 percent in 2000, and we expect them to approach 30 percent by 2015. A major part of our strategy for reaching that goal is expansion beyond the "BRICs." That includes, for example, opening new offices in Africa. We now have more than 20, including sites in Tanzania, Senegal, South Africa, Morocco, Egypt, Tunisia, Algeria, Ghana, Nigeria, Kenya... and, last month, in Mauritius.

2. Business Analytics. Our analytics business grew 16 percent for the year. We were early to spot the emergence of "big data," and we have built the world's leading analytics software and consulting practice. We are applying that capability to enable our clients to identify, manage and even predict outcomes that matter to their success. This includes tapping advanced technologies, such as the breakthrough computer we call Watson - which debuted in 2011 by defeating the two all-time champions on the television quiz show Jeopardy! We are now commercializing Watson in industries such as healthcare and financial services.

3. Cloud. IBM has helped thousands of clients adopt aspects of cloud computing, where IT resources are virtualized, highly automated and accessed by self-service. Our cloud business grew threefold in 2011, thanks to the introduction of IBM Smart Cloud, the industry's most advanced cloud services and software, designed from the ground up for enterprise clients. We expect to support about 200 million users by the end of 2012.

4. Smarter Planet. All of this comes together in our solutions to build Smarter Planet systems, transforming systems such as supply chains, retail, energy, transportation, telecommunications, food and water. Smarter Planet revenue grew by almost 50 percent in 2011, driven in part by the successful establishment of large new market categories, such as Smarter Commerce and Smarter Cities. One notable example of the latter was the Integrated Operations Center we created with Rio de Janeiro, which analyzes and manages data from more than 30 municipal, regional and national systems. It is helping Rio become a model 21st century "global city," in anticipation of hosting the World Cup in 2014 and the Summer Olympics in 2016.

In sum, our strong strategic positioning, solid balance sheet, recurring revenue, robust profit streams and unmatched global reach give us confidence that we will achieve success in the next five years, as we have during the past decade.

The decade ahead

In the decade ahead, IBM is uniquely positioned to deliver the benefits of a vast new natural resource - a gusher of data from both man-made and natural systems that can now be tapped to help businesses and institutions succeed in an increasingly complex and dynamic global economy. I have met with more than 100 CEOs of our clients over the past three months, one-on-one and in small groups. This new generation of leaders is convinced that analytics, applied to the era of "big data," will be crucial to their success. And the ability to help them capture this opportunity is opening IBM to many new types of clients - from mayors, to healthcare leaders, to chief marketing officers.

We stand out among our industry peers and in business at large in our ability to tap this new natural resource, analyze and manage it with a new model of computing systems, and generate differentiating value for our clients, our own employees and the citizens of the world.

Let me close by expressing my pride in the worldwide IBM team for bringing us to this point, and my gratitude to you, our shareholders, for your unwavering support. And let me also pay tribute to the extraordinary leadership of Sam Palmisano as IBM's CEO. There is no doubt that IBM today is far stronger than it was a decade ago, in both its performance and its impact on the world.

I trust you share our excitement about your company's performance and the way in which IBMers are building on our storied past to build an even brighter future.

Thank you.


Information about non-GAAP financial measures in report on company
The references herein to the company's (i) revenue at constant currency and (ii) operating results are, in each case, non-GAAP financial measures made to facilitate a comparative view of the company's ongoing operational performance. Information about these non-GAAP financial measures is provided in the company's Form 8-K submitted to the SEC on January 19, 2012 (Attachment II — Non-GAAP Supplementary Materials) and Form 8-K submitted to the SEC on April 17, 2012 (Attachment II — Non-GAAP Supplemental Materials).