2nd Quarter & Interim Results
International Bus Mach Corp
19 July 2000
( BW)(NY-IBM)(IBM) IBM Announces Second-quarter 2000 Results;
2Q00 EPS Increased 16%, Excluding 1999 Items
Business Editors/High Tech Writers
ARMONK, N.Y.--(BUSINESS WIRE)--July 19, 2000--IBM today announced
second-quarter 2000 diluted earnings per common share of $1.06
compared with 1999 diluted earnings per common share of $1.28 (or $.91
per diluted share in 1999 after excluding the net benefit of $.37 per
diluted share from the gain on the sale of the Global Network and
other 1999 actions). Excluding these 1999 items, IBM's second-quarter
2000 diluted earnings per share increased 16 percent. Second-quarter
2000 net income totaled $1.9 billion compared with $2.4 billion in
1999 (or net income of $1.7 billion in 1999 after excluding the
after-tax net benefit of $687 million from the gain on the Global
Network sale and the other 1999 actions). Second-quarter 2000 revenues
declined 1 percent (flat at constant currency) to $21.7 billion
compared with the year-earlier period.
Louis V. Gerstner, Jr., IBM chairman and chief executive officer,
said: 'Our second-quarter results are right in line with our
expectations and with the view we've been expressing since last
October. Essentially, we've had three quarters of slow revenue growth,
driven by a combination of the Y2K slowdown and a series of actions
we've taken to improve our business portfolio. During that time,
however, we have been able to produce satisfactory earnings growth.
'We exited the second quarter with a significant shift in momentum
in several areas. Mid-way through the second quarter, for example, our
services business re-ignited. New signings in the quarter totaled $20
billion -- a record quarter for IBM and what would have been a record
year for many of our nearest competitors. Driven by our leadership
position in e-business, a number of our product areas also experienced
explosive growth, including Web management software, e-business
consulting, Web hosting, systems integration and wireless chips.
Importantly, we saw a firming of our server business, particularly Web
servers -- which grew revenues nearly 30 percent. Our high-end disk
drive revenues, led by our advanced Shark product, also grew 30
percent.
'In a portfolio of our breadth and size, we often have units in
transition,' Mr. Gerstner said. 'Our hard disk drive business, while
improving quarter to quarter, is still a drag on our revenue growth.
PCs, as well, improved quarter to quarter, but we're not satisfied
with the results. Nevertheless, our outlook going forward is quite
different from the one we faced in the last three quarters, and we
continue to be very encouraged about the second half of this year.'
Second-quarter revenues from the Americas totaled $9.7 billion, a
decrease of 3 percent (3 percent at constant currency) compared with
the same period of last year. Revenues from Europe/Middle East/Africa
were $5.9 billion, down 9 percent (flat at constant currency).
Asia-Pacific revenues grew 20 percent (13 percent at constant
currency) to $4.3 billion. OEM revenues totaled $1.8 billion, a 6
percent decrease (7 percent at constant currency) compared with the
second quarter of 1999.
Hardware revenues were $9.2 billion in the second quarter, a
decrease of 5 percent (4 percent at constant currency) compared with
last year's second quarter. Web server revenues, led by advanced new
high-end and mid-range models, grew strongly. System/390 and AS/400
server revenues declined, primarily due to year-over-year price
reductions in the System/390 and a product transition in the AS/400
line. Personal computer revenues declined, partly as a result of parts
shortages in certain product segments. Microelectronics revenues rose
substantially in the quarter due to strong shipments of custom chips.
Storage revenues declined, largely because of an ongoing transition in
the company's hard disk drive product line.
Revenues from IBM Global Services, including maintenance, grew 2
percent (4 percent at constant currency) in the second quarter to $8.2
billion. Excluding maintenance, Global Services revenues increased 3
percent (4 percent at constant currency) to $6.9 billion. Revenue
comparisons for IBM Global Services were adversely affected by the
sale of the Global Network to AT&T in 1999 and by a year-over-year
decline in Y2K services business. After adjusting for these factors,
Global Services revenues (excluding maintenance) increased 10 percent.
IBM concluded the quarter with a total services contract backlog of
approximately $75 billion.
Software revenues increased 2 percent (5 percent at constant
currency) in the second quarter to $3.2 billion. Revenues from the
company's middleware products -- which are used for e-business -- grew
strongly, especially in Web management and database software. During
the quarter, IBM announced that it would invest more than $1 billion
over the next several years to expand development, marketing and sales
programs for its leading Web management product, WebSphere. Overall
operating systems revenues declined in the quarter, primarily as a
result of a decrease in AS/400 software revenues.
Revenues from Global Financing increased 10 percent (11 percent at
constant currency) in the second quarter to $819 million.
Revenues from the Enterprise Investments/Other area, which
includes custom hardware and software products for specialized
customer uses, decreased 26 percent (25 percent at constant currency)
year over year to $315 million.
The company's overall gross profit margin was 36.7 percent in the
second quarter compared with 37.5 percent in the same period of 1999.
Second-quarter expenses were $5.2 billion and the
expense-to-revenue ratio was 23.9 percent compared with 19.1 percent
in the year earlier period (or 26.4 percent after excluding a
7.3-point improvement from the Global Network sale and the other 1999
actions).
IBM's tax rate in the second quarter was 30.0 percent compared
with 40.8 percent in 1999 (or 30.0 percent after excluding 10.8 points
due to the Global Network sale and the other 1999 actions).
IBM spent approximately $1.8 billion on common share repurchases
in the second quarter. The average number of basic common shares
outstanding in the quarter was 1,768 million compared with 1,812
million in the second quarter of 1999. There were 1,761 million basic
common shares outstanding at June 30, 2000.
Debt in support of operations, excluding global financing,
increased $932 million from year-end 1999 to $2.5 billion, resulting
in a debt-to-capitalization ratio of 15 percent. Global financing debt
declined $112 million from the end of 1999 to a total of $26.7
billion, resulting in a debt-to-equity ratio of 5.7 to 1.
Net income for the six months ended June 30, 2000 was $3.5
billion, or $1.89 per diluted common share, compared with net income
in 1999 of $3.9 billion, or $2.05 per diluted common share (or $1.69
per diluted share and net income of $3.2 billion in 1999 after
excluding the after-tax net benefit from the Global Network sale and
the other 1999 actions). Revenues for the six months ended June 30,
2000 were $41.0 billion, a decrease of 3 percent (2 percent at
constant currency) compared with $42.2 billion for the first six
months of 1999.
Effective in the first quarter of this year, results reflect
changes the company made in the organization of its business segments,
including the transfer of the system-level product businesses from the
Technology segment to the Enterprise Systems segment and the transfer
of point-of-sale products from the Enterprise Investments segment to
the Personal Systems segment. Also reflected are changes the company
made in its expense allocation methodology, allocating expense items
previously unallocated and enhancing shared expense allocation.
Second-quarter and first-half 1999 results have been reclassified to
conform with the 2000 presentation.
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
(Unaudited; Dollars in millions except per share amounts)
Three Months Six Months
Ended June 30, Ended June 30,
Percent Percent
2000 1999(a) Change 2000 1999(a) Change
------ ------- ------- ------- ------- -------
REVENUE
Hardware $9,151 $9,622 -4.9% $16,863 $18,373 -8.2%
Gross margin 27.3% 28.8% 27.4% 28.1%
Global Services 8,184 7,988 2.4% 15,736 15,538 1.3%
Gross margin 27.1% 28.4% 26.5% 27.4%
Software 3,182 3,126 1.7% 6,109 6,046 1.0%
Gross margin 82.5% 83.4% 81.3% 82.2%
Global Financing 819 743 10.1% 1,635 1,448 12.9%
Gross margin 55.0% 55.3% 53.9% 55.6%
Enterprise Investments/
Other 315 426 -25.9% 656 817 -19.5%
Gross margin 47.9% 39.6% 47.7% 34.8%
TOTAL REVENUE 21,651 21,905 -1.2% 40,999 42,222 -2.9%
GROSS PROFIT 7,943 8,224 -3.4% 14,954 15,482 -3.4%
Gross margin 36.7% 37.5% 36.4% 36.7%
EXPENSE
S,G&A (1) 3,867 2,846 35.9% 7,573 6,783 11.7%
% of revenue 17.9% 13.0% 18.5% 16.1%
R,D&E 1,269 1,293 -1.8% 2,441 2,474 -1.3%
% of revenue 5.9% 5.9% 6.0% 5.9%
Other income 130 155 -15.8% 319 289 10.3%
Interest expense 164 197 -17.1% 316 371 -14.9%
TOTAL EXPENSE (1) 5,170 4,181 23.7% 10,011 9,339 7.2%
% of revenue 23.9% 19.1% 24.4% 22.1%
INCOME BEFORE
INCOME TAXES (1) 2,773 4,043 -31.4% 4,943 6,143 -19.5%
Pre-tax margin 12.8% 18.4% 12.1% 14.5%
Provision for
income taxes (1) 832 1,652 -49.6% 1,483 2,282 -35.0%
Effective tax
rate 30.0% 40.8% 30.0% 37.1%
NET INCOME (1) $1,941 $2,391 -18.8% $3,460 $3,861 -10.4%
Net margin 9.0% 10.9% 8.4% 9.1%
Preferred stock
dividends 5 5 10 10
NET INCOME
APPLICABLE TO COMMON
SHAREHOLDERS (1) $1,936 $2,386 -18.9% $3,450 $3,851 -10.4%
====== ====== ====== ======
EARNINGS PER
SHARE OF COMMON
STOCK - ASSUMING
DILUTION (1) $1.06 $1.28 -17.2% $1.89 $2.05 -7.8%
====== ====== ====== ======
EARNINGS PER
SHARE OF COMMON
STOCK - BASIC $1.10 $1.32 -16.7% $1.95 $2.12 -8.0%
====== ====== ====== ======
AVERAGE NUMBER OF
COMMON SHARES OUT-
STANDING (M's)
DILUTED 1,818.0 1,870.6 1,824.0 1,876.6
BASIC 1,767.6 1,812.1 1,772.4 1,818.0
(a) Reclassified to conform with 2000 presentation.
1) 1999 second quarter and six month results include a pre-tax net
benefit of $1,610 million (after-tax net benefit of $687 million, or
$.37 per diluted common share) due to a gain from the sale of the IBM
Global Network, charges for actions related to microelectronics and
storage businesses, as well as a change in PC depreciable lives.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited; Dollars in millions)
At At
June 30, December 31, Percent
2000 1999 Change
--------- ----------- -------
ASSETS
Cash, cash equivalents,
and marketable securities $3,261 $5,831 -44.1%
Receivables - net, inventories,
and prepaid expenses 36,176 37,324 -3.1%
Plant, rental machines,
and other property - net 16,634 17,590 -5.4%
Investments and other assets 26,878 26,750 0.5%
-------- --------
TOTAL ASSETS $82,949 $87,495 -5.2%
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $12,315 $14,230 -13.5%
Long-term debt 16,859 14,124 19.4%
-------- --------
Total debt 29,174 28,354 2.9%
Accounts payable, taxes,
and accruals 21,547 25,348 -15.0%
Other liabilities 13,054 13,282 -1.7%
-------- --------
TOTAL LIABILITIES 63,775 66,984 -4.8%
STOCKHOLDERS' EQUITY 19,174 20,511 -6.5%
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $82,949 $87,495 -5.2%
======== ========
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
SECOND QUARTER 2000
----------------------------------------------
Pre-tax
(Dollars in millions) ------- Revenue ---------- Pre-tax Income
External Internal Total Income Margin
-------- -------- ------- ------- -------
SEGMENTS
Technology $2,456 $710 $3,166 $226 7.1%
% change 4.6% -31.1% -6.3% 222.9%
Personal Systems 3,914 21 3,935 (69) -1.8%
% change -4.8% 200.0% -4.4% 31.0%
Enterprise Systems 2,774 162 2,936 448 15.3%
% change -9.6% 14.1% -8.6% -24.7%
Global Services 8,184 600 8,784 1,069 12.2%
% change 2.4% -4.5% 1.9% -4.6%
Software 3,182 209 3,391 736 21.7%
% change 1.7% 14.8% 2.5% -2.6%
Global Financing 829 264 1,093 306 28.0%
% change 8.5% 33.3% 13.6% 16.3%
Enterprise Investments 321 1 322 (112) -34.8%
% change -23.2% -66.7% -23.5% 44.8%
TOTAL SEGMENTS 21,660 1,967 23,627 2,604 11.0%
% change -0.7% -10.2% -1.6% 4.1%
Eliminations / Other (9) (1,967) (1,976) 169
TOTAL IBM $21,651 $0 $21,651 $2,773 12.8%
% change -1.2% -1.2% -31.4%
SECOND QUARTER 1999 (a)
----------------------------------------------
Pre-tax
(Dollars in millions) ------- Revenue ---------- Pre-tax Income
External Internal Total Income Margin
-------- -------- ------- ------- -------
SEGMENTS
Technology $2,347 $1,031 $3,378 $70 2.1%
Personal Systems 4,111 7 4,118 (100) -2.4%
Enterprise Systems 3,069 142 3,211 595 18.5%
Global Services 7,988 628 8,616 1,121 13.0%
Software 3,126 182 3,308 756 22.9%
Global Financing 764 198 962 263 27.3%
Enterprise Investments 418 3 421 (203) -48.2%
TOTAL SEGMENTS 21,823 2,191 24,014 2,502 10.4%
Eliminations / Other 82 (2,191) (2,109) 1,541 (1)
TOTAL IBM $21,905 $0 $21,905 $4,043 18.4%
6 (a) Reclassified to conform with 2000 presentation.
6 1) Pre-tax income includes a net benefit of $1,610 million due to
a gain from the sale of the IBM Global Network, charges for actions
related to microelectronics and storage businesses, as well as a
change in PC depreciable lives.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
SIX MONTHS 2000
----------------------------------------------
Pre-tax
(Dollars in millions) ------- Revenue ---------- Pre-tax Income
External Internal Total Income Margin
-------- -------- ------- ------- -------
SEGMENTS
Technology $4,396 $1,503 $5,899 $246 4.2%
% change -3.5% -20.1% -8.4% 179.5%
Personal Systems 7,175 31 7,206 (247) -3.4%
% change -8.7% 121.4% -8.5% -59.4%
Enterprise Systems 5,190 325 5,515 887 16.1%
% change -10.6% 14.0% -9.5% -22.3%
Global Services 15,736 1,195 16,931 2,067 12.2%
% change 1.3% -7.9% 0.6% 0.3%
Software 6,109 384 6,493 1,317 20.3%
% change 1.0% -2.3% 0.8% -9.9%
Global Financing 1,657 470 2,127 594 27.9%
% change 11.4% 16.0% 12.4% 18.3%
Enterprise Investments 662 2 664 (155) -23.3%
% change -17.3% -85.7% -18.4% 54.1%
TOTAL SEGMENTS 40,925 3,910 44,835 4,709 10.5%
% change -2.8% -8.8% -3.3% -1.1%
Eliminations / Other 74 (3,910) (3,836) 234
TOTAL IBM $40,999 $0 $40,999 $4,943 12.1%
% change -2.9% -2.9% -19.5%
SIX MONTHS 1999 (a)
----------------------------------------------
Pre-tax
(Dollars in millions) ------- Revenue ---------- Pre-tax Income
External Internal Total Income Margin
-------- -------- ------- ------- -------
SEGMENTS
Technology $4,557 $1,880 $6,437 $88 1.4%
Personal Systems 7,862 14 7,876 (155) -2.0%
Enterprise Systems 5,807 285 6,092 1,142 18.7%
Global Services 15,538 1,297 16,835 2,061 12.2%
Software 6,046 393 6,439 1,462 22.7%
Global Financing 1,488 405 1,893 502 26.5%
Enterprise Investments 800 14 814 (338) -41.5%
TOTAL SEGMENTS 42,098 4,288 46,386 4,762 10.3%
Eliminations / Other 124 (4,288) (4,164) 1,381 (1)
TOTAL IBM $42,222 $0 $42,222 $6,143 14.5%
(a) Reclassified to conform with 2000 presentation.
1) Pre-tax income includes a net benefit of $1,610 million due to
a gain from the sale of the IBM Global Network, charges for actions
related to microelectronics and storage businesses, as well as a
change in PC depreciable lives.
--30--MEM/ny*
Contact: Rob Wilson
(914) 499-6565
wilsonr@us.ibm.com
or
Carol Makovich
(914) 499-6212
makovich@us.ibm.com
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