IBM REPORTS 2009 SECOND-QUARTER RESULTS
ARMONK, N.Y., July 16, 2009 . . . IBM (NYSE: IBM) today announced second-quarter 2009 diluted earnings of $2.32 per share compared with diluted earnings of $1.97 per share in the second quarter of 2008, an increase of 18 percent.
The earnings per share results were the highest for any first, second or third quarter in the company's history, adjusted for stock splits.
Second-quarter net income was $3.1 billion compared with $2.8 billion in the second quarter of 2008, an increase of 12 percent. Total revenues for the second quarter of 2009 of $23.3 billion decreased 13 percent (7 percent, adjusting for currency) from the second quarter of 2008.
"As a result of our strategic transformation, we have a very strong business model that is delivering superior earnings, cash and client value," said Samuel J. Palmisano, IBM chairman, president and chief executive officer.
"We have continued our strategic investments in Smarter Planet solutions, business analytics and next generation data centers. As a result we are optimistic about how IBM is positioned to make the most of current growth opportunities as well as those that emerge as the economy recovers. We are well ahead of pace for our 2010 roadmap of $10 to $11 per share."
IBM said it now expects full-year 2009 earnings of at least $9.70 per share compared with its previous expectation of at least $9.20 per share.
The company expects full-year 2009 pre-tax income for its Software segment to grow at a double-digit rate and reach approximately $8 billion.
From a geographic perspective, the Americas' second-quarter revenues were $9.9 billion, a decrease of 9 percent (7 percent, adjusting for currency) from the 2008 period. Revenues from Europe/Middle East/Africa were $7.9 billion, down 20 percent (7 percent, adjusting for currency). Asia-Pacific revenues decreased 7 percent (5 percent, adjusting for currency) to $4.9 billion. OEM revenues were $537 million, down 24 percent compared with the 2008 second quarter. Revenues from the company's growth markets organization decreased 11 percent (up 1 percent, adjusting for currency) and represented 18 percent of geographic revenues.
Total Global Services revenues decreased 12 percent (4 percent, adjusting for currency); pre-tax income increased 23 percent. Global Technology Services segment revenues decreased 10 percent (2 percent, adjusting for currency) to $9.1 billion. Global Business Services segment revenues decreased 15 percent (9 percent, adjusting for currency) to $4.3 billion. IBM signed services contracts totaling $14.0 billion, at actual rates, a decrease of 5 percent (up 3 percent, adjusting for currency), including 17 contracts greater than $100 million. Signings in Consulting and Systems Integration and in Integrated Technology Services were $6.0 billion, a decrease of 14 percent (7 percent, adjusting for currency). Total outsourcing signings increased 3 percent (12 percent, adjusting for currency) to $8.0 billion. The estimated services backlog at June 30 was $132 billion at actual rates compared with $126 billion at March 31, 2009.
Revenues from the Software segment were $5.2 billion, a decrease of 7 percent (flat, adjusting for currency) compared with the second quarter of 2008. Revenues from IBM's key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.0 billion, a decrease of 2 percent (up 5 percent, adjusting for currency) versus the second quarter of 2008. Operating systems revenues of $529 million decreased 11 percent (4 percent, adjusting for currency) compared with the prior-year quarter.
Revenues from 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, increased 8 percent year over year. Revenues from Information Management software, which enables clients to leverage information on demand, decreased 4 percent. Revenues from Tivoli software, infrastructure software that enables clients to centrally manage networks including security and storage capability, decreased 2 percent, and revenues from Lotus software, which allows collaborating and messaging by clients in real-time communication and knowledge management, decreased 14 percent. Revenues from Rational software, integrated tools to improve the processes of software development, decreased 2 percent.
Revenues from the Systems and Technology segment totaled $3.9 billion for the quarter, down 26 percent (22 percent, adjusting for currency). Systems revenues decreased 26 percent (22 percent, adjusting for currency). Revenues from the converged System p products decreased 13 percent compared with the 2008 period. Revenues from System z mainframe server products decreased 39 percent compared with the year-ago period. Total delivery of System z computing power, which is measured in MIPS (millions of instructions per second), decreased 20 percent. Revenues from the System x servers decreased 22 percent. Revenues from System Storage decreased 20 percent, and revenues from Retail Store Solutions decreased 41 percent. Revenues from Microelectronics OEM decreased 23 percent.
Global Financing segment revenues decreased 10 percent (4 percent, adjusting for currency) in the second quarter to $568 million.
The company's total gross profit margin was 45.5 percent in the 2009 second quarter compared with 43.2 percent in the 2008 second-quarter period, led by improving margins in services and software.
Total expense and other income decreased 19 percent to $6.3 billion compared with the prior-year period. SG&A expense decreased 19 percent to $5.1 billion. RD&E expense of $1.4 billion decreased 14 percent compared with the year-ago period. Intellectual property and custom development income increased to $302 million compared with $285 million a year ago. Other (income) and expense was income of $28 million compared with income of $24 million from a year ago. Interest expense decreased to $101 million compared with $145 million in the prior year.
IBM's tax rate in the second-quarter 2009 was 27.2 percent compared with 27.5 percent in the second quarter of 2008.
The weighted-average number of diluted common shares outstanding in the second-quarter 2009 was 1.34 billion compared with 1.40 billion shares in the same period of 2008. As of June 30, 2009, there were 1.31 billion basic common shares outstanding.
Debt, including Global Financing, totaled $29.4 billion, compared with $33.9 billion at year-end 2008. From a management segment view, Global Financing debt decreased $1.6 billion from year-end 2008 to a total of $22.8 billion at June 30, 2009, resulting in a debt-to-equity ratio of 6.9 to 1. Non-global financing debt totaled $6.6 billion, a decrease of $3.0 billion since year-end 2008, resulting in a debt-to-capitalization ratio of 35.0 percent from 48.7 percent.
IBM ended the second quarter of 2009 with $12.5 billion of cash on hand and generated free cash flow of $3.4 billion, excluding Global Financing receivables. The company returned $2.4 billion to shareholders through $732 million in dividends and $1.7 billion of share repurchases. The balance sheet remains strong, and the company is well positioned to take advantage of opportunities.
Year-To-Date 2009 Results
Net income for the six months ended June 30, 2009 was $5.4 billion compared with $5.1 billion in the year-ago period, an increase of 6 percent. Diluted earnings per share were $4.02 compared with $3.61 per diluted share for the 2008 period, an increase of 11 percent. Revenues for the six-month period totaled $45.0 billion, a decrease of 12 percent (5 percent, adjusting for currency) compared with $51.3 billion for the six months of 2008.
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 the 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 protection; 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; competitive conditions; 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 –
The rationale for management's use of non-GAAP measures is included as part of the supplementary materials presented within the second-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/2q09. Presentation charts will be available on the Web site prior to 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).