IBM Reports 2008 Third-Quarter Results

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IBM released its third-quarter earnings statement Thursday, with the following summary:

•       Diluted earnings of $2.05 per share, up 22 percent;

•       Net income of $2.8 billion, up 20 percent;

•       Total revenues of $25.3 billion, up 5 percent;

•       Global Technology Services revenues up 8 percent; pre-tax income up 16 percent;

•       Global Business Services revenues up 7 percent; pre-tax income up 39 percent;

•       Total services pre-tax margin at six-year high;

•       Services signings of $12.7 billion, down 4 percent; short-term services signings up 13 percent;

•       Software revenues up 12 percent; pre-tax income up 19 percent;

•       System z mainframe revenues up 25 percent;

•       E/ME/A revenues up 10 percent; Asia Pacific up 6 percent; Americas up 3 percent;

•       Revenues from growth markets up 13 percent.

____________________

IBM today announced third-quarter 2008 diluted earnings of $2.05 per share from continuing operations compared with diluted earnings of $1.68 per share in the third quarter of 2007, an increase of 22 percent. Third-quarter income from continuing operations was $2.8 billion compared with $2.4 billion in the third quarter of 2007, an increase of 20 percent. Total revenues for the third quarter of 2008 of $25.3 billion increased 5 percent (2 percent, adjusting for currency) from the third quarter of 2007.

"Our results demonstrate that the combination of a steady base of recurring revenue and profits, a range of products and services that deliver value to clients worldwide, and a strong and flexible financial foundation give IBM a competitive edge in good times and tough times," said Samuel J. Palmisano, IBM chairman, president and chief executive officer.

"These strengths along with our strategy to manage for productivity in major markets and to invest for growth in emerging countries have enabled IBM to thrive despite an economic environment that no one could have predicted. We remain confident in our full-year 2008 outlook."

From a geographic perspective, the Americas' third-quarter revenues were $10.5 billion, an increase of 3 percent as reported (2 percent, adjusting for currency) from the 2007 period. Revenues from Europe/Middle East/Africa were $8.9 billion, up 10 percent (4 percent, adjusting for currency). Asia-Pacific revenues increased 6 percent (1 percent, adjusting for currency) to $5.2 billion. OEM revenues were $673 million, down 24 percent compared with the 2007 third quarter. Revenues from the company's growth markets organization increased 13 percent (10 percent, adjusting for currency) and represented 19 percent of geographic revenues.

Total Global Services revenues grew 8 percent (4 percent, adjusting for currency). Global Technology Services segment revenues increased 8 percent (5 percent, adjusting for currency) to $9.9 billion, with strong growth in Integrated Technology Services. Global Business Services segment revenues increased 7 percent (3 percent, adjusting for currency) to $4.9 billion. IBM signed services contracts totaling $12.7 billion, at actual rates, a decrease of 4 percent ($11.1 billion, adjusting for currency, down 5 percent). Short-term signings increased 13 percent, at actual rates, to $6.1 billion (up 8 percent to $5.2 billion, adjusting for currency). The company ended the third quarter with an estimated services backlog, including Strategic Outsourcing, Business Transformation Outsourcing, Integrated Technology Services, Global Business Services and Maintenance, of $114 billion, adjusting for currency.

Revenues from the Systems and Technology segment totaled $4.4 billion for the quarter, down 10 percent (11 percent, adjusting for currency). Systems revenues decreased 7 percent (8 percent, adjusting for currency). Revenues from System z mainframe server products increased 25 percent compared with the year-ago period, with double-digit growth in all geographies. Total delivery of System z computing power, which is measured in MIPS (millions of instructions per second), increased 49 percent. Revenues from the converged System p server products increased 7 percent compared with the 2007 period. Revenues from the System x servers decreased 18 percent, and revenues from the System i servers decreased 82 percent. Revenues from System Storage decreased 3 percent, and revenues from Retail Store Solutions decreased 24 percent. Revenues from Microelectronics OEM decreased 27 percent.

Revenues from the Software segment were $5.2 billion, an increase of 12 percent (8 percent, adjusting for currency) compared with the third quarter of 2007. Revenues from IBM's total middleware products, which primarily include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $4.1 billion, up 12 percent versus the third quarter of 2007. Operating systems revenues of $594 million increased 5 percent compared with the prior-year quarter.

For 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, revenues increased 4 percent. Revenues for Information Management software, which enables clients to leverage information on demand, increased 26 percent. Revenues from Tivoli software, infrastructure software that enables clients to centrally manage networks including security and storage capability, increased 2 percent, and revenues for Lotus software, which allows collaborating and messaging by clients in real-time communication and knowledge management, increased 10 percent year over year. Revenues from Rational software, integrated tools to improve the processes of software development, increased 23 percent compared with the year-ago quarter.

Global Financing segment revenues increased 2 percent (down 1 percent, adjusting for currency) in the third quarter to $633 million. Financing revenues increased 6 percent.

The company's total gross profit margin was 43.3 percent in the 2008 third quarter compared with 41.3 percent in the 2007 period, led by strong performance in both services segments and software.

Total expense and other income increased 6 percent to $7.1 billion compared with the prior-year period. Adjusting for currency and estimated acquisitions performance, total expense and other income decreased 4 percent year over year. SG&A expense increased 6 percent to $5.6 billion. RD&E expense increased 4 percent compared with the year-ago period. Intellectual property and custom development income decreased to $267 million compared with $270 million a year ago. Other (income) and expense was income of $51 million, down from $95 million. Interest expense decreased to $159 million compared with $193 million.

IBM's effective tax rate in the third-quarter 2008 was 27.5 percent compared with 28.0 percent in the third quarter of 2007.

Shares repurchased in the third quarter were approximately $2.7 billion on a cash-paid basis. The weighted-average number of diluted common shares outstanding in the third-quarter 2008 was 1.38 billion compared with 1.41 billion shares in the same period of 2007. As of September 30, 2008, there were 1.34 billion basic common shares outstanding.

Debt, including Global Financing, totaled $34.4 billion, compared with $35.3 billion at year-end 2007. From a management segment view, Global Financing debt totaled $24.5 billion at September 30, 2008 and at year-end 2007, resulting in a debt-to-equity ratio of 7.1 to 1. Non-global financing debt totaled $9.9 billion, a decrease of $0.8 billion since year-end 2007, resulting in a debt-to-capitalization ratio of 29.1 percent from 30.0 percent at year-end 2007. The cash balance was $9.8 billion at the end of the third quarter.

Year-To-Date 2008 Results

Income from continuing operations for the nine months ended September 30, 2008 was $7.9 billion compared with $6.5 billion in the year-ago period, an increase of 22 percent. Diluted earnings per share from continuing operations were $5.68 compared with $4.42 per diluted share for the 2007 period, an increase of 29 percent. Revenues from continuing operations for the nine-month period totaled $76.6 billion, an increase of 10 percent (4 percent, adjusting for currency) compared with $69.9 billion for the nine months of 2007.

IBM released its third-quarter earnings statement Thursday, with the following summary:

•       Diluted earnings of $2.05 per share, up 22 percent;

•       Net income of $2.8 billion, up 20 percent;

•       Total revenues of $25.3 billion, up 5 percent;

•       Global Technology Services revenues up 8 percent; pre-tax income up 16 percent;

•       Global Business Services revenues up 7 percent; pre-tax income up 39 percent;

•       Total services pre-tax margin at six-year high;

•       Services signings of $12.7 billion, down 4 percent; short-term services signings up 13 percent;

•       Software revenues up 12 percent; pre-tax income up 19 percent;

•       System z mainframe revenues up 25 percent;

•       E/ME/A revenues up 10 percent; Asia Pacific up 6 percent; Americas up 3 percent;

•       Revenues from growth markets up 13 percent.

____________________

IBM today announced third-quarter 2008 diluted earnings of $2.05 per share from continuing operations compared with diluted earnings of $1.68 per share in the third quarter of 2007, an increase of 22 percent. Third-quarter income from continuing operations was $2.8 billion compared with $2.4 billion in the third quarter of 2007, an increase of 20 percent. Total revenues for the third quarter of 2008 of $25.3 billion increased 5 percent (2 percent, adjusting for currency) from the third quarter of 2007.

"Our results demonstrate that the combination of a steady base of recurring revenue and profits, a range of products and services that deliver value to clients worldwide, and a strong and flexible financial foundation give IBM a competitive edge in good times and tough times," said Samuel J. Palmisano, IBM chairman, president and chief executive officer.

"These strengths along with our strategy to manage for productivity in major markets and to invest for growth in emerging countries have enabled IBM to thrive despite an economic environment that no one could have predicted. We remain confident in our full-year 2008 outlook."

From a geographic perspective, the Americas' third-quarter revenues were $10.5 billion, an increase of 3 percent as reported (2 percent, adjusting for currency) from the 2007 period. Revenues from Europe/Middle East/Africa were $8.9 billion, up 10 percent (4 percent, adjusting for currency). Asia-Pacific revenues increased 6 percent (1 percent, adjusting for currency) to $5.2 billion. OEM revenues were $673 million, down 24 percent compared with the 2007 third quarter. Revenues from the company's growth markets organization increased 13 percent (10 percent, adjusting for currency) and represented 19 percent of geographic revenues.

Total Global Services revenues grew 8 percent (4 percent, adjusting for currency). Global Technology Services segment revenues increased 8 percent (5 percent, adjusting for currency) to $9.9 billion, with strong growth in Integrated Technology Services. Global Business Services segment revenues increased 7 percent (3 percent, adjusting for currency) to $4.9 billion. IBM signed services contracts totaling $12.7 billion, at actual rates, a decrease of 4 percent ($11.1 billion, adjusting for currency, down 5 percent). Short-term signings increased 13 percent, at actual rates, to $6.1 billion (up 8 percent to $5.2 billion, adjusting for currency). The company ended the third quarter with an estimated services backlog, including Strategic Outsourcing, Business Transformation Outsourcing, Integrated Technology Services, Global Business Services and Maintenance, of $114 billion, adjusting for currency.

Revenues from the Systems and Technology segment totaled $4.4 billion for the quarter, down 10 percent (11 percent, adjusting for currency). Systems revenues decreased 7 percent (8 percent, adjusting for currency). Revenues from System z mainframe server products increased 25 percent compared with the year-ago period, with double-digit growth in all geographies. Total delivery of System z computing power, which is measured in MIPS (millions of instructions per second), increased 49 percent. Revenues from the converged System p server products increased 7 percent compared with the 2007 period. Revenues from the System x servers decreased 18 percent, and revenues from the System i servers decreased 82 percent. Revenues from System Storage decreased 3 percent, and revenues from Retail Store Solutions decreased 24 percent. Revenues from Microelectronics OEM decreased 27 percent.

Revenues from the Software segment were $5.2 billion, an increase of 12 percent (8 percent, adjusting for currency) compared with the third quarter of 2007. Revenues from IBM's total middleware products, which primarily include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $4.1 billion, up 12 percent versus the third quarter of 2007. Operating systems revenues of $594 million increased 5 percent compared with the prior-year quarter.

For 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, revenues increased 4 percent. Revenues for Information Management software, which enables clients to leverage information on demand, increased 26 percent. Revenues from Tivoli software, infrastructure software that enables clients to centrally manage networks including security and storage capability, increased 2 percent, and revenues for Lotus software, which allows collaborating and messaging by clients in real-time communication and knowledge management, increased 10 percent year over year. Revenues from Rational software, integrated tools to improve the processes of software development, increased 23 percent compared with the year-ago quarter.

Global Financing segment revenues increased 2 percent (down 1 percent, adjusting for currency) in the third quarter to $633 million. Financing revenues increased 6 percent.

The company's total gross profit margin was 43.3 percent in the 2008 third quarter compared with 41.3 percent in the 2007 period, led by strong performance in both services segments and software.

Total expense and other income increased 6 percent to $7.1 billion compared with the prior-year period. Adjusting for currency and estimated acquisitions performance, total expense and other income decreased 4 percent year over year. SG&A expense increased 6 percent to $5.6 billion. RD&E expense increased 4 percent compared with the year-ago period. Intellectual property and custom development income decreased to $267 million compared with $270 million a year ago. Other (income) and expense was income of $51 million, down from $95 million. Interest expense decreased to $159 million compared with $193 million.

IBM's effective tax rate in the third-quarter 2008 was 27.5 percent compared with 28.0 percent in the third quarter of 2007.

Shares repurchased in the third quarter were approximately $2.7 billion on a cash-paid basis. The weighted-average number of diluted common shares outstanding in the third-quarter 2008 was 1.38 billion compared with 1.41 billion shares in the same period of 2007. As of September 30, 2008, there were 1.34 billion basic common shares outstanding.

Debt, including Global Financing, totaled $34.4 billion, compared with $35.3 billion at year-end 2007. From a management segment view, Global Financing debt totaled $24.5 billion at September 30, 2008 and at year-end 2007, resulting in a debt-to-equity ratio of 7.1 to 1. Non-global financing debt totaled $9.9 billion, a decrease of $0.8 billion since year-end 2007, resulting in a debt-to-capitalization ratio of 29.1 percent from 30.0 percent at year-end 2007. The cash balance was $9.8 billion at the end of the third quarter.

Year-To-Date 2008 Results

Income from continuing operations for the nine months ended September 30, 2008 was $7.9 billion compared with $6.5 billion in the year-ago period, an increase of 22 percent. Diluted earnings per share from continuing operations were $5.68 compared with $4.42 per diluted share for the 2007 period, an increase of 29 percent. Revenues from continuing operations for the nine-month period totaled $76.6 billion, an increase of 10 percent (4 percent, adjusting for currency) compared with $69.9 billion for the nine months of 2007.

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