IBM Reports 2007 Third-Quarter Results

  • Diluted earnings of $1.68 per share, up 16 percent as reported;
  • Total revenues of $24.1 billion, up 7 percent;
  • Global Business Services revenues up 16 percent; pre-tax income up 29 percent;
  • Global Technology Services revenues up 13 percent; pre-tax income up 26 percent;
  • Highest overall Global Services revenue growth in four years.

ARMONK, N.Y.--()--IBM (NYSE: IBM) today announced third-quarter 2007 diluted earnings of $1.68 per share from continuing operations compared with diluted earnings of $1.45 per share in the third quarter of 2006, an increase of 16 percent as reported. Third- quarter income from continuing operations was $2.4 billion compared with $2.2 billion in the third quarter of 2006, an increase of 6 percent. Total revenues for the third quarter of 2007 of $24.1 billion increased 7 percent (3 percent, adjusting for currency) from the third quarter of 2006.

"Our outstanding services results this quarter enabled us to stay on track toward our objective of accelerated earnings per share growth through 2010, while we work through a transition in our hardware business," said Samuel J. Palmisano, IBM chairman, president and chief executive officer. "Our year-to-date performance underscores the strength of major elements of our long-term roadmap, including revenue growth, margin expansion, and continued success in emerging market countries and in the integration of our acquisitions."

From a geographic perspective, the Americas' third-quarter revenues were $10.2 billion, an increase of 4 percent as reported (3 percent, adjusting for currency) from the 2006 period. Revenues from Europe/Middle East/Africa were $8.1 billion, up 11 percent (4 percent, adjusting for currency). Asia-Pacific revenues increased 9 percent (6 percent, adjusting for currency) to $4.9 billion. OEM revenues were $890 million, down 12 percent compared with the 2006 third quarter.

Total Global Services revenues grew 14 percent (10 percent, adjusting for currency) -- the highest growth since third quarter of 2003 -- with strong performance in all geographic regions and business sectors. Global Business Services segment revenues, marked by significant growth in core consulting and application management services, increased 16 percent (12 percent, adjusting for currency) to $4.6 billion. Global Technology Services segment revenues increased 13 percent (9 percent, adjusting for currency) to $9.1 billion, benefiting from sales of new business to existing clients. IBM signed services contracts totaling $11.8 billion, up 12 percent year over year, and ended the third quarter with an estimated services backlog, including Strategic Outsourcing, Business Transformation Outsourcing, Integrated Technology Services, Global Business Services and Maintenance, of $116 billion, an increase of $7 billion year to year.

Revenues from the Systems and Technology segment totaled $4.9 billion for the quarter, down 10 percent (13 percent, adjusting for currency). Revenues decreased 6 percent excluding the year-to-year impact of the Printing System Division divestiture in June 2007. Systems and Technology revenues from the System p UNIX server products increased 6 percent compared with the 2006 period and revenues from the System x servers increased 6 percent. Faced with a difficult comparison, revenues from System z server products decreased 31 percent versus the year-ago period. Total delivery of System z computing power, which is measured in MIPS (millions of instructions per second), decreased 21 percent. Revenues from the System i servers decreased 21 percent. Revenues from System Storage increased 1 percent and revenues from Microelectronics decreased 15 percent.

Revenues from the Software segment were $4.7 billion, an increase of 7 percent (3 percent, adjusting for currency) compared with the third quarter of 2006. Revenues from IBM's middleware products, which primarily include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.6 billion, up 6 percent versus the third quarter of 2006. Operating systems revenues of $564 million increased 2 percent compared with the prior-year quarter.

For 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, revenues increased 10 percent. Revenues for Information Management software, which enables clients to leverage information on demand, increased 9 percent. Revenues from Tivoli software, infrastructure software that enables clients to centrally manage networks including security and storage capability, increased 5 percent, and revenues for Lotus software, which allows collaborating and messaging by clients in real-time communication and knowledge management, increased 9 percent year over year. Revenues from Rational software, integrated tools to improve the processes of software development, increased 3 percent compared with the year-ago quarter.

Global Financing segment revenues increased 6 percent (2 percent, adjusting for currency) in the third quarter to $623 million.

The company's total gross profit margin was 41.3 percent in the 2007 third quarter compared with 42.0 percent in the 2006 period.

Total expense and other income increased 6 percent to $6.7 billion compared to $6.3 billion in the prior-year period. SG&A expense increased 4 percent to $5.3 billion. RD&E expense decreased 1 percent to $1.5 billion compared with the year-ago period. Intellectual property and custom development income increased to $270 million compared with $242 million a year ago. Other (income) and expense contributed income of $95 million in the third quarter of 2007 versus income of $174 million in the third quarter of 2006. Interest expense increased to $193 million compared with $70 million in the prior-year period, primarily due to the increase in debt to finance the company's accelerated share repurchase agreements executed in the prior quarter.

IBM's effective tax rate in the third-quarter 2007 was 28.0 percent compared with 30.0 percent in the third quarter of 2006.

The weighted-average number of diluted common shares outstanding in the third-quarter 2007 was 1.41 billion compared with 1.53 billion shares in the same period of 2006. As of September 30, 2007, there were 1.38 billion basic common shares outstanding.

Debt, including Global Financing, totaled $35.3 billion, compared with $22.7 billion at year-end 2006. From a management segment view, Global Financing debt increased $1.5 billion from year-end 2006 to a total of $23.8 billion, resulting in a debt-to-equity ratio of 6.8 to 1. The non-global financing debt-to-capitalization ratio was 40.3 percent at the end of September 30, 2007 compared with 46.7 percent at the end of the second quarter, which reflects increased financial leverage associated with the accelerated share repurchase agreements. The cash balance was $13.8 billion at the end of the third quarter.

Year-To-Date 2007 Results

Income from continuing operations for the nine months ended September 30, 2007 was $6.5 billion compared with $6.0 billion in the year-ago period. Diluted earnings per share from continuing operations were $4.42 compared with $3.81 per diluted share for the 2006 period. Revenues from continuing operations for the nine-month period totaled $69.9 billion, an increase of 7 percent (4 percent, adjusting for currency) compared with $65.2 billion for the nine months of 2006.

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 company's failure to continue to develop and market new and innovative products and services and to keep pace with technological change; competitive pressures; failure to obtain or protect intellectual property rights; fluctuations in revenues and purchases, and volatility of stock prices; the company's ability to attract and retain key personnel; adverse affects from tax matters; environmental matters; currency fluctuations and customer financing risks; customer credit risk on trade receivables; risks from investing in growth opportunities; the company's failure to maintain the adequacy of its internal controls; the company's use of certain estimates and assumptions; dependence on certain suppliers; changes in the financial or business condition of the company's distributors or resellers; the company's ability to successfully manage acquisitions and alliances; failure to have sufficient insurance; legal, political, health and economic conditions; 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 -

  • adjusting for revenues from the Printing System Division divestiture;
  • adjusting for currency (i.e., at constant currency).

The rationale for management's use of non-GAAP measures is included as part of the supplementary materials presented within the third-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/3q07. Presentation charts will be available on the Web site prior to the Webcast.

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

             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
                      2007     2006  Change     2007     2006  Change
                    ------   ------ -------  -------  ------- -------
REVENUE


 Global Technology
 Services           $9,093   $8,058    12.8% $26,106  $23,732    10.0%
  Gross margin        30.6%    30.2%            29.9%    29.7%

 Global Business
 Services            4,586    3,959    15.9%  13,108   11,746    11.6%
  Gross margin        22.9%    22.8%            23.7%    22.6%

 Systems and
 Technology          4,898    5,466   -10.4%  14,520   14,900    -2.5%
  Gross margin        38.5%    38.2%            36.9%    35.8%

 Software            4,694    4,406     6.5%  13,723   12,554     9.3%
  Gross margin        84.2%    85.3%            84.3%    84.6%

 Global Financing      623      587     6.1%   1,834    1,744     5.1%
  Gross margin        44.6%    48.6%            47.2%    50.8%

 Other                 225      141    59.3%     630      491    28.4%
  Gross margin         2.7%    13.6%            11.2%     9.4%

TOTAL REVENUE       24,119   22,617     6.6%  69,920   65,166     7.3%


GROSS PROFIT         9,956    9,492     4.9%  28,760   26,594     8.1%
  Gross margin        41.3%    42.0%            41.1%    40.8%


EXPENSE AND OTHER INCOME

 S,G&A               5,324    5,121     4.0%  16,044   14,639     9.6%
  % of revenue        22.1%    22.6%            22.9%    22.5%

 R,D&E               1,524    1,543    -1.2%   4,568    4,520     1.1%
  % of revenue         6.3%     6.8%             6.5%     6.9%

 Intellectual property
  and custom development
  income              (270)    (242)   11.7%    (721)    (659)    9.4%
 Other (income)
   and expense         (95)    (174)  -45.2%    (528)    (616)  -14.3%
 Interest expense      193       70   177.9%     396      207    91.1%

TOTAL EXPENSE AND
OTHER INCOME         6,676    6,317     5.7%  19,759   18,091     9.2%
  % of revenue        27.7%    27.9%            28.3%    27.8%

INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES         3,280    3,174     3.3%   9,001    8,503     5.9%
  Pre-tax margin      13.6%    14.0%            12.9%    13.0%

Provision for
income taxes           918      952    -3.6%   2,534    2,551    -0.7%
  Effective tax
  rate                28.0%    30.0%            28.2%    30.0%

INCOME FROM CONTINUING
OPERATIONS          $2,362   $2,222     6.3%  $6,467   $5,952     8.7%
  Net margin           9.8%     9.8%             9.2%     9.1%

DISCONTINUED OPERATIONS
Loss from discontinued
operations              (1)      (0)              (1)      (0)
 NET INCOME         $2,361   $2,222     6.3%  $6,466   $5,952     8.6%
                    ======   ======           ======   ======


EARNINGS/(LOSS)PER SHARE
OF COMMON STOCK:

 ASSUMING DILUTION
  CONTINUING
   OPERATIONS        $1.68    $1.45    15.9%   $4.42    $3.81    16.0%
  DISCONTINUED
   OPERATIONS        (0.00)   (0.00)           (0.00)   (0.00)
                    ------   ------           ------   ------
  TOTAL              $1.68    $1.45    15.9%   $4.42    $3.81    16.0%
                    ======   ======           ======   ======
 BASIC
  CONTINUING
   OPERATIONS        $1.72    $1.47    17.0%   $4.50    $3.87    16.3%
  DISCONTINUED
   OPERATIONS        (0.00)   (0.00)           (0.00)   (0.00)
                    ------   ------           ------   ------
  TOTAL              $1.72    $1.47    17.0%   $4.50    $3.87    16.3%
                    ======   ======           ======   ======

WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING (M's)
 ASSUMING DILUTION 1,405.8  1,534.3          1,463.1  1,560.5
 BASIC             1,371.4  1,513.2          1,436.0  1,538.6


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

                                         At           At
(Dollars in millions)          September 30, December 31,  Percent
                                       2007         2006    Change
                                -----------  -----------   -------
ASSETS

 Cash, cash equivalents,
 and marketable securities          $13,822      $10,657     29.7%

 Receivables - net, inventories,
 prepaid expenses                    32,766       34,003     -3.6%

 Plant, rental machines,
 and other property - net            14,836       14,440      2.7%

 Investments and other assets        47,184       44,134      6.9%
                                   --------     --------

TOTAL ASSETS                       $108,609     $103,234      5.2%
                                   ========     ========


LIABILITIES AND STOCKHOLDERS' EQUITY

 Short-term debt                    $16,546       $8,902     85.9%
 Long-term debt                      18,775       13,780     36.2%
                                   --------     --------
 Total debt                          35,322       22,682     55.7%

 Accounts payable, taxes,
 and accruals                        28,464       31,189     -8.7%

 Other liabilities                   24,277       20,857     16.4%
                                   --------     --------
TOTAL LIABILITIES                    88,063       74,728     17.8%

STOCKHOLDERS' EQUITY                 20,546       28,506    -27.9%
                                   --------     --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY               $108,609     $103,234      5.2%
                                   ========     ========


                 INTERNATIONAL BUSINESS MACHINES CORPORATION
                               SEGMENT DATA
                                (Unaudited)

                                    THIRD QUARTER 2007
                        ----------------------------------------------
                                                      Pre-tax
                                                       Income
                                                       (Loss)
                                                         From
(Dollars in millions)   --------- Revenue -------- Continuing  Pre-tax
                        External Internal    Total Operations   Margin
                        -------- --------  ------- ----------  -------
SEGMENTS

Global Technology
 Services                $9,093     $408    $9,501    $1,028     10.8%
  Y-T-Y Change             12.8%    -4.6%     12.0%     26.3%

Global Business Services  4,586      276     4,862       521     10.7%
  Y-T-Y Change             15.9%   -18.0%     13.2%     28.6%

Systems and Technology    4,898      236     5,134       361      7.0%
  Y-T-Y Change            -10.4%    -7.5%    -10.3%    -12.4%

Software                  4,694      571     5,265     1,283     24.4%
  Y-T-Y Change              6.5%     2.0%      6.0%     -1.5%

Global Financing            623      348       970       339     34.9%
  Y-T-Y Change              6.1%     3.2%      5.1%      1.1%

TOTAL REPORTABLE
 SEGMENTS                23,894    1,838    25,732     3,532     13.7%
  Y-T-Y Change              6.3%    -4.1%      5.5%      8.1%

Eliminations / Other        225   (1,838)   (1,613)     (252)

TOTAL IBM CONSOLIDATED  $24,119       $0   $24,119    $3,280     13.6%
  Y-T-Y Change              6.6%               6.6%      3.3%


                                    THIRD QUARTER 2006
                        ----------------------------------------------
                                                      Pre-tax
                                                       Income
                                                       (Loss)
                                                         From
(Dollars in millions)   --------- Revenue -------- Continuing  Pre-tax
                        External Internal   Total  Operations   Margin
                        -------- --------  ------- ----------  -------
SEGMENTS

Global Technology
 Services                $8,058     $428    $8,486      $814      9.6%

Global Business Services  3,959      337     4,295       405      9.4%

Systems and Technology    5,466      255     5,721       413      7.2%

Software                  4,406      559     4,965     1,302     26.2%

Global Financing            587      337       924       335     36.2%

TOTAL REPORTABLE
 SEGMENTS                22,476    1,916    24,391     3,268     13.4%

Eliminations / Other        141   (1,916)   (1,774)      (94)

TOTAL IBM CONSOLIDATED  $22,617       $0   $22,617    $3,174     14.0%


              INTERNATIONAL BUSINESS MACHINES CORPORATION
                             SEGMENT DATA
                               (Unaudited)

                                      NINE MONTHS 2007
                        ----------------------------------------------
                                                      Pre-tax
                                                       Income
                                                       (Loss)
                                                         From
(Dollars in millions)   --------- Revenue -------- Continuing  Pre-tax
                        External Internal    Total Operations   Margin
                        -------- --------  ------- ----------  -------
SEGMENTS

Global Technology
 Services               $26,106   $1,243   $27,348    $2,497      9.1%
  Y-T-Y Change             10.0%    -6.5%      9.1%      2.1%

Global Business Services 13,108      906    14,014     1,477     10.5%
  Y-T-Y Change             11.6%   -11.5%      9.7%     26.4%

Systems and Technology   14,520      758    15,279       789      5.2%
  Y-T-Y Change             -2.5%    -6.0%     -2.7%     35.7%

Software                 13,723    1,704    15,427     3,569     23.1%
  Y-T-Y Change              9.3%     5.4%      8.9%      2.6%

Global Financing          1,834    1,037     2,871     1,045     36.4%
  Y-T-Y Change              5.1%    -0.2%      3.1%     -2.2%

TOTAL REPORTABLE
 SEGMENTS                69,291    5,648    74,939     9,376     12.5%
  Y-T-Y Change              7.1%    -2.8%      6.3%      7.3%

Eliminations / Other        630   (5,648)   (5,018)     (375)

TOTAL IBM CONSOLIDATED  $69,920       $0   $69,920    $9,001     12.9%
  Y-T-Y Change              7.3%               7.3%      5.9%


                                      NINE MONTHS 2006
                        ----------------------------------------------
                                                      Pre-tax
                                                       Income
                                                       (Loss)
                                                         From
(Dollars in millions)   --------- Revenue -------- Continuing  Pre-tax
                        External Internal    Total Operations   Margin
                        -------- --------  ------- ----------  -------
SEGMENTS

Global Technology
 Services               $23,732   $1,328   $25,061    $2,445      9.8%

Global Business
 Services                11,746    1,023    12,769     1,168      9.1%

Systems and Technology   14,900      807    15,706       582      3.7%

Software                 12,554    1,616    14,170     3,478     24.5%

Global Financing          1,744    1,039     2,784     1,068     38.4%

TOTAL REPORTABLE
 SEGMENTS                64,676    5,814    70,490     8,741     12.4%

Eliminations / Other        491   (5,814)   (5,323)     (239)

TOTAL IBM CONSOLIDATED  $65,166       $0   $65,166    $8,503     13.0%

Contacts

IBM
Edward Barbini, 914/499-6565
barbini@us.ibm.com

Contacts

IBM
Edward Barbini, 914/499-6565
barbini@us.ibm.com