3rd Quarter Results
IBM
Bill Hughes, 914/499-6565
bhughes@us.ibm.com
IBM Reports 2003 Third-Quarter Results
IBM today announced third-quarter 2003 diluted earnings per common
share of $1.02 from continuing operations compared with diluted
earnings per common share of $.99 in the prior-year period, an
increase of 3 percent. Income from continuing operations for the
third-quarter 2003 was $1.8 billion compared with $1.7 billion in the
third quarter of 2002, an increase of 5 percent. Revenues from
continuing operations for the third quarter were $21.5 billion, up 9
percent (4 percent at constant currency) compared with revenues of
$19.8 billion for the year-ago period.
Samuel J. Palmisano, IBM chairman and chief executive officer, said:
'We delivered another good quarter despite the challenging economy and
continued to gain share across our strategic businesses.
'We are beginning to see signs that the economy has stabilized. As we
look to 2004, more customers are expected to increase their
investments in information technology. While demand is not yet across
the board, it is strongest in the areas where we have positioned the
company and strengthened our capabilities. Next year, in fact, we see
the need for approximately 10,000 new positions in key skill areas,
including high-value services, middleware technologies, Linux and open
standards-based hardware and software. And we are committing $200
million of our $700 million in training and learning to equip more
than 100,000 existing employees with the skills that are highest in
demand.
'Although it is too early to say that a rebound is at hand, we are
confident that we will benefit from both a pick up in IT spending and
an economic recovery.'
In the Americas, third-quarter revenues from continuing operations
were $9.4 billion, an increase of 4 percent (3 percent at constant
currency) from the same 2002 period. Revenues from Europe/Middle
East/Africa were $6.8 billion, up 19 percent (7 percent at constant
currency). Asia-Pacific revenues improved 11 percent (7 percent at
constant currency) to $4.8 billion. OEM revenues across all
geographies decreased 26 percent (26 percent at constant currency) to
$643 million compared with the third quarter of 2002.
Revenues from Global Services, including maintenance, increased 17
percent (11 percent at constant currency) in the third quarter to
$10.4 billion aided by the addition of the former PwC Consulting
business. Global Services revenues, excluding maintenance, increased
18 percent (13 percent at constant currency). IBM signed more than $15
billion in services contracts in the third quarter and the estimated
backlog was $115 billion at the end of the third quarter.
Total hardware revenues from continuing operations decreased 1 percent
(5 percent at constant currency) to $6.7 billion from the 2002 third
quarter. Systems Group revenues, which include IBM eServers and
storage systems products, were $3.2 billion, up 6 percent (flat at
constant currency). IBM eServers' revenues increased for xSeries Intel
processor-based servers, pSeries UNIX-based servers and iSeries
midrange servers. Revenues from zSeries mainframes increased slightly
(down at constant currency), and MIPS (millions of instructions per
second) -- a measure of total delivery of mainframe computing power --
increased 30 percent versus the year-ago period. Storage Systems
revenues increased as a result of growth in tape and DASD FAStT
products.
Personal Systems Group revenues grew 2 percent (down 2 percent at
constant currency) to $2.8 billion primarily from higher revenues for
personal computers (down at constant currency) as increased volumes
more than offset reductions in prices. Technology Group revenues were
$695 million, down 33 percent (33 percent at constant currency),
partially attributable to actions in 2002 including the divestiture of
multiple non-core businesses.
Revenues from Software increased 11 percent (5 percent at constant
currency) to $3.5 billion compared with the prior year's third
quarter. Middleware brands, which include WebSphere and DB2 product
families as well as Rational, Tivoli and Lotus products, experienced
revenue growth of 14 percent (8 percent at constant currency) to $2.7
billion in the third quarter of 2003. Operating systems revenues
increased 6 percent (flat at constant currency) to $610 million
compared with the year-ago period.
WebSphere, IBM's family of e-business on demand middleware products,
increased revenues 12 percent (6 percent at constant currency) from a
year ago. IBM's leading database management software, DB2, increased
revenues 14 percent (8 percent at constant currency). Revenues from
Tivoli software also increased 25 percent (18 percent at constant
currency) and Lotus software revenues increased 9 percent (1 percent
at constant currency). Revenues from Rational which was acquired
during the first quarter of 2003 accounted for approximately 37
percent of the third-quarter 2003 middleware revenue growth.
Global Financing revenues decreased 10 percent (14 percent at constant
currency) in the third quarter to $715 million. Revenues from the
Enterprise Investments/Other area, which includes industry-specific IT
solutions such as product life-cycle management software, increased 3
percent (down 3 percent at constant currency) compared to the third
quarter of 2002 to $266 million.
The company's total gross profit margin from continuing operations was
36.3 percent in the 2003 third quarter, compared to 36.9 percent from
the same period in 2002.
Total expense and other income from continuing operations, in the
third quarter of 2003, was $5.3 billion, up 7 percent from the
year-ago period. Selling, general and administrative expense was $4.3
billion, up 8 percent year over year. Research, development and
engineering expense increased 8 percent to $1.3 billion compared with
the same period of 2002. Intellectual property and custom development
income increased. Other (income) and expense had a negative impact
versus the same period last year primarily from higher foreign
exchange losses on hedging contracts.
IBM's effective tax rate from continuing operations in the third-
quarter 2003 was 30.0 percent compared with 29.5 percent in the third
quarter of 2002.
For total operations, net income for the third-quarter 2003, including
discontinued operations, was $1.8 billion, or $1.02 per diluted common
share, compared with third-quarter 2002 net income of $1.3 billion, or
$.76 per diluted share.
IBM spent approximately $1.2 billion on share repurchases in the third
quarter. As of September 30, 2003, there were 1.72 billion basic
common shares outstanding. The weighted average number of diluted
common shares outstanding in the quarter was 1.76 billion compared
with 1.71 billion shares in the same period of 2002.
Debt, including Global Financing, totaled $23.0 billion, a decline of
$3.0 billion from year-end 2002. From a management segment view, the
non-global financing debt-to-capitalization ratio was 1.2 percent at
September 30, 2003, and Global Financing debt declined $1.1 billion
from year-end 2002 to a total of $22.7 billion, resulting in a
debt-to- equity ratio of 6.7 to 1.
Year-to-Date 2003 Results
Income from continuing operations for the nine months ended September
30, 2003 was $4.9 billion compared with $3.4 billion for the same
period of 2002 which included charges of $1.1 billion after tax
associated with 2002 actions. Diluted earnings per common share from
continuing operations was $2.78 compared with $1.97 after the 2002
charges of $.64 per diluted share. Revenues from continuing operations
for the nine months ended September 30, 2003 totaled $63.2 billion, up
10 percent (4 percent at constant currency) compared with $57.5
billion for the nine months of 2002.
For total operations, net income for the nine months of 2003,
including discontinued operations, was $4.9 billion, or $2.77 per
diluted common share, compared with the nine months of 2002 net income
of $2.6 billion which included $1.5 billion in charges after tax
associated with 2002 actions, or $1.47 per diluted share after $.87
per diluted share for the charges.
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 (SEC).
Presentation of Information in this Press Release
This release includes certain non-GAAP financial measures, as defined
under SEC rules. The company provides a reconciliation of those
measures to the most directly comparable GAAP measures and a list of
the reasons why the company uses these measures, as part of the
supplementary materials being presented within the third-quarter
earnings materials. These materials are available on the IBM investor
relations website at www.ibm.com/investor.
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/3q03.
INTERNATIONAL BUSINESS MACHINES CORPORATION
COMPARATIVE FINANCIAL RESULTS
(Unaudited; Dollars in millions except per share amounts)
Three Months Nine Months
Ended September 30, Ended September 30,
Percent Percent
2003 2002 Change 2003 2002 Change
------- ------- ------- ------- ------- -------
REVENUE
Global Services $10,383 $8,895 16.7% $31,187 $25,785 21.0%
Gross margin 25.1% 26.5% 25.3% 26.3%
Hardware 6,697 6,764 -1.0% 19,118 19,320 -1.0%
Gross margin 25.2% 26.7% 26.2% 25.4%
Software 3,461 3,110 11.3% 10,061 9,273 8.5%
Gross margin 85.8% 83.9% 85.6% 83.3%
Global Financing 715 795 -10.1% 2,092 2,403 -12.9%
Gross margin 57.7% 56.2% 57.1% 56.5%
Enterprise Investments/
Other 266 257 3.0% 760 721 5.3%
Gross margin 53.4% 40.2% 44.1% 47.2%
TOTAL REVENUE 21,522 19,821 8.6% 63,218 57,502 9.9%
GROSS PROFIT 7,812 7,323 6.7% 23,043 21,093 9.2%
Gross margin 36.3% 36.9% 36.4% 36.7%
EXPENSE AND OTHER INCOME
S,G&A 4,303 3,987 7.9% 12,978 13,298 -2.4%
% of revenue 20.0% 20.1% 20.5% 23.1%
R,D&E 1,307 1,213 7.7% 3,728 3,546 5.1%
% of revenue 6.1% 6.1% 5.9% 6.2%
Intellectual property
and custom development
income (406) (232) 74.9% (887) (771) 15.0%
Other (income)
and expense 26 (83) nm 114 111 2.5%
Interest expense 33 34 -3.1% 114 97 17.5%
TOTAL EXPENSE AND
OTHER INCOME 5,263 4,919 7.0% 16,047 16,281 -1.4%
% of revenue 24.5% 24.8% 25.4% 28.3%
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 2,549 2,404 6.1% 6,996 4,812 45.4%
Pre-tax margin 11.8% 12.1% 11.1% 8.4%
Provision for
income taxes 764 710 7.8% 2,099 1,389 51.1%
Effective tax
rate 30.0% 29.5% 30.0% 28.9%
INCOME FROM CONTINUING
OPERATIONS $1,785 $1,694 5.3% $4,897 $3,423 43.1%
Net margin 8.3% 8.5% 7.7% 6.0%
DISCONTINUED OPERATIONS
Loss from discontinued
operations (0) (381) (23) (862)
NET INCOME $1,785 $1,313 35.9% $4,874 $2,561 90.3%
====== ====== ====== ======
EARNINGS/(LOSS)PER SHARE
OF COMMON STOCK:
ASSUMING DILUTION
CONTINUING
OPERATIONS $1.02 $0.99 3.0% $2.78 $1.97 41.1%
DISCONTINUED
OPERATIONS (0.00) (0.22) (0.01) (0.50)
------ ------ ------ ------
TOTAL $1.02 $0.76* 34.2% $2.77 $1.47 88.4%
====== ====== ====== ======
BASIC
CONTINUING
OPERATIONS $1.04 $1.00 4.0% $2.84 $2.01 41.3%
DISCONTINUED
OPERATIONS (0.00) (0.23) (0.01) (0.51)
------ ------ ------ ------
TOTAL $1.04 $0.78* 33.3% $2.82* $1.50 88.0%
====== ====== ====== ======
AVERAGE NUMBER OF
COMMON SHARES OUT-
STANDING (M's)
ASSUMING
DILUTION 1,756.4 1,711.7 1,759.5 1,731.7
BASIC 1,722.6 1,690.5 1,725.9 1,704.6
nm - not meaningful
* Does not total due to rounding.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited)
At At
(Dollars in millions) September 30, December 31, Percent
2003 2002 Change
------------- ----------- -------
ASSETS
Cash, cash equivalents,
and marketable securities $6,171 $5,975 3.3%
Receivables - net, inventories,
prepaid expenses 34,395 35,677 -3.6%
Plant, rental machines,
and other property - net 14,489 14,440 0.3%
Investments and other assets 42,135 40,392 4.3%
-------- --------
TOTAL ASSETS $97,190 $96,484 0.7%
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $5,935 $6,031 -1.6%
Long-term debt 17,089 19,986 -14.5%
-------- --------
Total debt 23,024 26,017 -11.5%
Accounts payable, taxes,
and accruals 26,661 28,519 -6.5%
Other liabilities 20,179 19,166 5.3%
-------- --------
TOTAL LIABILITIES 69,864 73,702 -5.2%
STOCKHOLDERS' EQUITY 27,326 22,782 19.9%
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $97,190 $96,484 0.7%
======== ========
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
THIRD QUARTER 2003
----------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ------- ---------- -------
SEGMENTS
Global Services $10,383 $691 $11,074 $1,210 10.9%
% change 16.7% -2.4% 15.3% -3.9%
Systems Group 3,199 209 3,408 387 11.4%
% change 5.6% 4.5% 5.6% 1.6%
Personal Systems Group 2,796 43 2,839 (50) -1.8%
% change 2.2% 30.3% 2.5% -150.0%
Technology Group 695 187 882 (96) -10.9%
% change -33.1% -12.6% -29.6% -464.7%
Software 3,461 370 3,831 858 22.4%
% change 11.3% 22.5% 12.3% 7.4%
Global Financing 713 266 979 292 29.8%
% change -9.6% 11.8% -4.7% 33.9%
Enterprise Investments 257 2 259 (54) -20.8%
% change 7.1% 100.0% 7.5% 22.9%
TOTAL SEGMENTS 21,504 1,768 23,272 2,547 10.9%
% change 8.4% 4.2% 8.1% -0.1%
Eliminations / Other 18 (1,768) (1,750) 2
TOTAL IBM $21,522 $0 $21,522 $2,549 11.8%
% change 8.6% 8.6% 6.1%
THIRD QUARTER 2002
----------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ------- ---------- -------
SEGMENTS
Global Services $8,895 $708 $9,603 $1,259 13.1%
Systems Group 3,028 200 3,228 381 11.8%
Personal Systems Group 2,736 33 2,769 (20) -0.7%
Technology Group 1,039 214 1,253 (17) -1.4%
Software 3,110 302 3,412 799 23.4%
Global Financing 789 238 1,027 218 21.2%
Enterprise Investments 240 1 241 (70) -29.0%
TOTAL SEGMENTS 19,837 1,696 21,533 2,550 11.8%
Eliminations / Other (16) (1,696) (1,712) (146)
TOTAL IBM $19,821 $0 $19,821 $2,404 12.1%
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
(Unaudited)
NINE MONTHS 2003
----------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ------- ---------- -------
SEGMENTS
Global Services $31,187 $2,085 $33,272 $3,361 10.1%
% change 21.0% -0.2% 19.4% 10.6%
Systems Group 9,066 571 9,637 978 10.1%
% change 7.3% 8.6% 7.4% 32.2%
Personal Systems Group 7,909 123 8,032 (127) -1.6%
% change -1.7% 55.7% -1.2% nm
Technology Group 2,096 598 2,694 (218) -8.1%
% change -29.5% -7.9% -25.6% 80.2%
Software 10,061 1,147 11,208 2,347 20.9%
% change 8.5% 35.9% 10.8% 3.3%
Global Financing 2,095 868 2,963 861 29.1%
% change -11.8% 40.7% -1.0% 27.2%
Enterprise Investments 725 4 729 (208) -28.5%
% change 4.5% 33.3% 4.6% -2.0%
TOTAL SEGMENTS 63,139 5,396 68,535 6,994 10.2%
% change 9.6% 12.3% 9.8% 28.7%
Eliminations / Other 79 (5,396) (5,317) 2
TOTAL IBM $63,218 $0 $63,218 $6,996 11.1%
% change 9.9% 9.9% 45.4%
nm - not meaningful
NINE MONTHS 2002
----------------------------------------------
Pre-tax
Income
(Loss)
From
(Dollars in millions) --------- Revenue -------- Continuing Pre-tax
External Internal Total Operations Margin
-------- -------- ------- ---------- -------
SEGMENTS
Global Services $25,785 $2,089 $27,874 $3,038 10.9%
Systems Group 8,446 526 8,972 740 8.2%
Personal Systems Group 8,047 79 8,126 10 0.1%
Technology Group 2,972 649 3,621 (1,099) -30.4%
Software 9,273 844 10,117 2,272 22.5%
Global Financing 2,375 617 2,992 677 22.6%
Enterprise Investments 694 3 697 (204) -29.3%
TOTAL SEGMENTS 57,592 4,807 62,399 5,434 8.7%
Eliminations / Other (90) (4,807) (4,897) (622)
TOTAL IBM $57,502 $0 $57,502 $4,812 8.4%
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