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Quarterly earnings

First-Quarter Earnings Announcement

IBM REPORTS 2010 FIRST-QUARTER RESULTS

ARMONK, N.Y., April 19, 2010 . . . IBM (NYSE: IBM) today announced first-quarter 2010 diluted earnings of $1.97 per share compared with diluted earnings of $1.70 per share in the first quarter of 2009, an increase of 16 percent.

First-quarter net income was $2.6 billion compared with $2.3 billion in the first quarter of 2009, an increase of 13 percent. Total revenues for the first quarter of 2010 of $22.9 billion increased 5 percent (flat, adjusting for currency) from the first quarter of 2009.

“In the first quarter, we drove significantly improved revenue growth rates from the fourth quarter across our businesses and geographies. We had strong results in strategic investment areas including growth markets, business analytics and Smarter Planet solutions,” said Samuel J. Palmisano, IBM chairman, president and chief executive officer.

“Looking ahead, we are confident in our ability to grow revenue, and given our mix of higher-value business and productivity we will expand margins, grow profit, cash and EPS, and increase returns to shareholders. Thus, we expect full-year 2010 diluted earnings per share of at least $11.20.”

The company also said it expects constant-currency revenue growth for IBM and for its total services, software and hardware businesses in the second quarter.

From a geographic perspective, the Americas’ first-quarter revenues were $9.5 billion, an increase of 2 percent (flat, adjusting for currency) from the 2009 period. Revenues from Europe/Middle East/Africa were $7.6 billion, up 5 percent (down 2 percent, adjusting for currency). Asia-Pacific revenues increased 10 percent (1 percent, adjusting for currency) to $5.3 billion. OEM revenues were $543 million, up 18 percent compared with the 2009 first quarter. Revenues from the company’s growth markets organization increased 20 percent (8 percent, adjusting for currency) and represented 19 percent of geographic revenues.

Total Global Services revenues increased 4 percent (down 2 percent, adjusting for currency). Global Technology Services segment revenues increased 6 percent (flat, adjusting for currency) to $9.3 billion. Global Business Services segment revenues were flat (down 5 percent, adjusting for currency) at $4.4 billion.

IBM signed services contracts totaling $12.3 billion, at actual rates, a decrease of 2 percent (7 percent, adjusting for currency), including 13 contracts greater than $100 million.

Application Management signings decreased 23 percent, or approximately $700 million. Without the impact of this decline, total services signings would have been up 4 percent year to year.

Signings in Transactional services (Consulting, Integrated Technology Services and Application Management Systems Integration) were $5.5 billion, a decrease of 1 percent (6 percent, adjusting for currency). Total Outsourcing services (Strategic Outsourcing and Application Management Outsourcing) signings decreased 3 percent (8 percent, adjusting for currency) to $6.8 billion.

Consulting services signings were up 18 percent, with 25 percent of signings related to Smarter Planet and Business Analytics. Strategic Outsourcing signings increased 6 percent.

The estimated services backlog at March 31 was $134 billion at actual rates compared with $126 billion in the first-quarter 2009.

Revenues from the Software segment were $5.0 billion, an increase of 11 percent (5 percent, adjusting for currency) compared with the first quarter of 2009. Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $2.8 billion, an increase of 13 percent (8 percent, adjusting for currency) versus the first quarter of 2009. Operating systems revenues of $499 million increased 1 percent (down 3 percent, adjusting for currency) compared with the prior-year quarter.

Revenues from the WebSphere family of software products, which delivers capabilities that enable clients to integrate and manage business processes across the organization, increased 13 percent year over year. Revenues from Information Management software, which enables clients to integrate, manage and use information to gain business value, increased 11 percent. Revenues from Tivoli software, which helps clients manage technology and business assets by providing visibility, control and automation across the organization, increased 23 percent, and revenues from Lotus software, which connects people and processes for more effective communication and increased productivity through collaboration, messaging and social networking software, increased 1 percent. Revenues from Rational software, which supports software development for both IT and embedded system solutions, increased 7 percent.

Revenues from the Systems and Technology segment totaled $3.4 billion for the quarter, up 5 percent (2 percent, adjusting for currency) from the first quarter of 2009. Systems revenues increased 4 percent (1 percent, adjusting for currency). Revenues from the System x increased 36 percent. Revenues from POWER Systems decreased 17 percent compared with the 2009 period. Revenues from System z mainframe server products decreased 17 percent compared with the year-ago period. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), decreased 19 percent. Revenues from System Storage increased 11 percent, and revenues from Retail Store Solutions increased 38 percent. Revenues from Microelectronics OEM increased 16 percent.

Global Financing segment revenues decreased 7 percent (12 percent, adjusting for currency) in the first quarter to $537 million.

The company’s total gross profit margin was 43.6 percent in the 2010 first quarter compared with 43.4 percent in the 2009 first-quarter period, led by improving margins in both services segments and software.

Total expense and other income increased 2 percent to $6.5 billion compared with the prior-year period. In each period, the company had gains from the sale of business operations that were largely offset by workforce rebalancing charges. SG&A expense of $5.7 billion increased 8 percent year over year and included workforce rebalancing charges of approximately $560 million, the majority of which was in Europe and Asia, compared with prior-year expense of $5.3 billion that included $265 million of workforce rebalancing charges. RD&E expense of $1.5 billion increased 2 percent compared with the year-ago period. Intellectual property and custom development income decreased to $261 million compared with $268 million a year ago. Other (income) and expense was income of $545 million including a gain of $591 million from the sale of Product Lifecycle Management operations, compared with prior-year income of $304 million that included $298 million from the sale of certain elements of the company’s logistics process operations. Interest expense decreased to $82 million compared with $136 million in the prior year.

IBM’s tax rate in the first-quarter 2010 was 26.0 percent compared with 26.5 percent in the first quarter of 2009.

The weighted-average number of diluted common shares outstanding in the first-quarter 2010 was 1.32 billion compared with 1.35 billion shares in the same period of 2009. As of March 31, 2010, there were 1.28 billion basic common shares outstanding.

Debt, including Global Financing, totaled $26.3 billion, compared with $26.1 billion at year-end 2009. From a management segment view, Global Financing debt totaled $22.2 billion versus $22.4 billion at year-end 2009, resulting in a debt-to-equity ratio of 7.0 to 1. Non-global financing debt totaled $4.1 billion, an increase of $357 million since year-end 2009, resulting in a debt-to-capitalization ratio of 17.7 percent from 16.0 percent.

IBM ended the first-quarter 2010 with $14.0 billion of cash on hand and generated free cash flow of $1.4 billion, up approximately $400 million year over year. The company returned $4.7 billion to shareholders through $0.7 billion in dividends and $4.0 billion of share repurchases. The balance sheet remains strong, and the company is well positioned to support its full-year objectives.

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 following: a downturn in economic environment and corporate IT spending budgets; the company’s failure to meet growth and productivity objectives, a failure of the company’s innovation initiatives; risks from investing in growth opportunities; failure of the company’s intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; breaches of data security; fluctuations in revenue and purchases, impact of local legal, economic, political and health conditions; adverse effects from environmental matters, tax matters and the company’s pension plans; ineffective internal controls; the company’s use of accounting estimates; the company’s ability to attract and retain key personnel and its reliance on critical skills; impact of relationships with critical suppliers; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; reliance on third party distribution channels; the company’s ability to successfully manage acquisitions and alliances; 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 –

  • presenting non-global financing debt-to-capitalization ratio;
  • adjusting for free cash flow;
  • 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/1q10. Presentation charts will be available on the Web site shortly before the Webcast.

Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).


                  INTERNATIONAL BUSINESS MACHINES CORPORATION
                         COMPARATIVE FINANCIAL RESULTS
          (Unaudited; Dollars in millions except per share amounts)
 
 
                              Three Months Ended March 31,
                                                    Percent
                                 2010      2009      Change
                              -------   -------     -------
REVENUE
 
 Global Technology Services    $9,306    $8,754        6.3%
  Gross profit margin            34.4%     33.9%
 
 Global Business Services       4,410     4,397        0.3%
  Gross profit margin            27.3%     26.5%
 
 Software                       5,018     4,539       10.6%
  Gross profit margin            84.6%     84.2%
 
 Systems and Technology         3,385     3,228        4.9%
  Gross profit margin            33.6%     34.0%
 
 Global Financing                 537       578       -7.1%
  Gross profit margin            49.8%     45.9%
 
 Other                            200       213       -6.5%
  Gross profit margin           -35.7%     52.7%
 
TOTAL REVENUE                  22,857    21,711        5.3%
 
 
GROSS PROFIT                    9,976     9,431        5.8%
  Gross profit margin            43.6%     43.4%
 
 
EXPENSE AND OTHER INCOME
 
 S,G&A                          5,677     5,264        7.8%
  Expense to revenue             24.8%     24.2%
 
 R,D&E                          1,509     1,480        2.0%
  Expense to revenue              6.6%      6.8%
 
 Intellectual property
  and custom development
  income                         (261)     (268)      -2.4%
 Other (income) and expense      (545)     (304)      79.6%
 Interest expense                  82       136      -39.6%
 
TOTAL EXPENSE AND
OTHER INCOME                    6,462     6,309        2.4%
  Expense to revenue             28.3%     29.1%
 
INCOME BEFORE
INCOME TAXES                    3,515     3,122       12.6%
  Pre-tax margin                 15.4%     14.4%
 
Provision for
income taxes                      914       827       10.4%
  Effective tax rate             26.0%     26.5%
 
NET INCOME                     $2,601    $2,295       13.3%
                               ======    ======
  Net margin                     11.4%     10.6%
 
EARNINGS PER SHARE
OF COMMON STOCK:
  ASSUMING DILUTION             $1.97     $1.70       15.9%
  BASIC                         $2.00     $1.71       17.0%
 
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING(M's):
  ASSUMING DILUTION           1,321.6   1,349.5
  BASIC                       1,301.2   1,344.3

                 INTERNATIONAL BUSINESS MACHINES CORPORATION
                 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                (Unaudited)
 
 
(Dollars in Millions)                            At March 31,   At December 31,
                                                     2010             2009
                                                -------------   ---------------
ASSETS
 
Current Assets:
Cash and cash equivalents                             $12,472           $12,183
Marketable securities                                   1,505             1,791
Notes and accounts receivable - trade
    (net of allowances of $214 in 2010 and $217
     in 2009)                                           9,324            10,736
Short-term financing receivables
    (net of allowances of $415 in 2010 and $438
     in 2009)                                          13,083            14,914
Other accounts receivable
    (net of allowances of $9 in 2010 and $15
     in 2009)                                           1,104             1,143
Inventories, at lower of average cost or market:
  Finished goods                                          555               533
  Work in process and raw materials                     1,969             1,960
                                                     --------          --------
Total inventories                                       2,524             2,494
Deferred taxes                                          1,565             1,730
Prepaid expenses and other current assets               4,121             3,946
                                                     --------          --------
Total Current Assets                                   45,697            48,935
 						     	
Plant, rental machines, and other property             39,018            39,596
   Less: Accumulated depreciation                      25,178            25,431
                                                     --------          --------
Plant, rental machines, and other property - net       13,841            14,165
Long-term financing receivables
    (net of allowances of $94 in 2010 and $97
     in 2009)	                                      	9,542            10,644
Prepaid pension assets                                  3,289             3,001
Deferred taxes                                          3,537             4,195
Goodwill                                               20,889            20,190
Intangible assets - net                                 2,618             2,513
Investments and sundry assets                           5,794             5,379
                                                     --------          --------
Total Assets                                         $105,208          $109,022
                                                     ========          ======== 
LIABILITIES AND EQUITY
 
Current Liabilities:
Taxes                                                  $2,775            $3,826
Short-term debt                                         5,014             4,168
Accounts payable                                        6,345             7,436
Compensation and benefits                               3,701             4,505
Deferred income                                        11,456            10,845
Other accrued expenses and liabilities                  5,285             5,223
                                                     --------          --------
Total Current Liabilities                              34,575            36,002
 
Long-term debt                                         21,305            21,932
Retirement and nonpension postretirement
   benefit obligations                                 15,216            15,953
Deferred income                                         3,456             3,562
Other liabilities                                       8,506             8,819
                                                     --------          --------
Total Liabilities                                      83,059            86,267
 
Contingencies and Commitments
 
Equity:
IBM Stockholders' Equity:
  Common stock                                         42,665            41,810
  Retained earnings                                    82,783            80,900
  Treasury stock -- at cost                           (85,238)          (81,243)
  Accumulated other comprehensive income/(loss)       (18,178)          (18,830)
                                                     --------          --------
  Total IBM stockholders' equity                       22,033            22,637
 
Noncontrolling interests                                  116               118
                                                     --------          --------
Total Equity                                           22,149            22,755
                                                     --------          --------
Total Liabilities and Equity                         $105,208          $109,022
                                                     ========          ======== 
                  
 
          INTERNATIONAL BUSINESS MACHINES CORPORATION
                     CASH FLOW ANALYSIS
                         (Unaudited)
 
 
(Dollars in Millions)                        Three Months Ended 
                                                   March 31,
                                                2010      2009
                                               ------    ------
Net Cash from Operations                      $4,437    $4,386
 
     Less: Global Financing (GF) 
	   Accounts Receivable                 2,101     2,584
 
Net Cash from Operations
     (Excluding GF Accounts Receivable)        2,335     1,802
 
     Net Capital Expenditures                   (904)     (760)
 
Free Cash Flow
     (Excluding GF Accounts Receivable)        1,432     1,043
 
     Acquisitions                               (824)      (21)
     Divestitures                                  0       356
     Share Repurchase                         (4,017)   (1,765)
     Dividends                                  (718)     (675)
     Non-GF Debt                                 341    (1,915)
     Other (including GF Accounts Receivable,
            GF Debt)                           3,789     2,367
 
Change in Cash and Marketable Securities          $3     ($612)
 

            INTERNATIONAL BUSINESS MACHINES CORPORATION
                           SEGMENT DATA
                           (Unaudited)
 
 
                                        FIRST-QUARTER 2010
                            ----------------------------------------------
                                                          Pre-tax
(Dollars in Millions)       --------- Revenue ---------   Income/  Pre-tax
                            External Internal     Total    (Loss)   Margin
                            -------- --------  --------  --------  -------
SEGMENTS
 
Global Technology Services   $9,306     $320    $9,626      $964     10.0%
  % change                      6.3%    -6.4%      5.8%    -12.6%
 
Global Business Services      4,410      203     4,613       445      9.7%
  % change                      0.3%   -12.5%     -0.4%    -14.6%

Software                      5,018      758     5,776     2,052     35.5%
  % change                     10.6%    23.5%     12.1%     53.7%
 
Systems and Technology        3,385      173     3,559      (170)    -4.8%
  % change                      4.9%    -1.6%      4.5%      nm


Global Financing                537      403       941       427     45.4%
  % change                     -7.1%     3.5%     -2.9%     18.7%
 
TOTAL REPORTABLE SEGMENTS    22,657    1,858    24,515     3,719     15.2%
  % change                      5.4%     5.9%      5.4%     11.1%
 
Eliminations / Other            200   (1,858)   (1,658)     (205)
 
TOTAL IBM CONSOLIDATED      $22,857       $0   $22,857    $3,515     15.4%
  % change                      5.3%               5.3%     12.6%
 
 nm – not meaningful
 
 
                                        FIRST-QUARTER 2009
                            ----------------------------------------------
                                                          Pre-tax
(Dollars in Millions)       --------- Revenue ---------   Income/  Pre-tax
                            External Internal     Total    (Loss)   Margin
                            -------- --------  --------   -------  -------
SEGMENTS
 
Global Technology Services   $8,754     $342    $9,096    $1,104     12.1%
 
Global Business Services      4,397      232     4,629       521     11.3%
 
Software                      4,539      614     5,153     1,335     25.9%
 
Systems and Technology        3,228      176     3,404        28      0.8%
 
Global Financing                578      390       968       360     37.2%
 
TOTAL REPORTABLE SEGMENTS    21,498    1,754    23,251     3,348     14.4%
 
Eliminations / Other            213   (1,754)   (1,540)     (226)
 
TOTAL IBM CONSOLIDATED      $21,711       $0   $21,711    $3,122     14.4%