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ARMONK, N.Y. - 14 Apr 2003: IBM today announced first- quarter 2003 diluted earnings per common share of $.79 from continuing operations, an increase of 8 percent, compared with diluted earnings per common share of $.73 in the first quarter of 2002. First-quarter income from continuing operations was $1.4 billion, also increased 8 percent, compared with $1.3 billion in the first-quarter 2002. Revenues from continuing operations for the first quarter were $20.1 billion, up 11 percent (4 percent at constant currency) compared with the first quarter of 2002 revenues of $18.0 billion.
Samuel J. Palmisano, IBM chairman and chief executive officer, said: "In the face of an ongoing difficult environment, we delivered another strong quarter and continued to gain share across our strategic businesses.
"Our results demonstrate that our e-business on demand strategy, which draws on IBM's strengths in business transformation services and open IT infrastructure, is responsive to the needs of our customers. It is exactly this ability to help customers transform their business operations with leadership technology that is at the heart of our on demand strategy, and what sets us apart from our competition.
"IBM Global Services delivered another good quarter with more than $12 billion in signings, our second best performance in a first quarter. Our software business continued to gain share in database and Web application servers. IBM eServer xSeries delivered another strong revenue performance, while our pSeries and iSeries servers also grew revenues in the quarter. All three geographic units grew, and our focus on small and medium business is paying off, as we continue to see growing acceptance for our offerings in this important segment.
"Going forward, we are well positioned to set the agenda and help customers transform their enterprises to realize the benefits, efficiencies and productivity gains of e-business on demand."
From continuing operations in the first quarter, the Americas revenues were $8.6 billion, an increase of 5 percent (7 percent at constant currency)from the 2002 period. Revenues from Europe/Middle East/Africa were $6.3 billion, up 23 percent (3 percent at constant currency). Asia-Pacific revenues grew 14 percent (5 percent at constant currency) to $4.5 billion. OEM revenues decreased 15 percent (16 percent at constant currency) to $690 million compared with the first quarter of 2002.
Revenues from Global Services, including maintenance, grew 24 percent (15 percent at constant currency) in the first quarter to $10.2 billion aided by the addition of the former PwC Consulting. Global Services revenues, excluding maintenance, increased 27 percent (17 percent at constant currency). Gross profit margin was 24.9 percent compared with 26.0 percent in the prior-year period. IBM signed services contracts totaling more than $12 billion and ended the quarter with an estimated backlog of $113 billion.
Total hardware revenues from continuing operations were $5.8 billion, a decline of 1 percent (6 percent at constant currency), compared with the first quarter of 2002. Revenues from IBM's eServer xSeries Intel-based products increased. Both IBM pSeries UNIX-based servers and iSeries midrange servers grew revenue. The recently announced p630, with Power4-plus technology, and iSeries servers with e-business on demand capability contributed to the overall growth in revenue. Revenues from zSeries mainframes were lower in the first quarter due to a combination of customer deferrals of IT decisions and the anticipated introduction of a new zSeries mainframe. However, total deliveries of zSeries computing power as measured in MIPS (millions of instructions per second) increased 3 percent compared with the first quarter of 2002. This reflects a positive trend in a challenging operating environment. Finally, revenues from disk storage grew primarily as a result of increasing demand for high-end "Shark" products.
Hardware revenues from microelectronics decreased in the quarter largely related to non-strategic businesses exited last year. Year over year, revenues for the personal computer unit declined consistent with industry trends. However, total hardware gross profit margin improved to 26.6 percent compared with 24.5 percent in the first-quarter 2002.
Software revenues increased 8 percent (2 percent at constant currency) at $3.1 billion compared with the first quarter of 2002. Middleware products, which include WebSphere and DB2 product families, increased 9 percent (3 percent at constant currency) in the first quarter of 2003.
WebSphere, IBM's family of e-business on demand middleware products, grew 14 percent (8 percent at constant currency) from a year ago. IBM's leading database management software, DB2, grew 22 percent (14 percent at constant currency). Revenues from Tivoli and Lotus declined. Operating systems revenues grew compared with the year-ago period. Overall software gross profit margin improved to 84.6 percent compared with 81.1 percent in first-quarter 2002.
On February 21, IBM purchased Rational Software for approximately $2.1 billion. The post-acquisition results of operations of Rational are included in the software segment results. Rational develops tools to build, test and manage software projects and further complements the company's middleware family of products.
Global Financing revenues decreased 10 percent (15 percent at constant currency) in the first quarter of 2003 to $705 million. Revenues from the Enterprise Investments/Other area, which includes industry-specific IT solutions, were $254 million, an increase of 7 percent (down 2 percent at constant currency) compared to the first quarter of 2002.
The company's overall gross profit margin from continuing operations was 36.0 percent in the first quarter, compared to 36.1 percent in the year-ago quarter.
In the first quarter, total expense and other income from continuing operations of $5.3 billion increased 12 percent over the year-earlier period, primarily related to the recent acquisitions of the former PwC Consulting and Rational, partly offset by the benefits of the 2002 productivity and skills rebalancing actions. Selling, general and administrative expense increased 5 percent in the quarter. Research, development and engineering expense also increased 5 percent. Lower intellectual property and custom development income had a negative impact on results compared with the year-earlier period. Other (income) and expense was negatively affected by foreign exchange losses as well as the prior-year sale of the PC desktop manufacturing operations to Sanmina-SCI.
IBM's effective tax rate from continuing operations in the first quarter was 30.0 percent compared with 29.2 percent in the first quarter of 2002.
For total operations, net income for the first-quarter 2003, including discontinued operations, was $1.4 billion, or $.79 per diluted common share, compared with $1.2 billion in net income, or $.68 per diluted share, in the first quarter of 2002.
In the first quarter, IBM spent approximately $65 million on share repurchases. There were 1.73 billion basic common shares outstanding at March 31, 2003. The average number of diluted common shares outstanding in the quarter was 1.76 billion compared with 1.75 billion shares in the same period of 2002.
Debt, including Global Financing, totaled $25.8 billion, a decrease of approximately $200 million from year-end 2002. Under a management segment view, the non-global financing debt-to- capitalization ratio was 7.3 percent at March 31, 2003, and Global Financing debt increased approximately $300 million from year-end 2002 to a total of $24.1 billion, resulting in a debt-to-equity ratio of 6.8 to 1.
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.
Presentation of Information in this Press Release
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 discloses the following non-GAAP information which management believes provides useful information to investors:
Management refers to growth rates at constant currency so that the business results of a segment can be viewed without the impact of changing foreign currency exchange rates, thereby facilitating period-to-period comparisons of the company's businesses. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates will be higher or lower, respectively, than growth reported at actual exchange rates.
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/1q03.
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