Samuel J. Palmisano
IBM Chairman and Chief Executive Officer
Final Remarks, as prepared
2009 IBM Annual Meeting of Stockholders
Miami, Florida
April 28, 2009
"Report to Shareholders"
I will now provide a report on your company.
We all are aware of the challenges facing the global economy. You need to know that IBM is well-positioned to continue delivering strong results, as we have been doing… as we did again in 2008… and as we continued to do in the first quarter of 2009. Last year we achieved record revenue, record pretax earnings, record EPS and record free cash flow.
Even more importantly, we are also positioned to lead in the new era that lies on the other side of the present crisis. This moment of historic change presents an opportunity for IBM, not only to assert leadership in our industry, but to play a central role in changing how the world works. Our confidence is grounded in the strategic transformation of IBM over the past several years and the focused execution of nearly 400,000 IBMers around the world.
IBM is now a very different company than it was just a few years ago. As a result, we entered this turbulent period strong, and we expect to exit it stronger.
Our 2008 revenue was a record $103.6 billion, up 5 percent. IBM's gross profit margin rose for the fifth consecutive year—to 44.1 percent, up 7.6 points since 2003. Last year was another record in earnings per share, marking six straight years of double-digit growth. And our free cash flow, excluding a year-to-year change in Global Financing receivables, was $14.3 billion, an increase of $1.9 billion.
Our superior cash flow has enabled us to invest in the business and to generate substantial returns to you. We invested $6.3 billion for 15 acquisitions and $6.3 billion in R&D. Even so, we were able to return more than $13 billion to you—$10.6 billion through share repurchase and $2.6 billion through dividends.
Last year's dividend increase was 25 percent, marking the 13th year in a row in which we have raised our dividend. And as I announced earlier, we extended that run today.
I trust you saw our results for the first quarter of 2009, which we announced last week. We continued to achieve solid performance in a difficult environment—growing earnings per share by 4 percent and gross profit margin by 1.9 points, while generating substantial cash.
Clients' immediate needs today are clear: save money, preserve capital and reduce costs. We help them do that, and our ability to deliver that kind of value is why they continue to choose IBM. It's why our services business achieved its highest margin in the past five years. It's why our software business continues to grow—with pretax profit doubling over the past five years to $7 billion in 2008. And it's why we continue to enjoy strength in high-utilization, high-performance systems.
In sum, with our excellent balance sheet, solid recurring revenue, strong profit streams and unmatched global reach, we are confident about 2009 and are ahead of pace for our 2010 objective of $10 to $11 in earnings per share.
Many companies today are reacting to the current global downturn by drastically curtailing spending and investment, even in areas that are important to their future. We are taking a different approach.
Of course, we must continue to improve our competitiveness. But while we maintain discipline and prudence in the near term, we also maintain the discipline to plan for the future. We are continuing to invest in R&D, strategic acquisitions and growth initiatives. Specifically, we are investing in a significant change underway in computing, in how it is applied by our clients, and its impact on the world.
Perhaps you have seen some of our communications in the press, with governments and in advertising about a "Smarter Planet." We've provided some examples for you here today. This is far more than a marketing campaign.
For several years we have been telling you about a shift in computing… that information technology is being put into things you'd never think of as computers. We've also talked about a shift in how clients would use technology—integrating IT to bring about fundamental transformation of what they do. These shifts are now coming together in powerful ways that open up significant opportunities for IBM.
Through pervasive instrumentation and interconnection, almost anything—any person, object, process or service, for any organization, large or small—can become digitally aware, networked and intelligent. This means that industries, infrastructures, processes and entire societies can be more productive, efficient and responsive.
We know this because IBM is building these systems today, in collaboration with forward-thinking clients around the world.
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This list goes on—a smart bay in Ireland, smart healthcare in northeast Pennsylvania, smart food tracking in Norway, smart telecommunications in India. And the opportunity for such solutions is growing fast. All around the world, economic stimulus is being injected by governments… much of it aimed at smart grids, healthcare data integration, water management and smarter transportation.
We are moving quickly to capture these opportunities. Two weeks ago we announced our Business Analytics and Optimization service line. This new consulting business will draw on the full breadth of IBM's capabilities, including our deep software assets in information management and advanced analytics from IBM Research. This business will help our clients see new patterns and correlations in data to understand—ahead of time—the consequences of any decision… and therefore predict business outcomes with far greater certainty.
Today we announced a major analytics engagement with the State of Arkansas, to monitor and manage economic stimulus investments.
And to accelerate our ability to capture this opportunity, we are also announcing today the creation of Analytics Solution Centers around the world—starting in New York, London, Beijing, Tokyo and Washington, DC—to serve clients seeking a deeper, system-level view of financial risk across markets. At launch, each of these centers will be staffed with more than 100 consultants each, and over time we will retrain or hire up to 4,000 new analytics consultants and professionals for these highly-skilled jobs.
Finally, for a look into the future—at what will be possible when the world's systems are infused with intelligence—we unveiled plans on Monday to build a powerful new computing system, codenamed Watson, that will compete with humans at the game of Jeopardy!
You may remember that in 1997, IBM's Deep Blue supercomputer defeated the reigning world chess champion. But this "grand challenge"—as those of you who are Jeopardy! fans know—is much harder. Jeopardy! not only quizzes contestants on an incredibly broad range of subjects, but it challenges them to understand the nature of the question itself.
And when you think about it, knowing the right question to ask and then selecting the right answer—very, very quickly—is at the heart of any decision. This is why IBM Research is undertaking this scientific project. In the future, we expect to apply these advanced capabilities to help businesses, institutions and societies find answers to deep, complex questions quickly and accurately.
Put it all together, and this is truly a unique moment—a coming-together of the world's needs with IBM's renewed capacity to capture a new wave of growth. This moment plays to our unique strengths… and to capabilities we've built over the past decade. It shows the impact of your company on things that matter, right now, to businesses and societies everywhere.
From cabinet rooms, to board rooms, to kitchen tables around the world, people are eager for change. Such a mandate doesn't come around very often—perhaps once in a generation, or in a century. I and my fellow IBMers will be aggressive in our pursuit of this opportunity.
We are deeply grateful to you, our shareholders, for your unwavering support. I hope that you are pleased with how your company is performing and evolving.
And I trust that you share our excitement about the role we can play in what promises to be a new era for our industry, for business and for our planet.
Thank you.
