IBM REPORTS 1998 FOURTH-QUARTER RESULTS
ARMONK, N.Y., January 21, 1999 . . . IBM today announced record fourth quarter 1998 diluted earnings per common share of $2.47 compared with diluted earnings per common share of $2.11 in the fourth quarter of 1997, an increase of 17 percent compared with the same period of 1997. Fourth quarter 1998 net income totaled $2.3 billion compared with $2.1 billion in the year-earlier period. Fourth quarter 1998 revenues were a record $25.1 billion, an increase of 6 percent (5 percent at constant currency) compared with the fourth quarter of 1997.
Louis V. Gerstner, Jr., IBM chairman and chief executive officer, said: "We had a good quarter that capped a year of significant progress for us. We showed particular strength in services and software -- two areas of critical importance as our customers increasingly embrace e-business and network computing. In fact, nearly 60 percent of our total gross profits now come from global services and software, and both businesses provide substantial recurring revenues. Our OEM business -- the sale of our technology to other companies -- also continued to grow strongly, benefiting from an expanding base of IBM technological leadership.
"We achieved good earnings results in the quarter despite a number of challenges: continued weakness in Asia and Latin America, ongoing softness in memory chip prices, and pricing pressures and product transitions that adversely affected our server business," Mr. Gerstner said. "We have been able to deliver consistent financial results because of the breadth and diversity of our overall business portfolio, which is unmatched in our industry."
On an as-reported basis, fourth quarter revenues from North America were $11.3 billion, an increase of 8 percent from the fourth quarter of 1997. Revenues from Europe/Middle East/Africa were $8.7 billion, up 13 percent (9 percent at constant currency). Asia-Pacific revenues fell 3 percent (6 percent at constant currency) to $4.2 billion. Revenues from Latin America declined 22 percent (19 percent at constant currency) to $929 million.
Total hardware sales declined 2 percent (2 percent at constant currency) from the year-ago period to $11.3 billion. Personal computer revenues increased. Shipments of System/390 computing power increased by approximately 60 percent, as measured in MIPS (millions of instructions per second), although S/390 revenues declined as a result of year-over-year price reductions. RS/6000 and AS/400 revenues fell and storage revenues increased.
Overall IBM services revenues were $7.1 billion, an increase of 20 percent (19 percent at constant currency) compared with the fourth quarter of 1997. Services revenues grew by more than $1 billion compared with last year's fourth quarter, and the company's services unit signed more than $9 billion in new services contracts in the quarter.
Total software revenues were $4.1 billion, up 9 percent (8 percent in constant currency) year over year, with particular strength in database, transaction processing, and Tivoli systems management products. In addition, IBM had record shipments of more than five million Lotus Notes seats in the fourth quarter. The overall software gross profit margin rose more than 3 points to 75.2 percent.
Maintenance revenues were $1.5 billion, a decrease of 3 percent (4 percent at constant currency) compared with 1997's fourth quarter. Rentals and financing revenues grew 10 percent (10 percent at constant currency) to $1.1 billion.
IBM's total gross profit margin was 39.0 percent in the fourth quarter compared with 40.1 percent in the year-ago period.
The company's expense-to-revenue ratio improved by 1.5 points year over year to 25.9 percent.
IBM spent approximately $1.6 billion on share repurchases in the fourth quarter. The average number of shares outstanding in the quarter was 919.8 million compared with 964.8 million during the same period of 1997.
Full-year 1998 results
Net income for the 12 months ended December 31, 1998 was $6.3 billion, or a record $6.57 per diluted common share, compared with net income of $6.1 billion, or $6.01 per diluted common share, in the year-earlier period. Revenues for the year ended December 31, 1998 were a record $81.7 billion, an increase of 4 percent (6 percent at constant currency) from the previous year's $78.5 billion.
Total hardware revenues for full-year 1998 were $34.7 billion, a decline of 4 percent (3 percent at constant currency). Services revenues totaled $23.4 billion, an increase of 21 percent (24 percent at constant currency). Software revenues grew 5 percent (8 percent at constant currency) to $13.5 billion. Maintenance revenues fell 7 percent (4 percent at constant currency) to $6.0 billion. Rentals and financing revenues totaled $4.0 billion, an increase of 8 percent (10 percent at constant currency).
Common share repurchases totaled $6.9 billion in 1998. The average number of shares outstanding in 1998 was 934.5 million compared with 983.3 million in 1997. There were a total of 915.9 million common shares outstanding at year-end 1998.
IBM generated $9.3 billion in cash from operations in 1998 and the company completed the year with $5.8 billion in cash.
The company's debt in support of operations, excluding global financing, decreased $1.4 billion from year-end 1997 through December 31, 1998 to a total of $1.7 billion. During the same period, debt supporting the company's global financing operations increased $3.9 billion to a total of $27.8 billion.
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, as discussed in the company's filings with the Securities and Exchange Commission.
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Dollars in millions except per share amounts)
Three Months Twelve Months
Ended December 31, Ended December 31,
Percent Percent
1998 1997 Change 1998 1997 Change
------- ------- ------- ------- ------- -------
REVENUE
Hardware sales $11,330 $11,507 -1.5% $34,673 $36,229 -4.3%
Gross margin 34.0% 37.3% 31.5% 35.0%
Services 7,067 5,886 20.1% 23,449 19,302 21.4%
Gross margin 22.8% 22.5% 21.8% 20.8%
Software 4,127 3,771 9.4% 13,548 12,844 5.4%
Gross margin 75.2% 71.8% 75.2% 70.5%
Maintenance 1,545 1,593 -3.0% 5,950 6,402 -7.1%
Gross margin 50.7% 47.9% 48.7% 47.0%
Rentals
and financing 1,062 966 9.9% 4,047 3,731 8.4%
Gross margin 43.6% 44.3% 43.2% 49.0%
TOTAL REVENUE 25,131 23,723 5.9% 81,667 78,508 4.0%
GROSS PROFIT 9,809 9,518 3.1% 30,872 30,609 0.9%
Gross margin 39.0% 40.1% 37.8% 39.0%
OPERATING EXPENSES
S,G&A 5,074 5,060 0.3% 16,662 16,634 0.2%
% of revenue 20.2% 21.3% 20.4% 21.2%
R,D&E 1,407 1,425 -1.3% 5,046 4,877 3.4%
% of revenue 5.6% 6.0% 6.2% 6.2%
OPERATING INCOME 3,328 3,033 9.7% 9,164 9,098 0.7%
Other income 187 173 7.7% 589 657 -10.4%
Interest expense 213 194 9.5% 713 728 -2.1%
INCOME BEFORE
INCOME TAXES 3,302 3,012 9.6% 9,040 9,027 0.1%
Pre-tax margin 13.1% 12.7% 11.1% 11.5%
Provision for
income taxes 956 919 4.0% 2,712 2,934 -7.6%
Effective tax
rate 28.9% 30.5% 30.0% 32.5%
NET INCOME $2,346 $2,093 12.1% $6,328 $6,093 3.9%
Net margin 9.3% 8.8% 7.7% 7.8%
Preferred stock
dividends 5 5 20 20
NET INCOME
APPLICABLE TO COMMON
SHAREHOLDERS $2,341 $2,088 12.1% $6,308 $6,073 3.9%
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EARNINGS PER SHARE
OF COMMON STOCK -
BASIC $2.55 $2.16 18.1% $6.75 $6.18 9.2%
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EARNINGS PER SHARE
OF COMMON STOCK -
ASSUMING DILUTION $2.47 $2.11 17.1% $6.57 $6.01 9.3%
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AVERAGE NUMBER OF
COMMON SHARES OUT-
STANDING (M's)
BASIC 919.8 964.8 934.5 983.3
DILUTED 947.2 990.2 960.1 1,010.9
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in millions)
At At
December 31 December 31 Percent
1998 1997 Change
--------- ----------- -------
ASSETS
Cash, cash equivalents,
and marketable securities $5,768 $7,553 -23.6%
Receivables - net, inventories,
and prepaid expenses 36,592 32,865 11.3%
Plant, rental machines,
and other property - net 19,631 18,347 7.0%
Investments and other assets 24,109 22,734 6.0%
-------- --------
TOTAL ASSETS $86,100 $81,499 5.6%
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LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $13,905 $13,230 5.1%
Long-term debt 15,508 13,696 13.2%
-------- --------
Total debt 29,413 26,926 9.2%
Accounts payable, taxes,
and accruals 22,922 20,277 13.0%
Other liabilities 14,332 14,480 -1.0%
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TOTAL LIABILITIES 66,667 61,683 8.1%
STOCKHOLDERS' EQUITY 19,433 19,816 -1.9%
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $86,100 $81,499 5.6%
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