3rd Quarter & 9 Mths Results
International Bus Mach Corp
17 October 2000
( BW)(NY-IBM)(IBM) IBM Announces Third-Quarter 2000 Results; 3Q00 EPS
Increased 20%, Excluding 1999 Items
Business & Technology Editors
ARMONK, N.Y.--(BUSINESS WIRE)--Oct. 17, 2000--IBM today announced
third-quarter 2000 diluted earnings per common share of $1.08 compared
with 1999 diluted earnings per common share of $.93 (or $.90 after
excluding the net benefit of $.03 in the third quarter of last year
from the gain on the sale of the IBM Global Network and other
actions).
Excluding these 1999 items, IBM's third-quarter 2000 diluted
earnings per share increased 20 percent. Third-quarter 2000 net income
totaled $2.0 billion compared with $1.8 billion in 1999 (or net income
of $1.7 billion in 1999 after excluding the after-tax net benefit of
$63 million from the Global Network sale and the other 1999 actions).
Third-quarter 2000 revenues grew 3 percent (6 percent at constant
currency), to $21.8 billion, compared with the year-earlier period.
Louis V. Gerstner, Jr., IBM chairman and chief executive officer,
said: 'This was a solid quarter, with earnings per share up 20 percent
and an acceleration of revenue growth relative to the first half of
the year. We would like to have seen more revenue in the quarter, but
we were held back by three items. First, demand for our
microelectronics products -- from both outside customers and internal
IBM customers -- far outstripped our ability to supply components.
Second, the upcoming release of our new high-end server slowed demand
for the System/390 family of servers. Finally, parts of our software
business slowed unexpectedly in September.
'On a positive note, our services business continued to overtake
the Y2K pause that pressured the first half of the year. Our PC
business rebounded strongly, with particularly good demand for our
server and ThinkPad products. In addition, our business in Asia
continued to grow strongly,' Mr. Gerstner said.
'This has turned out to be an unusual year for the information
technology industry, with many ups and downs. Through it all, the
breadth of our portfolio and the strength of our global position have
allowed us to produce consistently good earnings. We expect our broad
portfolio will be even more important as we go forward, especially
compared to the single-segment companies in our industry.'
Third-quarter revenues from the Americas totaled $9.7 billion, an
increase of 1 percent (1 percent at constant currency) compared with
the same period of last year. Revenues from Europe/Middle East/Africa
were $5.6 billion, down 3 percent (up 8 percent at constant currency).
Asia/Pacific revenues grew 18 percent (17 percent at constant
currency) to $4.3 billion. OEM revenues totaled $2.1 billion, a 4
percent increase (5 percent at constant currency) compared with the
third quarter of 1999.
Hardware revenues were $9.5 billion in the third quarter, an
increase of 4 percent (6 percent at constant currency) compared with
last year's third quarter. Personal computer revenues increased, and
the unit was profitable in the quarter. Web server revenues also
increased, with demand far exceeding supply for certain RS/6000
models. AS/400 revenues declined due to supply shortages. System/390
revenues fell as a result of the major product transition in this area
combined with year-over-year price declines. Storage revenues were
mixed, with high-end disk drive revenues, led by Shark, up strongly
year over year while hard disk drive revenues declined.
Microelectronics revenues grew strongly.
Revenues from IBM Global Services, including maintenance, grew 4
percent (8 percent at constant currency) in the third quarter to $8.2
billion, with continued strength in the Asia/Pacific region,
particularly in strategic outsourcing.
Revenue comparisons for IBM Global Services were adversely
affected by the sale of the IBM 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 9 percent (12 percent at constant currency). IBM signed
$13.3 billion in services contracts and concluded the quarter with a
total Services contract backlog of approximately $81.0 billion. The
Services business is continuing to hire aggressively to meet demand.
Software revenues declined 3 percent in the quarter (up 1 percent
at constant currency) to $2.9 billion. Quarterly results in this
sector reflect sales execution issues late in the quarter as well as
an industry-wide transition in the systems management software
marketplace, which had an adverse effect on the company's Tivoli
products. Revenues from IBM's database and WebSphere products grew
strongly in the quarter, while operating system revenues declined
overall.
Revenues from Global Financing increased 11 percent (14 percent at
constant currency) in the third quarter to $859 million.
Revenues from the Enterprise Investments/Other area, which
includes custom hardware and software products for specialized
customer uses, decreased 19 percent (15 percent at constant currency)
year over year to $323 million.
The company's overall gross profit margin of 35.8 percent in the
third quarter was the same as in the third quarter of last year (or
36.4 percent excluding the 1999 actions).
Third-quarter expenses were $5.0 billion and the
expense-to-revenue ratio was 22.9 percent, compared to 23.3 percent in
the year-earlier period (or 24.9 percent excluding the 1999 actions).
IBM's tax rate in the third quarter was 30.0 percent compared with
33.0 percent in the third quarter of last year (or 30.0 percent
excluding the 1999 actions).
IBM spent approximately $1.4 billion on common share repurchases
in the third quarter. The average number of basic common shares
outstanding in the quarter was 1,758 million compared with 1,805
million in the third quarter of 1999. There were 1,754 million basic
common shares outstanding at September 30, 2000.
Debt in support of operations, excluding global financing,
increased $264 million from year-end 1999 to $1.8 billion, resulting
in a debt-to-capitalization ratio of 11 percent. Global financing debt
grew $753 million from the end of 1999 to a total of $27.6 billion,
resulting in a debt-to-equity ratio of 6.1 to 1.
Net income for the nine months ended September 30, 2000 was $5.4
billion, or $2.97 per diluted common share compared with net income of
$5.6 billion, or $2.99 per diluted common share, in the year-earlier
period (or net income of $4.9 billion, or $2.59 per diluted share, in
1999 after excluding the after-tax net benefit from the sale of the
Global Network and other 1999 actions). Revenues for the nine months
ended September 30, 2000 were $62.8 billion, a decrease of 1 percent
(up 1 percent at constant currency) compared with $63.4 billion for
the nine 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.
Third-quarter and year-to-date 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 Nine Months
Ended September 30, Ended September 30,
Percent Percent
2000 1999(a) Change 2000 1999(a) Change
------- ------- ------- ------- ------- -------
REVENUE
Hardware $9,451 $9,065 4.2% $26,314 $27,438 -4.1%
Gross margin 27.9% 25.5% 27.6% 27.3%
Global Services 8,230 7,898 4.2% 23,966 23,436 2.3%
Gross margin 26.6% 27.6% 26.5% 27.5%
Software 2,918 3,010 -3.0% 9,027 9,056 -0.3%
Gross margin 81.2% 81.2% 81.3% 81.9%
Global Financing 859 774 11.0% 2,494 2,222 12.2%
Gross margin 53.0% 56.7% 53.6% 56.0%
Enterprise Investments/
Other 323 397 -18.7% 979 1,214 -19.3%
Gross margin 47.5% 46.2% 47.6% 38.6%
TOTAL REVENUE 21,781 21,144 3.0% 62,780 63,366 -0.9%
GROSS PROFIT 7,801 7,564 3.1% 22,755 23,046 -1.3%
Gross margin 35.8% 35.8% 36.2% 36.4%
EXPENSE
S,G&A 3,726 3,501 6.4% 11,299 10,284 9.9%
% of revenue 17.1% 16.6% 18.0% 16.2%
R,D&E 1,261 1,383 -8.8% 3,702 3,857 -4.0%
% of revenue 5.8% 6.5% 5.9% 6.1%
Other income 173 134 29.1% 492 423 16.3%
Interest expense 183 185 -1.1% 499 556 -10.3%
TOTAL EXPENSE 4,997 4,935 1.3% 15,008 14,274 5.1%
% of revenue 22.9% 23.3% 23.9% 22.5%
INCOME BEFORE
INCOME TAXES (1,2) 2,804 2,629 6.7% 7,747 8,772 -11.7%
Pre-tax margin 12.9% 12.4% 12.3% 13.8%
Provision for
income taxes 841 867 -3.0% 2,324 3,149 -26.2%
Effective tax
rate 30.0% 33.0% 30.0% 35.9%
NET INCOME (1,2) $1,963 $1,762 11.4% $5,423 $5,623 -3.6%
Net margin 9.0% 8.3% 8.6% 8.9%
Preferred stock
dividends 5 5 15 15
NET INCOME
APPLICABLE TO COMMON
SHAREHOLDERS $1,958 $1,757 11.4% $5,408 $5,608 -3.6%
====== ====== ====== ======
EARNINGS PER
SHARE OF COMMON
STOCK - ASSUMING
DILUTION $1.08 $0.93 16.1% $2.97 $2.99 -0.7%
====== ====== ====== ======
EARNINGS PER
SHARE OF COMMON
STOCK - BASIC $1.11 $0.97 14.4% $3.06 $3.09 -1.0%
====== ====== ====== ======
AVERAGE NUMBER OF
COMMON SHARES OUT-
STANDING (M's)
DILUTED 1,809.8 1,869.6 1,819.3 1,874.7
BASIC 1,758.1 1,805.2 1,767.6 1,813.7
(a) Reclassified to conform with 2000 presentation.
1) Third-quarter 1999 results include a pre-tax benefit of $201
million (after-tax benefit of $63 million, or $.03 per diluted
common share) due to a gain from the sale of the IBM Global
Network in a number of geographic areas, charges for acquired
in-process research and development related to acquisitions, as
well as a charge for other actions.
2) Nine-month 1999 results include a pre-tax benefit of $1.8 billion
(after-tax benefit of $750 million, or $.40 per diluted common
share) due to a gain from the sale of the IBM Global Network,
charges for acquired in-process research and development related
to acquisitions, a charge for other actions, as well as a change
in PC depreciable lives.
INTERNATIONAL BUSINESS MACHINES CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Unaudited; Dollars in millions)
At At
September 30, December 31, Percent
2000 1999 Change
----------- ----------- -------
ASSETS
Cash, cash equivalents,
and marketable securities $3,033 $5,831 -48.0%
Receivables - net, inventories,
and prepaid expenses 37,004 37,324 -0.9%
Plant, rental machines,
and other property - net 16,329 17,590 -7.2%
Investments and other assets 27,510 26,750 2.8%
-------- --------
TOTAL ASSETS $83,876 $87,495 -4.1%
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt $10,695 $14,230 -24.8%
Long-term debt 18,676 14,124 32.2%
-------- --------
Total debt 29,371 28,354 3.6%
Accounts payable, taxes,
and accruals 22,117 25,348 -12.7%
Other liabilities 12,841 13,282 -3.3%
-------- --------
TOTAL LIABILITIES 64,329 66,984 -4.0%
STOCKHOLDERS' EQUITY 19,547 20,511 -4.7%
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $83,876 $87,495 -4.1%
======== ========
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
THIRD QUARTER 2000
----------------------------------------------
Pre-tax
(Dollars in millions) ------- Revenue ---------- Pre-tax Income
External Internal Total Income Margin
-------- -------- ------- ------- -------
SEGMENTS
Technology $2,632 $675 $3,307 $185 5.6%
% change 4.7% -23.9% -2.8% -41.6%
Personal Systems 4,395 24 4,419 65 1.5%
% change 11.6% 100.0% 11.9% 641.7%
Enterprise Systems 2,358 133 2,491 293 11.8%
% change -7.0% 0.8% -6.6% -1.7%
Global Services 8,230 654 8,884 1,147 12.9%
% change 4.2% -4.9% 3.5% -2.4%
Software 2,918 211 3,129 515 16.5%
% change -3.0% 25.6% -1.5% -23.0%
Global Financing 868 225 1,093 294 26.9%
% change 10.4% 16.0% 11.5% 10.1%
Enterprise Investments 277 1 278 (55) -19.8%
% change -29.5% -75.0% -30.0% 72.2%
TOTAL SEGMENTS 21,678 1,923 23,601 2,444 10.4%
% change 2.9% -7.8% 1.9% -2.9%
Eliminations / Other 103 (1,923) (1,820) 360
TOTAL IBM $21,781 $0 $21,781 $2,804 12.9%
% change 3.0% 3.0% 6.7%
THIRD QUARTER 1999(a)
----------------------------------------------
Pre-tax
(Dollars in millions) ------- Revenue ---------- Pre-tax Income
External Internal Total Income Margin
-------- -------- ------- ------- -------
SEGMENTS
Technology $2,515 $887 $3,402 $317 9.3%
Personal Systems 3,937 12 3,949 (12) -0.3%
Enterprise Systems 2,536 132 2,668 298 11.2%
Global Services 7,898 688 8,586 1,175 13.7%
Software 3,010 168 3,178 669 21.1%
Global Financing 786 194 980 267 27.2%
Enterprise Investments 393 4 397 (198) -49.9%
TOTAL SEGMENTS 21,075 2,085 23,160 2,516 10.9%
Eliminations / Other 69 (2,085) (2,016) 113 (1)
TOTAL IBM $21,144 $0 $21,144 $2,629 12.4%
(a) Reclassified to conform with 2000 presentation.
1) Pre-tax income includes a net benefit of $201 million due to a
gain from the sale of the IBM Global Network in a number of
geographic areas, charges for acquired in-process research and
development related to acquisitions, as well as a charge for
other actions.
INTERNATIONAL BUSINESS MACHINES CORPORATION
SEGMENT DATA
NINE MONTHS 2000
----------------------------------------------
Pre-tax
(Dollars in millions) ------- Revenue ---------- Pre-tax Income
External Internal Total Income Margin
-------- -------- ------- ------- -------
SEGMENTS
Technology $7,028 $2,178 $9,206 $431 4.7%
% change -0.6% -21.3% -6.4% 6.4%
Personal Systems 11,570 55 11,625 (182) -1.6%
% change -1.9% 111.5% -1.7% -9.0%
Enterprise Systems 7,548 458 8,006 1,180 14.7%
% change -9.5% 9.8% -8.6% -18.1%
Global Services 23,966 1,849 25,815 3,214 12.5%
% change 2.3% -6.9% 1.5% -0.7%
Software 9,027 595 9,622 1,832 19.0%
% change -0.3% 6.1% 0.1% -14.0%
Global Financing 2,525 695 3,220 888 27.6%
% change 11.0% 16.0% 12.1% 15.5%
Enterprise Investments 939 3 942 (210) -22.3%
% change -21.3% -83.3% -22.2% 60.8%
TOTAL SEGMENTS 62,603 5,833 68,436 7,153 10.5%
% change -0.9% -8.5% -1.6% -1.7%
Eliminations / Other 177 (5,833) (5,656) 594
TOTAL IBM $62,780 $0 $62,780 $7,747 12.3%
% change -0.9% -0.9% -11.7%
NINE MONTHS 1999(a)
----------------------------------------------
Pre-tax
(Dollars in millions) ------- Revenue ---------- Pre-tax Income
External Internal Total Income Margin
-------- -------- ------- ------- -------
SEGMENTS
Technology $7,072 $2,767 $9,839 $405 4.1%
Personal Systems 11,799 26 11,825 (167) -1.4%
Enterprise Systems 8,343 417 8,760 1,440 16.4%
Global Services 23,436 1,985 25,421 3,236 12.7%
Software 9,056 561 9,617 2,131 22.2%
Global Financing 2,274 599 2,873 769 26.8%
Enterprise Investments 1,193 18 1,211 (536) -44.3%
TOTAL SEGMENTS 63,173 6,373 69,546 7,278 10.5%
Eliminations / Other 193 (6,373) (6,180) 1,494 (1)
TOTAL IBM $63,366 $0 $63,366 $8,772 13.8%
(a) Reclassified to conform with 2000 presentation.
1) Pre-tax income includes a net benefit of $1.8 billion due to a
gain from the sale of the IBM Global Network, charges for acquired
in-process research and development related to acquisitions, a charge
for other actions, as well as a change in PC depreciable lives.
CONTACT: IBM, Armonk
Rob Wilson
914/499-6565
wilsonr@us.ibm.com
or
Carol Makovich
914/499-6212
makovich@us.ibm.com
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