International Business Machines Corporation · NYSE:IBM
International Business Machines — IBM — Q2 2011 Earnings Presentation
35 slides from International Business Machines's earnings presentation, Jul 18, 2011
Slide 1: 2Q 2011 Earnings Presentation
® 2Q 2011 Earnings Presentation July 18, 2011 www.ibm.com/investor
Slide 2: Forward Looking Statements and Non-GAAP Information
Forward Looking Statements and Non-GAAP Information Certain comments made in this presentation may be characterized as forward looking under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the company's current assumptions regarding future business and f
Slide 3: 2Q 2011 Highlights
2Q 2011 Highlights Revenue $26.7B +12%, 5% yr/yr @CC Operating (Non-GAAP) EPS $3.09 +18% yr/yr ¾ 12% revenue growth driven by: • Key Branded Middleware +21% yr/yr • Systems +20% yr/yr, strong performance across all three server lines • Services +10% yr/yr, led by growth markets +22% (+10% @CC) ¾ Mom
Slide 4: Key Financial Metrics
Key Financial Metrics $ in Billions, except EPS P&L Highlights B/(W) P&L Ratios B/(W) 2Q11 Yr/Yr (Operating) 2Q11 Yr/Yr Revenue $26.7 12% GP Margin 46.8% 1.2 pts @CC 5% PTI Margin 18.9% (0.4 pts) PTI – Operating $5.0 10% NI Margin 14.2% (0.2 pts) EPS – Operating $3.09 18% Tax Rate 25.0% 0.8 pts Cash
Slide 5: Revenue by Geography
Revenue by Geography $ in Billions B/(W) Yr/Yr 2Q11 Rptd @CC Canada/ Americas $11.2 10% 8% LA Europe/ME/A 8.6 16% 3% U.S. EMEA Asia Pacific 6.2 14% 3% +6% OEM 0.7 Flat (1%) APac Japan +12% IBM $26.7 12% 5% - 5% @CC @CC Major Markets 10% 3% OEM -1% Growth Markets 23% 13% BRIC Countries 27% 21% Perfor
Slide 6: Revenue and Gross Profit Margin by Segment
Revenue and Gross Profit Margin by Segment Revenue Gross Profit Margin $ in Billions B/(W) Yr/Yr B/(W) 2Q11 Rptd @CC 2Q11 Yr/Yr Pts Global Technology Services $10.2 11% 3% 34.0% (0.3 pts) Global Business Services 4.9 9% 1% 28.9% 0.6 pts Software 6.2 17% 10% 88.4% 0.4 pts Systems & Technology 4.7 17%
Slide 7: Expense Summary
Expense Summary B/(W) B/(W) Yr/Yr Drivers $ in Billions 2Q11 Yr/Yr Currency Acq.* Base SG&A – Operating $5.9 (18%) (8 pts) (4 pts) (7 pts) RD&E – Operating 1.6 (6%) (3 pts) (5 pts) 2 pts IP and Development Income (0.3) (1%) Other (Income)/Expense 0.1 nm Interest Expense 0.1 (8%) Operating Expense &
Slide 8: Services Segments
Services Segments Global Technology Services (GTS) Global Business Services (GBS) B/(W) Yr/Yr $ in Billions B/(W) Yr/Yr $ in Billions 2Q11 Rptd @CC 2Q11 Rptd @CC Revenue (External) $10.2 11% 3% Revenue (External) $4.9 9% 1% Gross Margin (External) 34.0% (0.3 pts) Gross Margin (External) 28.9% 0.6 pt
Slide 9: Software Segment
Software Segment B/(W) Yr/Yr $ in Billions 2Q11 Rptd @CC Revenue (External) $6.2 17% 10% Gross Margin (External) 88.4% 0.4 pts Pre-Tax Income $2.3 12% PTI Margin 33.2% (1.4 pts) 2Q11 Revenue Yr/Yr 2Q11 Revenue Rptd @CC (% of Total Software) WebSphere Family 55% 47% Information Management 18% 11% Tiv
Slide 10: Systems & Technology Segment
Systems & Technology Segment $ in Billions B/(W) Yr/Yr 2Q11 Rptd @CC Revenue (External) $4.7 17% 12% Gross Margin (External) 40.6% 4.9 pts Pre-Tax Income $0.4 112% PTI Margin 8.0% 3.6 pts 2Q11 Revenue Yr/Yr 2Q11 Revenue Rptd @CC (% of Total Sys & Tech) System z 61% 53% Power Systems 12% 7% System x
Slide 11: Cash Flow Analysis
Cash Flow Analysis B/(W) YTD B/(W) $ in Billions 2Q11 Yr/Yr 1H11 Yr/Yr Net Cash from Operations $4.3 $0.5 $8.1 ($0.1) Less: Global Financing Receivables 0.0 0.2 1.9 0.0 Net Cash from Operations 4.3 0.3 6.2 (0.2) (excluding GF Receivables) Net Capital Expenditures (1.0) 0.0 (2.0) (0.1) Free Cash Flow
Slide 12: Balance Sheet Summary
Balance Sheet Summary $ in Billions June 10 Dec. 10 June 11 Cash & Marketable Securities $12.2 $11.7 $11.8 Non-GF Assets* 61.6 67.3 68.8 Global Financing Assets 29.5 34.5 32.9 Total Assets 103.4 113.5 113.5 Other Liabilities 55.6 61.7 60.5 Non-GF Debt* 5.5 5.8 6.4 Global Financing Debt 21.2 22.8 23.
Slide 13: Operating EPS Bridge – 2Q10 to 2Q11
Operating EPS Bridge – 2Q10 to 2Q11 $0.18 $3.09 $0.33 ($0.04) $2.62 2Q10 Revenue Growth Margin Share 2Q11 Operating EPS @ Actual Expansion Repurchases Operating EPS www.ibm.com/investor 13
Slide 14: 2Q 2011 Summary
At least 2Q 2011 Summary 2015 $20 ¾ Revenue growth driven by transaction businesses ¾ Momentum in growth initiatives • Growth markets +13% yr/yr @CC for 2Q and YTD, half of geographic revenue growth • 1st half business analytics revenue up >20% yr/yr 2010 $11.67 • Cloud revenue on track to double in
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Slide 16: Supplemental Materials
Supplemental Materials Supplemental Materials Some columns and rows in these materials, including the supplemental exhibits, may not add due to rounding ¾ Currency – Year/Year Comparison ¾ Supplemental Segment Information – Global Services ¾ Supplemental Segment Information – Systems & Technology, S
Slide 17: Currency – Year/Year Comparison
Currency – Year/Year Comparison Quarterly Averages per US $ 7/15 Yr/Yr @ 7/15 Spot 1Q11 Yr/Yr 2Q11 Yr/Yr Spot 3Q11 4Q11 FY11 Euro 0.73 (1%) 0.69 12% 0.71 9% 4% 7% Pound 0.62 3% 0.61 9% 0.62 4% 2% 5% Yen 82 9% 82 11% 79 8% 4% 8% IBM Revenue Impact 3 pts 7 pts ~5-6 pts 3 pts ~4-5 pts (US$B) Yr/Yr Reve
Slide 18: Supplemental Segment Information – 2Q 2011
Supplemental Materials Supplemental Segment Information – 2Q 2011 Supplemental Revenue Information Supplemental Backlog / Signings Information Revenue Growth $ in Billions Backlog Global Services Yr/Yr @CC Global Services 2Q11 Yr/Yr @CC GTS Outsourcing 12% 3% Total Backlog $144 +$15 +$2 Integrated T
Slide 19: Supplemental Segment Information – 2Q 2011
Supplemental Materials Supplemental Segment Information – 2Q 2011 Revenue Growth Revenue Growth Systems & Technology Yr/Yr @CC GP% Share Software Yr/Yr @CC System z 61% 53% WebSphere Family 55% 47% Information Management 18% 11% Power Systems 12% 7% Tivoli 9% 3% System x 15% 9% = Lotus 12% 4% Storag
Slide 20: Global Financing Portfolio
Global Financing Portfolio 2Q11 – $24.4B Net External Receivables Investm ent Grade Non-Investm ent Grade 65% 35% 50% 40% 30% 20% 40% 10% 25% 19% 10% 4% 2% 0% Aaa-A3 Baa1-Baa3 Ba1-Ba2 Ba3-B1 B2-B3 Caa-D 2Q11 1Q11 2Q10 Identified Loss Rate 1.0% 1.2% 1.8% Anticipated Loss Rate 0.3% 0.3% 0.3% Reserve C
Slide 21: Revenue by Key Industry Sales Unit
Supplemental Materials Revenue by Key Industry Sales Unit $ in Billions B/(W) Yr/Yr 2Q11 Rptd @CC Public Industrial Financial Services $7.8 17% 8% Public 4.0 6% Flat Financial Distribution Industrial 2.6 9% 1% Services Distribution 2.6 9% 3% Comms General Communications 2.7 16% 10% Business General
Slide 22: Cash Flow (FAS 95)
Cash Flow (FAS 95) $ in Billions QTD QTD YTD YTD 2Q11 2Q10 1H11 1H10 Net Income from Operations $3.7 $3.4 $6.5 $6.0 Depreciation / Amortization of Intangibles 1.2 1.2 2.4 2.4 Stock-based Compensation 0.2 0.2 0.3 0.3 Working Capital / Other (0.7) (0.7) (3.1) (2.4) Global Financing A/R 0.0 (0.2) 1.9 1
Slide 23: Non-GAAP Supplementary Materials
Supplemental Materials Non-GAAP Supplementary Materials In an effort to provide investors with additional information regarding the company's results as determined by generally accepted accounting principles (GAAP), the company also discusses, in its earnings press release and earnings presentation
Slide 24: Non-GAAP Supplementary Materials
Supplemental Materials Non-GAAP Supplementary Materials Cash Flow Management uses a free cash flow measure to evaluate the company’s operating results, plan share repurchase levels, evaluate strategic investments and assess the company’s ability and need to incur and service debt. The entire free ca
Slide 25: Reconciliation of Operating Earnings Per Share
Supplemental Materials Non-GAAP Supplementary Materials Non-GAAP Reconciliation of Operating Earnings Per Share 2011 Expectations IBM GAAP EPS $12.87+ IBM Operating EPS (Non-GAAP) $13.25+ Adjustments Acquisition-Related Charges * $0.40 Amortization of Purchased Intangibles $0.39 Other Acquisition-Re
Slide 26: GAAP to Operating (Non-GAAP) Bridge – 2Q 2011
Supplemental Materials Non-GAAP Supplementary Materials GAAP to Operating (Non-GAAP) Bridge – 2Q 2011 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $12,385 $87 $6 $12,477 SG&A 6,030 (76) (5) 5,950 RD&E 1,569 0 24 1,
Slide 27: GAAP to Operating (Non-GAAP) Bridge – 2Q 2010
Supplemental Materials Non-GAAP Supplementary Materials GAAP to Operating (Non-GAAP) Bridge – 2Q 2010 $ in Millions, except EPS Acquisition-related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) Gross Profit $10,809 $58 ($56) $10,811 SG&A 5,061 (62) 25 5,024 RD&E 1,475 0 32
Slide 28: Reconciliation of Free Cash Flow (excluding GF Receivables)
Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Free Cash Flow (excluding GF Receivables) $ in Billions 12 months ended 6/30/11 Net Cash from Operations $19.4 Less: Global Financing Receivables (0.7) Net Cash from Operations (excluding GF Receivables) 20.1 Net Capital Expen
Slide 29: Reconciliation of Geography Revenue Growth
Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Geography Revenue Growth 2Q11 Yr/Yr As Rptd @CC Canada 18% 11% Japan 7% (5%) Asia Pacific, other than Japan 22% 12% Growth Markets Hardware 30% 24% WebSphere 50% 39% Services 22% 10% The above serves to reconcile the Non-GAAP
Slide 30: Reconciliation of Segment Revenue Growth
Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Segment Revenue Growth 2Q11 Yr/Yr As Rptd @CC Global Technology Services Outsourcing – Growth Markets 23% 10% Integrated Technology Services – Growth Markets 23% 14% Global Business Services Growth Markets 21% 10% Major Market
Slide 31: Reconciliation of Revenue Growth
Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Revenue Growth Average 1Q 2008 to 2Q 2011 As Rptd @CC Growth Markets vs. Major Markets 9% 9% The above serves to reconcile the Non-GAAP financial information contained in the “Revenue by Geography” discussion in the company’s
Slide 32: Reconciliation of Yr/Yr Expense Drivers
Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Yr/Yr Expense Drivers Non-GAAP Operating GAAP Adjustments (Non-GAAP) SG&A Currency (8 pts) 0 pts (8 pts) Acquisitions (4 pts) 0 pts (4 pts) Base (7 pts) 0 pts (7 pts) RD&E Currency (3 pts) 0 pts (3 pts) Acquisitions (5 pts) 0
Slide 33: Reconciliation of Debt-to-Capital Ratio
Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Debt-to-Capital Ratio 2Q11 FY10 2Q10 Non-Global Financing Debt / Capital 24% 23% 23% IBM Consolidated Debt / Capital 56% 55% 56% The above serves to reconcile the Non-GAAP financial information contained in the “Balance Sheet”
Slide 34: Reconciliation of Operating EPS Bridge 2Q10 to 2Q11
Supplemental Materials Non-GAAP Supplementary Materials Reconciliation of Operating EPS Bridge 2Q10 to 2Q11 Acquisition- related Retirement-related Operating GAAP Adjustments* Adjustments** (Non-GAAP) 2Q10 EPS $2.61 $0.06 ($0.05) $2.62 Revenue growth @ actual 0.32 0.01 0.00 0.33 Margin expansion (0.
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