Earnings and net income are up, yet System z revenues plunge 26 percent, Power Systems drop 10 percent against last year's third quarter.
Editor's Note: IBM has released its third-quarter financial results. Below are a number of highlights followed by the company's press release.
- Diluted earnings of $2.40 per share, up 18 percent
- Net income of $3.2 billion, up 14 percent; net margin of 13.6 percent, up 2.5 points
- Revenue of $23.6 billion, up 1 percent quarter-to-quarter; down 7 percent, or 5 percent adjusting for currency year-to-year
- Services signings of $11.8 billion; 13 services deals greater than $100 million
- Services backlog of $134 billion, up $5 billion year-to-year
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IBM has announced third-quarter 2009 diluted earnings of $2.40 per share compared with diluted earnings of $2.04 per share in the third quarter of 2008, an increase of 18 percent.
Third-quarter net income was $3.2 billion compared with $2.8 billion in the third quarter of 2008, an increase of 14 percent. Total revenues for the third quarter of 2009 of $23.6 billion increased 1 percent from the second quarter of 2009, and decreased 7 percent (5 percent, adjusting for currency) from the third quarter of 2008.
“Our long-term strategic shift to higher-value businesses again enabled us to deliver outstanding margin, earnings and cash flow growth in the third quarter,” said Samuel J. Palmisano, IBM chairman, president and chief executive officer. “We also saw improved revenue trends in our business and share gains in software and hardware.
“We continued to invest for growth in areas where clients see potential for value creation including Smarter Planet solutions, cloud computing and advanced business analytics. We are optimistic about 2009 as we again raise our full-year expectations and we remain well ahead of pace for our 2010 roadmap of $10 to $11 per share.”
IBM now expects full-year 2009 earnings of at least $9.85 per share compared with its previous expectation of at least $9.70 per share.
The company said it expects full-year 2009 pre-tax income for both its Software and Services segments to grow at double-digit rates and reach approximately $8 billion.
From a geographic perspective, the Americas’ third-quarter revenues were $9.9 billion, a decrease of 5 percent (4 percent, adjusting for currency) from the 2008 period. Revenues from Europe/Middle East/Africa were $7.8 billion, down 12 percent (6 percent, adjusting for currency). Asia-Pacific revenues were essentially flat (down 4 percent, adjusting for currency) to $5.2 billion. OEM revenues were $634 million, down 6 percent compared with the 2008 third quarter. Revenues from the company’s growth markets organization decreased 6 percent (1 percent, adjusting for currency) and represented 19 percent of geographic revenues.
Total Global Services revenues decreased 7 percent (5 percent, adjusting for currency); pre-tax income increased 11 percent. Global Technology Services segment revenues decreased 4 percent (2 percent, adjusting for currency) to $9.4 billion. Global Business Services segment revenues decreased 11 percent (11 percent, adjusting for currency) to $4.3 billion.
IBM signed services contracts totaling $11.8 billion, at actual rates, a decrease of 7 percent (7 percent, adjusting for currency), including 13 contracts greater than $100 million. In addition, IBM signed three deals in the first two days of October with a total value of nearly $1 billion.
Signings in Consulting and Systems Integration and in Integrated Technology Services were $5.1 billion, a decrease of 16 percent (15 percent, adjusting for currency). Total outsourcing signings increased 1 percent (1 percent, adjusting for currency) to $6.7 billion. The estimated services backlog at September 30 was $134 billion at actual rates compared with $132 billion at June 30, 2009, and compared with $129 billion in the third quarter of 2008.
Revenues from the Software segment were $5.1 billion, a decrease of 3 percent (flat, adjusting for currency) compared with the third quarter of 2008. Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $2.9 billion, an increase of 2 percent (5 percent, adjusting for currency) versus the third quarter of 2008. Operating systems revenues of $521 million decreased 12 percent (8 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 14 percent year over year. Revenues from Information Management software, which enables clients to leverage information on demand, was flat. Revenues from Tivoli software, infrastructure software that enables clients to centrally manage networks including security and storage capability, increased 5 percent, and revenues from Lotus software, which allows collaborating and messaging by clients in real-time communication and knowledge management, decreased 9 percent. Revenues from Rational software, integrated tools to improve the processes of software development, increased 2 percent.
IBM said it gained market share in WebSphere, Information Management, Tivoli and Rational software during the third quarter.
Revenues from the Systems and Technology segment totaled $3.9 billion for the quarter, down 12 percent (11 percent, adjusting for currency) from the third quarter of 2008--but an improvement in the year-to-year revenue growth rate compared with the second quarter of 2009. Systems revenues decreased 13 percent (11 percent, adjusting for currency). Revenues from the converged System p products decreased 10 percent compared with the 2008 period. Revenues from System z mainframe server products decreased 26 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 increased 1 percent. Revenues from System Storage decreased 13 percent, and revenues from Retail Store Solutions decreased 15 percent. Revenues from Microelectronics OEM decreased 1 percent.
IBM said it gained market share in System p, System x and disk and tape storage during the third quarter.
Global Financing segment revenues decreased 15 percent (13 percent, adjusting for currency) in the third quarter to $536 million.
The company’s total gross profit margin was 45.1 percent in the 2009 third quarter compared with 43.3 percent in the 2008 third-quarter period, led by improving margins in services and software. Overall gross profit margins improved year-to-year for the 20th time in the last 21 quarters; total services gross profit margins improved year-to-year for the 18th time in the last 19 quarters.
Total expense and other income decreased 11 percent to $6.3 billion compared with the prior-year period. SG&A expense decreased 11 percent to $5.0 billion. RD&E expense of $1.4 billion decreased 8 percent compared with the year-ago period. Intellectual property and custom development income increased to $294 million compared with $267 million a year ago. Other (income) and expense was expense of $5 million compared with income of $51 million from a year ago. Interest expense decreased to $84 million compared with $159 million in the prior year.
IBM’s tax rate in the third-quarter 2009 was 26.5 percent compared with 27.5 percent in the third quarter of 2008.
The weighted-average number of diluted common shares outstanding in the third-quarter 2009 was 1.34 billion compared with 1.38 billion shares in the same period of 2008. As of September 30, 2009, there were 1.31 billion basic common shares outstanding.
Debt, including Global Financing, totaled $25.5 billion, compared with $33.9 billion at year-end 2008. From a management segment view, Global Financing debt decreased $1.4 billion from year-end 2008 to a total of $22.9 billion at September 30, 2009, resulting in a debt-to-equity ratio of 7.0 to 1. Non-global financing debt totaled $2.5 billion, a decrease of $4.0 billion since the end of the second quarter, and $7.0 billion since year-end 2008, resulting in a debt-to-capitalization ratio of 14.2 percent from 48.7 percent.
IBM ended the third quarter of 2009 with $11.5 billion of cash on hand and generated free cash flow of $3.4 billion, excluding Global Financing receivables. The company returned $1.7 billion to shareholders through $726 million in dividends and $930 million 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 nine months ended September 30, 2009 was $8.6 billion compared with $7.9 billion in the year-ago period, an increase of 9 percent. Diluted earnings per share were $6.42 compared with $5.65 per diluted share for the 2008 period, an increase of 14 percent. Revenues for the nine-month period totaled $68.5 billion, a decrease of 11 percent (5 percent, adjusting for currency) compared with $76.6 billion for the nine months of 2008.
For more information, visit www.ibm.com/investor.
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