Investments

IBM Reports 2004 First-Quarter Results

ARMONK, N.Y.--(BUSINESS WIRE)--April 15, 2004--IBM today announced first-quarter 2004 diluted earnings per common share of $.93 from continuing operations compared with diluted earnings of $.79 per share in the same period of 2003, an increase of 18 percent. First-quarter income from continuing operations was $1.6 billion compared with $1.4 billion a year ago, an increase of 16 percent. Revenues from continuing operations for the first quarter were $22.2 billion, up 11 percent compared with the first quarter of 2003 revenues of $20.1 billion.
Samuel J. Palmisano, IBM chairman and chief executive officer, said: "The IBM team entered the first quarter with good momentum and delivered a solid first quarter. Behind the results, clients are increasingly turning to IBM to help them become on demand businesses. This is creating demand for integrated services and high-performance IT infrastructure based on open industry standards -- areas where we have chosen to lead.

Bank Of America Investment "IBM continued to out-perform the industry in our selected segments and gained share. We continued our industry-leading work in services with more than $10 billion in signings after a very strong fourth quarter of signings, and we grew our software and systems businesses, with significant progress in zSeries servers and WebSphere middleware. We delivered double-digit growth in emerging markets such as China, Eastern Europe, India and Brazil. Our balance sheet remains strong, with $8.5 billion of cash on hand.

In December, the Thai Board of Investment reported the value of investment applications from January to November had declined by 27% year.

Investment Opportunity "Despite the strengthening economic recovery, many of our competitors continue to struggle with the fundamental, changing dynamics of the IT industry. Because we anticipated these changes -- in computing and in how enterprises apply technology -- we made significant investments and repositioned IBM during the downturn. Those strategic moves are beginning to pay off for our clients and shareholders. We remain enthusiastic about our prospects for 2004."

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Banc Of America Investment First-quarter revenue growth of 11 percent (3 percent, adjusting for currency) was driven by growth across all geographies. In the Americas, first-quarter revenues from continuing operations were $9.1 billion, up 6 percent (4 percent, adjusting for currency) from the 2003 period. Revenues from Europe/Middle East/Africa were $7.3 billion, an increase of 15 percent (1 percent, adjusting for currency). Asia-Pacific revenues grew 16 percent (6 percent, adjusting for currency) to $5.2 billion. OEM revenues decreased 3 percent to $671 million compared with the first quarter of 2003.

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Banking Investment Revenues grew at double digits in three of IBM's five industry sectors in the first quarter, as well as sales to Small and Medium businesses, which led the growth with 15 percent year over year.

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Investment Solution Strategic Revenues from Global Services, including maintenance, increased 9 percent (1 percent, adjusting for currency) to $11.1 billion in the first quarter. Global Services revenues, excluding maintenance, increased 9 percent as well (1 percent, adjusting for currency). IBM signed services contracts totaling more than $10 billion and ended the quarter with an estimated services backlog, including Strategic Outsourcing, Business Consulting Services, Integrated Technology Services and Maintenance, of $120 billion.

All numerical data in the report was gathered through telephone interviews conducted by Princeton Survey Research Associates between June 14 and July 3, 2004, among a sample of 1, 510 adults, aged 18 and older. For results based on the total sample, one can say with 95% confidence that the error attributable to sampling and other random effects is +/- 3%. For results based Internet users (n=1, 036), the margin of sampling error is +/- 3%.

Investment Banking Services Hardware revenues from continuing operations increased 16 percent (10 percent, adjusting for currency) to $6.7 billion in the first quarter versus the year-ago period. In the quarter, revenues from the new Systems and Technology Group increased. As a result of a "one team" approach to collaboration between Systems Group and Technology Group, the two segments were combined into one reporting segment in the first quarter of 2004.

Bank Investment First-quarter revenues for this group totaled $3.8 billion, up 14 percent due in large part to significant eServer revenue increases for xSeries Intel-based servers, pSeries UNIX servers and zSeries servers. The total delivery of zSeries computing power as measured in MIPS (millions of instructions per second) increased nearly 100 percent in the quarter compared with the first quarter of 2003. Revenues for the eServer iSeries midrange servers declined as did Microelectronics revenues. Storage Systems revenues increased due to strength in midrange disk and tape products. Personal Systems Group revenues increased 18 percent to $2.8 billion. Revenues from mobile personal computers increased significantly due to strong demand.

Alternative Investment Revenues from Software were $3.5 billion, an increase of 11 percent (3 percent, adjusting for currency) compared with the first quarter of 2003. Revenues from IBM's middleware brands, which include WebSphere, DB2, Rational, Tivoli and Lotus products, increased 13 percent to $2.7 billion in the first quarter of 2004. Operating systems revenues increased 6 percent to $604 million compared with the first quarter of 2003.

Online Investment Services WebSphere revenues in the first quarter increased 24 percent. WebSphere software facilitates customers' ability to manage a wide variety of business processes using open standards to interconnect applications, data and operating systems. Revenues for Data Management increased 10 percent including revenues for DB2 database software, which increased 14 percent. Revenues from Tivoli software (infrastructure software that enables customers to centrally manage networks and storage) increased 18 percent, and revenues for Lotus software, which enables customers to communicate, collaborate and learn effectively, increased 15 percent. Revenues from Rational (comprehensive software development tools) increased 88 percent, benefiting from the comparison to a partial first quarter in 2003 when the business was acquired.

Accompany Essential Investment Global Financing revenues declined 6 percent (12 percent, adjusting for currency) in the first quarter to $662 million. Revenues from the Enterprise Investments/Other area, which includes industry-specific IT solutions such as product life-cycle management software, increased 13 percent (6 percent, adjusting for currency) to $288 million compared with the first quarter of 2003.

Investment Company The company's total gross profit margin from continuing operations was 36.0 percent in the 2004 first quarter, the same as the first quarter of 2003.

Investment Management Solution In the first quarter of 2004, total expense and other income from continuing operations of $5.7 billion increased 9 percent over the year-earlier period. The company's selling, general and administrative expense-to-revenue ratio improved to 20.2 percent in the quarter compared with 21.0 percent in the first-quarter 2003, while SG&A expense increased 6 percent to $4.5 billion. Research, development and engineering expense increased 14 percent to $1.4 billion. Intellectual property and custom development income declined 36 percent. Other (income) and expense was $13 million of net expense in the first quarter of 2004 versus $84 million of net expense in the same period last year.

Investment Management Services IBM's effective tax rate from continuing operations in the first- quarter 2004 was 30.0 percent, the same as the first quarter of 2003.

Guide Investment Stock For total operations, net income for the first quarter of 2004, including a loss from discontinued operations of $1 million, was $1.6 billion, or $.93 per diluted common share. Net income for the first quarter of 2003, including a loss from discontinued operations of $3 million, was $1.4 billion, or $.79 per diluted share.

Investment Manual Solution Share repurchases totaled approximately $1.8 billion in the first quarter. The weighted-average number of diluted common shares outstanding in the quarter was 1.73 billion compared with 1.76 billion shares in the same period of 2003. As of March 31, 2004, there were 1.69 billion basic shares outstanding.

Investment Stock Debt, including Global Financing, totaled $23.7 billion, essentially the same at year-end 2003. From a management segment view, the non-global financing debt-to-capitalization ratio was 2.8 percent at the end of March 31, 2004, and Global Financing debt declined $300 million from year-end 2003 to a total of $23.0 billion, resulting in a debt-to-equity ratio of 6.7 to 1.

Essential Investment Solution Forward-Looking and Cautionary Statements

Citicorp Investment Services 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 (SEC).

Fool Guide Investment Motley Presentation of Information in this Press Release

Fidelity Investment Services 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:

Investment Management - adjusting for currency

Francisco Investment San The rationale for management's use of non-GAAP measures is included as part of the supplementary materials presented within the first- quarter earnings materials. These materials are available on the IBM investor relations Web site at www.ibm.com/investor.

Mellon Investment Services Conference Call and Webcast

Finance Investment 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/1q04.

Investment Manual Science Financial Results Attached

 INTERNATIONAL BUSINESS MACHINES CORPORATION COMPARATIVE FINANCIAL RESULTS (Unaudited; Dollars in millions except per share amounts) Three Months Ended March 31, Percent 2004 2003 Change ------- ------- ------- REVENUE Global Services $11,099 $10,169 9.1% Gross profit margin 24.5% 24.9% Hardware 6,735 5,808 16.0% Gross profit margin 26.7% 26.6% Software 3,466 3,129 10.8% Gross profit margin 86.0% 84.6% Global Financing 662 705 -6.0% Gross profit margin 60.5% 58.9% Enterprise Investments/ Other 288 254 13.2% Gross profit margin 39.5% 36.7% TOTAL REVENUE 22,250 20,065 10.9% GROSS PROFIT 8,009 7,233 10.7% Gross profit margin 36.0% 36.0% EXPENSE AND OTHER INCOME S,G&A 4,484 4,215 6.4% Expense to revenue 20.2% 21.0% R,D&E 1,367 1,195 14.4% Expense to revenue 6.1% 6.0% Intellectual property and custom development income (180) (282) -36.4% Other (income) and expense 13 84 -84.9% Interest expense 35 40 -12.4% TOTAL EXPENSE AND OTHER INCOME 5,719 5,252 8.9% Expense to revenue 25.7% 26.2% INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 2,290 1,981 15.6% Pre-tax margin 10.3% 9.9% Provision for income taxes 687 594 15.6% Effective tax rate 30.0% 30.0% INCOME FROM CONTINUING OPERATIONS $1,603 $1,387 15.5% Net margin 7.2% 6.9% DISCONTINUED OPERATIONS Loss from discontinued operations 1 3 NET INCOME $1,602 $1,384 15.7% ====== ====== EARNINGS/(LOSS)PER SHARE OF COMMON STOCK: ASSUMING DILUTION CONTINUING OPERATIONS $0.93 $0.79 17.7% DISCONTINUED OPERATIONS (0.00) (0.00) ------ ------ TOTAL $0.93 $0.79 17.7% ====== ====== BASIC CONTINUING OPERATIONS $0.95 $0.80 18.8% DISCONTINUED OPERATIONS (0.00) (0.00) ------ ------ TOTAL $0.95 $0.80 18.8% ====== ====== WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (M's) ASSUMING DILUTION 1,730.1 1,758.5 BASIC 1,691.7 1,725.3 INTERNATIONAL BUSINESS MACHINES CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION (Unaudited) At At (Dollars in millions) March 31, December 31, Percent 2004 2003 Change -------- ----------- ------- ASSETS Cash, cash equivalents, and marketable securities $8,501 $7,647 11.2% Receivables - net, inventories, prepaid expenses 34,118 37,351 -8.7% Plant, rental machines, and other property - net 14,612 14,689 -0.5% Investments and other assets 44,594 44,770 -0.4% -------- -------- TOTAL ASSETS $101,825 $104,457 -2.5% ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term debt $7,568 $6,646 13.9% Long-term debt 16,098 16,986 -5.2% -------- -------- Total debt 23,666 23,632 0.1% Accounts payable, taxes, and accruals 27,817 31,254 -11.0% Other liabilities 22,157 21,707 2.1% -------- -------- TOTAL LIABILITIES 73,640 76,593 -3.9% STOCKHOLDERS' EQUITY 28,185 27,864 1.2% -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $101,825 $104,457 -2.5% ======== ======== INTERNATIONAL BUSINESS MACHINES CORPORATION SEGMENT DATA (Unaudited) FIRST QUARTER 2004 ---------------------------------------------- Pre-tax Income (Loss) From (Dollars in millions) -------- Revenue --------- Continuing Pre-tax External Internal Total Operations Margin -------- -------- ------- ---------- ------- SEGMENTS Global Services $11,099 $762 $11,861 $991 8.4% % change 9.1% 9.0% 9.1% 0.8% Systems and Technology Group 3,776 236 4,012 170 4.2% % change 14.1% 27.6% 14.9% -5.0% Personal Systems Group 2,826 23 2,849 (11) -0.4% % change 18.2% -36.1% 17.4% 84.1% Software 3,466 401 3,867 854 22.1% % change 10.8% 3.6% 10.0% 33.6% Global Financing 665 280 945 374 39.6% % change -5.1% -5.1% -5.1% 37.0% Enterprise Investments 275 2 277 (52) -18.8% % change 14.1% 100.0% 14.5% 22.4% TOTAL SEGMENTS 22,107 1,704 23,811 2,326 9.8% % change 10.9% 6.3% 10.5% 20.0% Eliminations / Other 143 (1,704) (1,561) (36) TOTAL IBM $22,250 $0 $22,250 $2,290 10.3% % change 10.9% 10.9% 15.6% FIRST QUARTER 2003 ---------------------------------------------- Pre-tax Income (Loss) From (Dollars in millions) -------- Revenue --------- Continuing Pre-tax External Internal Total Operations Margin -------- -------- ------- ---------- ------- SEGMENTS Global Services $10,169 $699 $10,868 $983 9.0% Systems and Technology Group (a) 3,308 185 3,493 179 5.1% Personal Systems Group 2,390 36 2,426 (69) -2.8% Software 3,129 387 3,516 639 18.2% Global Financing 701 295 996 273 27.4% Enterprise Investments 241 1 242 (67) -27.7% TOTAL SEGMENTS 19,938 1,603 21,541 1,938 9.0% Eliminations / Other 127 (1,603) (1,476) 43 TOTAL IBM $20,065 $0 $20,065 $1,981 9.9% (a) 2003 Technology Group and Systems Group segment results have been reclassified to conform with current reporting structure.

Investment Advisory Services Contacts

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

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