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IBM Reports 2009 Second-Quarter Results


ARMONK, NY - 16 Jul 2009:

IBM (NYSE: IBM) today announced second-quarter 2009 diluted earnings of $2.32 per share compared with diluted earnings of $1.97 per share in the second quarter of 2008, an increase of 18 percent.

The earnings per share results were the highest for any first, second or third quarter in the company’s history, adjusted for stock splits.

Second-quarter net income was $3.1 billion compared with $2.8 billion in the second quarter of 2008, an increase of 12 percent. Total revenues for the second quarter of 2009 of $23.3 billion decreased 13 percent (7 percent, adjusting for currency) from the second quarter of 2008.

"As a result of our strategic transformation, we have a very strong business model that is delivering superior earnings, cash and client value,” said Samuel J. Palmisano, IBM chairman, president and chief executive officer.

"We have continued our strategic investments in Smarter Planet solutions, business analytics and next generation data centers. As a result we are optimistic about how IBM is positioned to make the most of current growth opportunities as well as those that emerge as the economy recovers. We are well ahead of pace for our 2010 roadmap of $10 to $11 per share."

IBM said it now expects full-year 2009 earnings of at least $9.70 per share compared with its previous expectation of at least $9.20 per share.

The company expects full-year 2009 pre-tax income for its Software segment to grow at a double-digit rate and reach approximately $8 billion.

From a geographic perspective, the Americas’ second-quarter revenues were $9.9 billion, a decrease of 9 percent (7 percent, adjusting for currency) from the 2008 period. Revenues from Europe/Middle East/Africa were $7.9 billion, down 20 percent (7 percent, adjusting for currency). Asia-Pacific revenues decreased 7 percent (5 percent, adjusting for currency) to $4.9 billion. OEM revenues were $537 million, down 24 percent compared with the 2008 second quarter. Revenues from the company’s growth markets organization decreased 11 percent (up 1 percent, adjusting for currency) and represented 18 percent of geographic revenues.

Total Global Services revenues decreased 12 percent (4 percent, adjusting for currency); pre-tax income increased 23 percent. Global Technology Services segment revenues decreased 10 percent (2 percent, adjusting for currency) to $9.1 billion. Global Business Services segment revenues decreased 15 percent (9 percent, adjusting for currency) to $4.3 billion. IBM signed services contracts totaling $14.0 billion, at actual rates, a decrease of 5 percent (up 3 percent, adjusting for currency), including 17 contracts greater than $100 million. Signings in Consulting and Systems Integration and in Integrated Technology Services were $6.0 billion, a decrease of 14 percent (7 percent, adjusting for currency). Total outsourcing signings increased 3 percent (12 percent, adjusting for currency) to $8.0 billion. The estimated services backlog at June 30 was $132 billion at actual rates compared with $126 billion at March 31, 2009.

Revenues from the Software segment were $5.2 billion, a decrease of 7 percent (flat, adjusting for currency) compared with the second quarter of 2008. Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.0 billion, a decrease of 2 percent (up 5 percent, adjusting for currency) versus the second quarter of 2008. Operating systems revenues of $529 million decreased 11 percent (4 percent, adjusting for currency) compared with the prior-year quarter.

Revenues from the WebSphere family of software products, which facilitate customers’ ability to manage a wide variety of business processes using open standards to interconnect applications, data and operating systems, increased 8 percent year over year. Revenues from Information Management software, which enables clients to leverage information on demand, decreased 4 percent. Revenues from Tivoli software, infrastructure software that enables clients to centrally manage networks including security and storage capability, decreased 2 percent, and revenues from Lotus software, which allows collaborating and messaging by clients in real-time communication and knowledge management, decreased 14 percent. Revenues from Rational software, integrated tools to improve the processes of software development, decreased 2 percent.

Revenues from the Systems and Technology segment totaled $3.9 billion for the quarter, down 26 percent (22 percent, adjusting for currency). Systems revenues decreased 26 percent (22 percent, adjusting for currency). Revenues from the converged System p products decreased 13 percent compared with the 2008 period. Revenues from System z mainframe server products decreased 39 percent compared with the year-ago period. Total delivery of System z computing power, which is measured in MIPS (millions of instructions per second), decreased 20 percent. Revenues from the System x servers decreased 22 percent. Revenues from System Storage decreased 20 percent, and revenues from Retail Store Solutions decreased 41 percent. Revenues from Microelectronics OEM decreased 23 percent.

Global Financing segment revenues decreased 10 percent (4 percent, adjusting for currency) in the second quarter to $568 million.

The company’s total gross profit margin was 45.5 percent in the 2009 second quarter compared with 43.2 percent in the 2008 second-quarter period, led by improving margins in services and software.

Total expense and other income decreased 19 percent to $6.3 billion compared with the prior-year period. SG&A expense decreased 19 percent to $5.1 billion. RD&E expense of $1.4 billion decreased 14 percent compared with the year-ago period. Intellectual property and custom development income increased to $302 million compared with $285 million a year ago. Other (income) and expense was income of $28 million compared with income of $24 million from a year ago. Interest expense decreased to $101 million compared with $145 million in the prior year.

IBM’s tax rate in the second-quarter 2009 was 27.2 percent compared with 27.5 percent in the second quarter of 2008.

The weighted-average number of diluted common shares outstanding in the second-quarter 2009 was 1.34 billion compared with 1.40 billion shares in the same period of 2008. As of June 30, 2009, there were 1.31 billion basic common shares outstanding.

Debt, including Global Financing, totaled $29.4 billion, compared with $33.9 billion at year-end 2008. From a management segment view, Global Financing debt decreased $1.6 billion from year-end 2008 to a total of $22.8 billion at June 30, 2009, resulting in a debt-to-equity ratio of 6.9 to 1. Non-global financing debt totaled $6.6 billion, a decrease of $3.0 billion since year-end 2008, resulting in a debt-to-capitalization ratio of 35.0 percent from 48.7 percent.

IBM ended the second quarter of 2009 with $12.5 billion of cash on hand and generated free cash flow of $3.4 billion, excluding Global Financing receivables. The company returned $2.4 billion to shareholders through $732 million in dividends and $1.7 billion of share repurchases. The balance sheet remains strong, and the company is well positioned to take advantage of opportunities.

Year-To-Date 2009 Results
Net income for the six months ended June 30, 2009 was $5.4 billion compared with $5.1 billion in the year-ago period, an increase of 6 percent. Diluted earnings per share were $4.02 compared with $3.61 per diluted share for the 2008 period, an increase of 11 percent. Revenues for the six-month period totaled $45.0 billion, a decrease of 12 percent (5 percent, adjusting for currency) compared with $51.3 billion for the six months of 2008.

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, including the following: a downturn in the economic environment and corporate IT spending budgets; the company's failure to meet growth and productivity objectives, a failure of the company's innovation initiatives; risks from investing in growth opportunities; failure of the company's intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; breaches of data protection; fluctuations in revenue and purchases, impact of local legal, economic, political and health conditions; adverse effects from environmental matters, tax matters and the company's pension plans; ineffective internal controls; the company’s use of accounting estimates; competitive conditions; the company’s ability to attract and retain key personnel and its reliance on critical skills; impact of relationships with critical suppliers; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; reliance on third party distribution channels; the company’s ability to successfully manage acquisitions and alliances; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company’s Form 10-Q, Form 10-K and in the company’s other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference. The company assumes no obligation to update or revise any forward-looking statements.

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 has also disclosed in this press release the following non-GAAP information which management believes provides useful information to investors:

IBM Results –

The rationale for management’s use of non-GAAP measures is included as part of the supplementary materials presented within the second-quarter earnings materials. These materials are available on the IBM investor relations Web site at www.ibm.com/investor and are being included in Attachment II (“Non-GAAP Supplementary Materials”) to the Form 8-K that includes this press release and is being submitted today to the SEC.

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/2q09. Presentation charts will be available on the Web site prior to the Webcast.

Financial Results Below (certain amounts may not add due to use of rounded numbers; percentages presented are calculated from the underlying whole-dollar amounts).

Contact(s) information

Michael Fay
IBM Media Relations
914-499-6107
mikefay@us.ibm.com

John Bukovinsky
IBM Media Relations
732-618-3531
jbuko@us.ibm.com

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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
                       2009     2008   Change     2009     2008    Change
                     -------  -------  -------  -------  -------  -------
REVENUE

 Global Technology
 Services            $9,108  $10,100     -9.8% $17,862  $19,777     -9.7%
  Gross margin         34.8%    31.6%             34.3%    31.5%

 Global Business
 Services             4,338    5,107    -15.0%   8,736   10,018    -12.8%
  Gross margin         27.2%    25.8%             26.8%    25.4%

 Software             5,166    5,574     -7.3%   9,705   10,421     -6.9%
  Gross margin         85.9%    84.6%             85.1%    84.3%

 Systems and
 Technology           3,855    5,212    -26.0%   7,083    9,431    -24.9%
  Gross margin         37.1%    38.6%             35.7%    37.9%

 Global Financing       568      634    -10.5%   1,146    1,266     -9.5%
  Gross margin         47.1%    55.3%             46.5%    53.1%

 Other                  215      193     11.4%     429      409      4.9%
  Gross margin         47.4%     5.8%             50.1%    -7.7%

TOTAL REVENUE        23,250   26,820    -13.3%  44,962   51,322    -12.4%

GROSS PROFIT         10,581   11,599     -8.8%  20,012   21,766     -8.1%
  Gross margin         45.5%    43.2%             44.5%    42.4%

EXPENSE AND OTHER INCOME

 S,G&A                5,115    6,289    -18.7%  10,379   11,909    -12.9%
  % of revenue         22.0%    23.4%             23.1%    23.2%

 R,D&E                1,434    1,660    -13.6%   2,914    3,229     -9.8%
  % of revenue          6.2%     6.2%              6.5%     6.3%

 Intellectual property
  and custom development
  income               (302)    (285)     6.2%    (570)    (559)     2.0%

 Other (income)
   and expense          (28)     (24)    14.0%    (331)    (149)   121.8%

 Interest expense       101      145    -30.7%     237      323    -26.6%

TOTAL EXPENSE AND
OTHER INCOME          6,319    7,786    -18.8%  12,628   14,754    -14.4%

  % of revenue         27.2%    29.0%             28.1%    28.7%

INCOME BEFORE
INCOME TAXES          4,262    3,814     11.8%   7,385    7,012      5.3%

  Pre-tax margin       18.3%    14.2%             16.4%    13.7%

Provision for
income taxes          1,159    1,049     10.5%   1,986    1,928      3.0%

  Effective tax
  rate                 27.2%    27.5%             26.9%    27.5%

NET INCOME           $3,103   $2,765     12.2%  $5,398   $5,084      6.2%
                     ======   ======            ======   ======
  Net margin           13.3%    10.3%             12.0%     9.9%

EARNINGS PER SHARE
OF COMMON STOCK:

 ASSUMING DILUTION    $2.32    $1.97*    17.8%   $4.02    $3.61*    11.4%
 BASIC                $2.34    $2.01*    16.4%   $4.04    $3.67*    10.1%

WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING (M's):
  ASSUMING DILUTION 1,336.9  1,402.1*          1,343.2  1,406.7*
  BASIC             1,326.1  1,376.2*          1,335.2  1,385.2*

* Reflects the implementation of FSP EITF 03-6-1, "Determining Whether Instruments 
Granted in Share-Based Payment Transactions Are Participating Securities."

                   INTERNATIONAL BUSINESS MACHINES CORPORATION
                   CONSOLIDATED STATEMENT OF FINANCIAL POSITION
                                   (Unaudited)

(Dollars in Millions)                           At June 30,   At December 31,
                                                   2009             2008
                                                -----------   ---------------
ASSETS

Current Assets:

Cash and cash equivalents                          $11,678           $12,741

Marketable securities                                  848               166

Notes and accounts receivable - trade (net of
   allowances of $241 in 2009 and $226 in 2008)      9,561            10,906

Short-term financing receivables (net of 
   allowances of $400 in 2009 and $351 in 2008)     13,116            15,477

Other accounts receivable (net of  
   allowances of $57 in 2009 and $55 in 2008)        1,179             1,172

Inventories, at lower of average cost or market:

  Finished goods                                       565               524

  Work in process and raw materials                  2,126             2,176
                                                  --------          --------	

Total inventories                                    2,691             2,701

Deferred taxes                                       1,652             1,542

Prepaid expenses and other current assets            3,709             4,299
                                                  --------          --------	

Total Current Assets                                44,435            49,004

Plant, rental machines, and other property          38,669            38,445

   Less: Accumulated depreciation                   24,721            24,140
                                                  --------          --------

Plant, rental machines, and other property - net    13,948            14,305

Long-term financing receivables (net of 
   allowances of $132 in 2009 and $179 in 2008)     10,197            11,183

Prepaid pension assets                               2,182             1,601

Deferred taxes                                       6,762             7,270

Goodwill                                            18,737            18,226

Intangible assets - net                              2,580             2,878

Investments and sundry assets                        4,813             5,058
                                                  --------          -------- 

Total Assets                                      $103,655          $109,524
                                                  ========          ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Taxes                                               $2,259            $2,743

Short-term debt                                      8,504            11,236

Accounts payable                                     5,869             7,014

Compensation and benefits                            3,901             4,623

Deferred income                                     10,335            10,239

Other accrued expenses and liabilities               5,562             6,580
                                                  --------          --------
Total Current Liabilities                           36,430            42,435

Long-term debt                                      20,868            22,689

Retirement and nonpension postretirement 
   benefit obligations                              18,459            19,452

Deferred income                                      3,283             3,171

Other liabilities                                    9,141             8,192*
                                                  --------          --------	
Total Liabilities                                   88,182            95,939*

Equity:

Common stock                                        39,774            39,129

Retained earnings                                   74,328            70,353

Treasury stock                                     (77,679)          (74,171)

Accumulated other comprehensive income/(loss)      (21,043)          (21,845)
                                                  --------          --------
Total IBM Corporation stockholders' equity          15,380            13,465*

Noncontrolling interests*                               94               119*
                                                  --------          --------
Total Stockholders' Equity                          15,473            13,584*
                                                  --------          -------- 
Total Liabilities and Stockholders' Equity        $103,655          $109,524
                                                  ========          ========

 
* Reflects implementation of SFAS No. 160, "Noncontrolling Interests in 
Consolidated Financial Statements -- an amendment of ARB No. 51."

                 INTERNATIONAL BUSINESS MACHINES CORPORATION
                             CASH FLOW ANALYSIS
                                (Unaudited)

                                             Three Months Ended   Six Months Ended
(Dollars in Millions)                              June 30,            June 30,
                                                2009      2008      2009      2008
 				              ------    ------    ------    ------
Net Cash from Operations                      $4,741    $4,251    $9,127    $8,453

     Less: Global Financing (GF) Accounts
           Receivable                            430      (628)    3,014     1,769

Net Cash from Operations
     (Excluding GF Accounts Receivable)        4,311     4,879     6,113     6,683

     Net Capital Expenditures                   (864)   (1,169)   (1,624)   (2,380)

Free Cash Flow
     (Excluding GF Receivables)                3,447     3,710     4,490     4,303

     Acquisitions                                (79)     (930)     (100)   (5,891)

     Divestitures                                  0         0       356        29

     Share Repurchase                         (1,670)   (4,736)   (3,436)   (7,164)

     Dividends                                  (732)     (685)   (1,407)   (1,239)

     Non-GF Debt                                (266)      395    (2,181)   (1,325)

     Other (including GF Accounts Receivable,
            GF Debt)                            (469)       67     1,898     4,988

Change in Cash & Marketable Securities          $231   ($2,180)    ($381)  ($6,299)


                 INTERNATIONAL BUSINESS MACHINES CORPORATION
                                SEGMENT DATA
                                 (Unaudited)

                                         SECOND-QUARTER 2009
                            ----------------------------------------------  
(Dollars in Millions)       -------- Revenue ----------   Pre-tax  Pre-tax
                            External Internal     Total    Income   Margin
                            -------- --------  --------  --------  -------
SEGMENTS

Global Technology Services   $9,108     $343    $9,451    $1,405     14.9%
  Y-T-Y Change                 -9.8%   -12.1%     -9.9%     41.3%

Global Business Services      4,338      223     4,562       608     13.3%
  Y-T-Y Change                -15.0%   -13.8%    -15.0%     -4.5%

Software                      5,166      614     5,780     1,852     32.0%
  Y-T-Y Change                 -7.3%   -14.6%     -8.2%     24.1%

Systems and Technology        3,855      244     4,098       333      8.1%
  Y-T-Y Change                -26.0%    13.1%    -24.5%    -16.7%

Global Financing                568      447     1,014       465     45.8%
  Y-T-Y Change                -10.5%   -14.9%    -12.5%      8.6%

TOTAL REPORTABLE SEGMENTS    23,035    1,870    24,905     4,663     18.7%
  Y-T-Y Change                -13.5%   -11.3%    -13.3%     18.0%

Eliminations / Other            215   (1,870)   (1,655)     (401)

TOTAL IBM CONSOLIDATED      $23,250       $0   $23,250    $4,262     18.3%
  Y-T-Y Change                -13.3%             -13.3%     11.8%

                                         SECOND-QUARTER 2008
                            ----------------------------------------------                        
(Dollars in Millions)       -------- Revenue ----------   Pre-tax  Pre-tax
                            External Internal     Total    Income   Margin
                            -------- --------  --------  --------  -------
SEGMENTS

Global Technology Services  $10,100     $390   $10,489      $994      9.5%

Global Business Services      5,107      259     5,366       637     11.9%

Software                      5,574      719     6,293     1,492     23.7%

Systems and Technology        5,212      215     5,427       400      7.4%

Global Financing                634      525     1,159       428     36.9%

TOTAL REPORTABLE SEGMENTS    26,626    2,108    28,734     3,951     13.8%

Eliminations / Other            193   (2,108)   (1,915)     (138)

TOTAL IBM CONSOLIDATED      $26,820       $0   $26,820    $3,814     14.2%

                 INTERNATIONAL BUSINESS MACHINES CORPORATION
                                SEGMENT DATA
                                 (Unaudited)
								 
                                           SIX-MONTHS 2009
                            ----------------------------------------------  
(Dollars in Millions)       -------- Revenue ----------   Pre-tax  Pre-tax
                            External Internal     Total    Income   Margin
                            -------- --------  --------  --------  -------
SEGMENTS

Global Technology Services  $17,862     $685   $18,547    $2,509     13.5%
  Y-T-Y Change                 -9.7%   -12.0%     -9.8%     26.6%

Global Business Services      8,736      456     9,191     1,130     12.3%
  Y-T-Y Change                -12.8%   -11.8%    -12.8%     -7.1%

Software                      9,705    1,227    10,933     3,186     29.1%
  Y-T-Y Change                 -6.9%   -11.5%     -7.4%     15.5%

Systems and Technology        7,083      420     7,503       361      4.8%
  Y-T-Y Change                -24.9%     2.3%    -23.8%    -33.7%
  
Global Financing              1,146      836     1,982       825     41.6%
  Y-T-Y Change                 -9.5%    -8.2%     -9.0%      1.1%

TOTAL REPORTABLE SEGMENTS    44,533    3,624    48,156     8,011     16.6%
  Y-T-Y Change                -12.5%    -9.5%    -12.3%      9.5%

Eliminations / Other            429   (3,624)   (3,195)     (627) 

TOTAL IBM CONSOLIDATED      $44,962       $0   $44,962    $7,385     16.4%

  Y-T-Y Change                -12.4%             -12.4%      5.3%

                                           SIX-MONTHS 2008
                            ----------------------------------------------  
(Dollars in Millions)       -------- Revenue ----------   Pre-tax  Pre-tax
                            External Internal     Total    Income   Margin
                            -------- --------  --------  --------  -------
SEGMENTS

Global Technology Services  $19,777     $778   $20,555    $1,982      9.6%

Global Business Services     10,018      517    10,535     1,216     11.5%

Software                     10,421    1,386    11,807     2,759     23.4%

Systems and Technology        9,431      410     9,841       546      5.5%

Global Financing              1,266      911     2,177       816     37.5%

TOTAL REPORTABLE SEGMENTS    50,913    4,002    54,915     7,319     13.3%

Eliminations / Other            409   (4,002)   (3,593)     (307)

TOTAL IBM CONSOLIDATED      $51,322       $0   $51,322    $7,012     13.7%