Connections eMagazine

Let's cut to the chase. The news is good.

Even for IBMers who lived through the dramatic industry shifts of the 70s and 80s, the swings in our industry - and the company's forward-thinking achievements of the present - continue to amaze.

When IBM posted record results for last year, the company signaled that its game-changing investment and business strategy is paying off - and the impact should only become more clear in the years ahead.

That strategy embraces emerging countries, virtualization technologies, intellectual property, global delivery, and strength in software.

IBM 2007 Annual Report

Samuel J. Palmisano,
Chairman of the Board,
President and Chief Executive Officer At the recent IBM Investor Briefing (6 March 2008), IBM Chairman and Chief Executive Officer Sam Palmisano reported that IBM has achieved 20 consecutive quarters of earnings per share growth. Investors were told that the company is well on its way to meeting a 2010 goal of $10 to $11 in earnings per share.

At the investor's briefing, Palmisano said, "If you step back for a second, we didn't get here because of one year...our timelines tend to be a bit longer than that and a lot of the results you saw in 2007 were the result of strategic shifts we've made in the IBM company."

Roadmap to 2010

At last year's meeting, the company introduced its Earnings Per Share Roadmap to 2010. At the March briefing, IBM stated that it expects expects its emerging country revenue will double in the next few years. Last year saw 18 percent growth in Brazil, Russia, India, and China (BRIC) at constant currency. To drive the same success in emerging markets beyond BRIC, the company has created the new Growth Markets organization.

By the end of this decade, virtualization is predicted to drive richer server configurations and an additional $1 billion of annual gross profit. These important technologies generated approximately $200 million of incremental gross profit in 2007. IBM, with its strongest new product line-up ever, will continue to build on that strength in 2008.

The 2010 plan emphasizes the importance of intellectual property and improved global delivery to drive two points of services margins improvements. Last year's strong second half drove margin expansion of 0.2 points and 13 percent growth in profit.

Lastly, the continuing success of IBM's software business is driving expanding profits as a percentage of IBM's total profit. Just last year, software profit grew 9 percent to $6 billion, with good prospects for continuing that growth, thanks to both organic innovation and targeted acquisitions.

Countries with IBM revenue growth greater than 10 percent in local currency in 2007.

The IBM difference

As part of his presentation, Palmisano recounted IBM's transformation and performance in recent years and outlined five key factors that differentiate IBM in the industry and for its clients.

Generating Higher Value at IBM (869KB)

• Global Reach and Scale: IBM serves clients in 170 countries and achieved 63 percent of its 2007 revenue from outside the United States. The company continues to shift investments to growth markets to capture the profit potential found there.
• Infrastructure: The data center - which IBM is considered by many to have invented - is going through its most fundamental transformation in decades, a shift on which IBM is ideally positioned to capitalize. Palmisano pointed to the impact of IBM's green initiatives on near-term ROI for clients through savings in energy and floor. He also described how virtualization helps clients improve data center utilization rates and makes their systems more shareable. He pointed out that service-oriented architecture is both cutting costs and dramatically increasing business flexibility.
• Technology: In order to continue to lead in infrastructure - and other areas of technology - the company has invested more than $29 billion in research and development over the past five years and has spent more than $20 billion acquiring more than 60 companies that add to IBM's portfolio of products and expertise. In addition, 2007 was IBM's 15^th consecutive year of U.S. patent leadership,
• Client Value: Palmisano reminded analysts and investors that even in tough economic times, businesses invest in IT. They do so because it saves them money and enables business-critical needs that they simply cannot ignore. He argued that they are making a greater share of these investments with IBM because of the company's unique value proposition - including global reach and scale, leading products, unique industry knowledge and business process expertise.
• Financial Strength: Investors and analysts want to see strong results and a strong balance sheet - and that's what IBM has delivered. Driving profitable growth and generating strong cash returns means that IBM can return value to shareholders and invest in growth opportunities. With its strong financial position, IBM can respond to changes in business conditions.

You can download the slides and hear the entire presentation by visiting the IBM Investor Website.