EXHIBIT 99.1
ATTACHMENT II
INTRODUCTION - HERVEY C. PARKE
Thank you, Mandy. Good afternoon. This is Hervey Parke, the Director of
Investor Relations for IBM.
Let me quickly give you a few pieces of information.
First -- some pointers about our Earnings Call website for those new to our
call:
At this time, the opening page of the presentation should have
automatically loaded -- and you should be on Chart 1 -- the title page.
After the last chart in the presentation -- we will provide you an index
to go back to specific slides during the Q&A. Alternatively, you can jump
to the index at any time by clicking on the index link on the left side of
your screen.
For printing the slides -- you still have two alternatives:
On the index page, there is a link so you can download the entire
set of charts for printing.
Or -- you can print the charts one by one during the presentation to
take notes on them. While all of the charts will be available at the
beginning of the presentation -- printing them all may tie up your
browser -- so you may want to wait until the end of the
presentation.
A replay of this webcast will be available on this website by this time
tomorrow -- and we will make the text of our presentation available on
this website in approximately 45 minutes.
Second -- let me remind you of our actions in 1999 as they affect our
year-to-year comparisons.
In the 2nd and 3rd quarters last year, our results reflected the impact of
multiple special actions. You will find a list of these on a supplemental
chart at the end of our presentation.
In comparing our 2nd- and 3rd-quarter results to last year in our
presentation, we will show you year-to-year changes without those actions.
Finally: please click on the 'next' button and move to Chart 2.
Certain comments made by John Joyce or myself during this call may be
characterized as forward looking under the Private Securities Litigation
Reform Act of 1995.
Those statements involve a number of factors that could cause actual
results to differ materially.
Additional information concerning these factors is contained in the
company's filing with the SEC. Copies are available from the SEC, from the
IBM website, or from us in Investor Relations.
Now, please click again on the 'next' button for Chart 3.
And at this time, let me turn the call over to John Joyce, IBM's senior vice
president and chief financial officer.
INTRODUCTORY REMARKS
Thanks, Hervey. Good afternoon.
We're pleased about our fourth-quarter results, with --
o $25.6 billion in revenues, which is double-digit revenue growth of 12%
constant currency,
o Earnings Per Share of $1.48, which is above consensus and 32%
year-to-year growth,
o and Free Cash Flow of $6.2 billion in the 4th quarter alone -- and
$7.3 billion for the full year.
As we've been telling you, we expected that our revenue growth would continue to
build in the 4th quarter, as it did each quarter throughout the year -- and
that's exactly what happened.
Before we get into details of the quarter, let me make a few summary points.
First, it's clear from our 4th-quarter performance that the marketplace has
continued to shift in our favor -- moving steadily from a product-oriented focus
to a focus on services and solutions.
o For example, in the 4th quarter our services business grew in double
digits across all services segments.
o Our worldwide services leadership remains one of our unique strengths,
and we finished the year with a services backlog of $85 billion.
In the 4th quarter we also saw a continuing trend toward powerful, scalable,
"industrial-strength" servers that our customers need as they transform their
businesses to meet the 24-by-7 requirements of the Internet world.
o Consistent with this trend, we saw improved performance across the
board in our server business in the 4th quarter, especially for our
web servers and our new z900 mainframes, which were designed
specifically for e-business.
We're in a fairly unique position.
o First, our customer base -- essentially large, global
institutions -- requires our technology and services to improve
their competitiveness as they continue to transform their
businesses.
o Second, our technology and services capabilities have never been
stronger -- and we believe we're winning the long-term technology
battle.
o Finally, our ability to integrate these complex technologies
across the full range of computing platforms truly sets us apart
from our competitors.
Because of this position, we delivered the kind of revenue, earnings,
and cash performance in the 4th quarter that was expected of us.
We're also pleased to tell you that we managed through the issues that hurt us
in the 3rd quarter -- including supply shortages and transitions in our
mainframe and software businesses. This came down to pure execution -- and we
executed well.
If you'll click on the 'next' button for Chart 4, I'll show you a summary of our
revenue and EPS performance in 2000.
IBM GROWTH - 2000
In the 4th quarter, currency hit us for 6 points of growth -- due not only to
the year-to-year decline in the euro, but also the yen.
When we met with you last fall, we told you our focus is on earnings and cash.
o As you can see from the chart, the momentum built throughout the year
in both revenue and earnings per share.
o And-- although this isn't on the chart -- we also had improving profit
margin all year and a strong finish in free cash flow to generate $7.3
billion for the full year.
Let me remind you that this Free Cash Flow is after spending
- over $5 billion on research and development, and
- over 5 1/2 billion on capital expenditures.
And it supported $6.7 billion in share repurchases.
So what are our expectations as we go into this year? Let me touch on this
quickly before we get into details of the fourth quarter.
o First, we plan to maintain our focus on delivering consistent earnings
results and strong cash flows as well as revenue growth.
o We will continue to drive productivity improvements.
o And finally, we can assure you that we will remain very focused on
execution.
Having said this, it's early in the new year and we don't have a better crystal
ball than you do. Clearly, the U.S. market is volatile and uncertain. However,
we're entering 2001 with some momentum and a sense of confidence.
Based on our 4th-quarter results and everything we know today about the
coming year -- we remain comfortable with the consensus Earnings Per Share
estimate for 2001-- which is consistent with our longer-term business
model.
Let me show you one more chart before we get into a discussion of the 4th
quarter. Click on the 'next' button for Chart 5.
IBM 2000 QUARTERLY GROWTH PATTERNS
This chart is very similar to a chart I showed you a year ago.
It groups our portfolio of businesses by growth characteristics -- and shows how
they improved over the course of the year 2000.
o Our higher-growth businesses -- Services, Software, and Technology --
which contributed 46% of our revenue -- steadily recovered from the
Y2K slowdown -- reaching growth of 14% at constant currency by the 4th
quarter.
These are the businesses that are going to drive our longer-term
growth, and they're clearly getting back on track.
o The 2nd group -- which made up 13% of our revenue - has two important
characteristics:
- they are annuity-like in their predictability, and
- they generate a lot of cash and profit.
As the chart shows, they lived up to expectations all year long. And
by the way -- many investors overlook the value of these low-growth
businesses as they assess our portfolio.
o The 3rd group is our hardware -- Enterprise Systems, PCs and Hard Disk
Drives. They generated 38% of our 2000 revenue.
Because of the product cycles of these businesses, execution is
critical -- and we clearly had our challenges earlier in the year.
But a 9% decline in the 1st quarter was steadily and completely
turned around by the 4th quarter to growth of 16%.
o And finally, part of good portfolio management is exiting businesses
that no longer fit -- and we did that with our Global Network, DRAM
manufacturing, and some of our network hardware.
So each of these pieces of our portfolio contributed to the recovery of our
revenue growth in 2000.
Going into 2001, we expect continued strength in our higher-growth businesses --
Services, Middleware, and Technology -- although PCs and Hard Disk Drives will
have to deal with the current demand and price pressures in their sectors.
So here's what we like about this portfolio: it blends the characteristics that
can generate cash, profit, and consistent growth in earnings.
Now let's turn to the details of our results in the 4th quarter.
Please click the 'next' button for Chart 6.
RESULTS
Here's a financial overview of the 4th quarter:
o Revenue, at $25.6 billion, was up 6% as reported.
As I've mentioned -- currency's impact was 6 points -- 3 points more
than we saw in the 3rd quarter, and more than most of you had
expected.
So revenue at constant currency -- which represents business growth --
grew 12%.
I will provide you with some data on currency later that may be
helpful to you in anticipating its effect on 2001.
o Pre-tax income was up 27%, and once again we saw improving
profitability.
The gross profit margin improved 1 point over last year -- and our
total expense-to-revenue improved 1.4 points.
o The tax rate was 29.5% -- down a half a point.
o Average diluted shares outstanding for the quarter were 1.8 billion --
down 3.1% -- reflecting our stock buyback program.
o And earnings per share were $1.48 -- up 32%.
Now, let's turn to Revenue in the 4th quarter -- starting with a geographic
perspective -- click the 'next' button for Chart 7.
4Q00 GEOGRAPHIC REVENUE
This chart shows our steady progress during the year across all geographies.
We're showing constant currency since it best depicts business trends.
Revenue growth improved in each quarter.
o Asia Pacific again was the strongest region in the 4th quarter, with
20% growth.
Note that this was despite a weak economy in Japan where our business
grew 22%. And what business grew the fastest in Japan's weak economy?
Services, which grew 40% -- another proof point for our solutions
strategy.
o Europe was the most improved geography, accelerating to growth of 18%
-- with double-digit growth across each of its regions.
I might add that -- with this strong showing in revenue -- Europe's
profit contribution was at an all-time high.
o While trailing the other geographies in growth, the Americas picked up
3 points of growth over the 3rd quarter.
o Our OEM business reached double-digit growth as our Microelectronics
maintained growth of over 30% and Hard Disk Drives finally shifted
from decline to growth.
Let me make one more point here. In the face of uncertainty in the U.S. --
the size of our business in Europe and Asia can be an important
counterbalance.
o Our revenues in Europe alone -- at over $24 billion -- were greater
than Microsoft's on a worldwide basis.
o Our revenues in Asia/Pacific alone -- at nearly $18 billion -- were
greater than Sun's -- worldwide.
Now, if you'll click on the 'next' button for Chart 8 -- I'll touch on Currency.
CURRENCY: YEAR-TO-YEAR COMPARISON
This chart shows our average exchange rate -- as well as a year-to-year
comparison -- for the dollar against four currencies for the 3rd and 4th
quarters of this year.
A negative comparison indicates that local-currency revenue reported in
dollars was hurt by the translation.
A positive indicates a help to reported revenue.
You will recall that -- in the 3rd quarter -- currency impacted our total
reported revenue growth by 3 points.
In the 4th quarter, each of these four currencies was weaker against the dollar
on a year-to-year basis -- most notably, the yen, which in prior quarters had
actually been a help to reported revenue. So currency's impact was 6 points of
reported growth.
And we could continue to see some impact in the 1st half of 2001.
As in prior quarters, we have provided recent spot exchange rates as a way of
gauging possible future impact from currency.
This is by no means a prediction of what will happen. It simply shows the
year-to-year effect if the dollar remained at current levels.
o While this would suggest that European currencies could be less of a
problem in the 1st half of the year -- the yen becomes more of a
problem on a year-to-year basis.
o If these spot rates held at these exact levels -- with IBM's
geographic mix, our revenue would still see a 4-point hit in the 1st
quarter of 2001.
As it has in the past, IBM hedges against adverse currency effects on earnings.
But as you know, we do not hedge 100% of such exposure -- so currency
impacted our 4th-quarter -- even more than the 3rd quarter.
We absorbed this impact in our operational results -- and we will most
likely have to do the same in the 1st quarter.
Now let's look at revenue by major line item... Chart 9.
4Q00 REVENUE
First, Hardware --
Revenue was $11.4 billion in the 4th quarter -- growing 15% at constant
currency... capping a year of steady improvement.
Global Services -- 37% of IBM's revenue with $9.2 billion -- grew 12% at
constant currency.
Services without maintenance and adjusted for the global network sale and
Y2K remediation services grew 17% -- up from 12% in the 3rd quarter.
Software was $3.6 billion -- recovering from its weak showing in the 3rd quarter
to grow 6% at constant currency -- the strongest growth rate for the year.
Significantly improved sales execution resulted in faster growth for our
middleware.
Global Financing revenue -- grew 10% at constant currency -- and was nearly $1
billion.
Income-generating assets were up 7% over last year -- and financing
originations were $13.5 billion in the quarter.
And finally, Enterprise Investments and other revenue -- less than 2% of our
revenue -- declined 3% at constant currency.
Now let's review gross profit margin -- Chart 10.
4Q00 GROSS PROFIT MARGIN
Total gross profit margin for the 4th quarter was 37.7% -- up one point over
last year.
Hardware gross profit margin improved 3 1/2 points.
Gross profit margins improved in eServers, PCs and Hard Disk Drives.
Global Services gross profit margin declined 9/10 of a point.
Improvement in Strategic Outsourcing was more than offset by
declines in Business Innovation Services, which last year benefited
from Y2K services.
Software gross profit was unchanged from last year.
And our Global Financing gross profit margin improved 6.1 points -- a key
driver being increased margins for hardware remarketing.
So overall -- a good showing for gross profit margin -- but I can assure you
that productivity will remain a key focus.
Now let's turn to expense -- Chart 11.
4Q00 EXPENSE SUMMARY CHART
Year to year, total expense was flat -- as reported -- in the 4th quarter.
In Operating Expenses --
- SG&A was down 2%, driven by currency -- and
- R&D was up 2%.
The net of Interest Expense and Other Income was about $100 million.
Total Expense to Revenue improved by 1.4 points
And we continue to make progress in using technology and other productivity
improvements to build a more efficient business model. Let me give you some
full-year figures:
o Revenue generated by IBM.com grew about 65% to over $9 billion --
including PCs, servers, services and software. With IBM.com, we are
addressing existing customers through this more efficient channel --
and increasingly we are reaching new customers.
o Our e-purchases reached $43 billion in 2000 -- up about 60% from last
year. The vast majority of our procurement is now handled
electronically.
o Also -- 36% of our employee training used Distance Learning --
resulting in cost avoidance of over $350 million -- a $150 million
improvement over last year.
o Our customers used e-care twice as much this year to get answers to
their questions. The self-service capabilities of e-care helped us
avoid over a billion and a half dollars of expense.
All this contributes to improved productivity which enabled us to do a better
job for our customers -- but it's also reflected in improved margins.
Let's move to Chart 12.
FOCUS ON PRODUCTIVITY
Improving our productivity is part of our longer-term model.
Last year, we had $77 billion in cost and expense underneath that $88.4
billion in revenue. We think there is still opportunity for savings in
that $77 billion -- and we're going after it.
This charts shows we made good progress in each quarter of 2000 -- improving our
pre-tax income margin by 1.6 points for the full year.
Gross profit margin was unchanged for the year -- despite the fact that
the changing mix of our business should drive it lower.
Our expense-to-revenue improved each quarter.
Not every quarter or every year will have as much improvement as 2000. Each
quarter we make tradeoffs between short-term results and long-term investments.
But again, let me remind you that we are focused on improved productivity and
improved margins.
Now let's turn to Cash Flow -- Chart 13.
IBM CASH FLOW
Cash flow was a great story.
In 2000, we generated $7.3 billion in Free Cash Flow.
During the year, we used this to reduce Core Debt -- as well as for share
repurchase.
In the 4th quarter --
o We spent about $1.4 billion to repurchase about 15 million shares.
o And, we had $2.9 billion remaining in our last Board authorization at
the end of the year.
Now let's look at the Balance Sheet -- Chart 14.
IBM BALANCE SHEET
The balance sheet remains very healthy.
Our $27.5 billion of Global Financing debt -- which was 96% of IBM's debt
-- was leveraged at a comfortable 6.6 to 1.
And our $1.1 billion in Core debt stands at a conservative 6%
debt-to-capital.
Now let me turn to a discussion of some of our individual businesses -- starting
with Global Services -- Chart 15.
SERVICES
Growth in Global Services revenue continued to accelerate this quarter -- up 12%
at constant currency.
o Services grew 13%, and
o Maintenance revenue was up 2%.
As I said earlier -- when you normalize for the fact that
Y2K-remediation services went from over $200 million in last year's
4th quarter to nothing this quarter -- Services grew 17% at constant
currency.
Double-digit growth across each of our Services segments was again fueled by
e-business.
Our discreet e-business offerings were up over 70% year-to-year.
For example,
o e-commerce consulting grew more than 70%,
o e-business enablement more than doubled -- and
o e-hosting grew 50%.
We had another solid quarter for signings -- over $12 1/2 billion -- and we
entered 2001 with a strong backlog of $85 billion -- up from 60 billion at
year-end 1999.
o 4th-quarter signings included 14 deals over $100 million, plus
one greater than $1 billion,
o and this does not include NTT since the contract is being
finalized.
Now let me address the three major segments of our Services offerings.
First, STRATEGIC OUTSOURCING -- which is about 40% of Global Services -- grew
11% at constant currency in the quarter.
We also had about $7 billion in signings for Strategic Outsourcing -- to
help sustain our growth.
Demand for our services continued to explode in our Asia/Pacific region
where we signed seven mega-deals in the 4th quarter alone.
BUSINESS INNOVATION SERVICES is about a quarter of Global Services revenue and
grew 12% in the quarter.
B-I-S had about $3 billion in signings in the 4th quarter.
We've seen good recovery in the second half of 2000 as customers have
shifted from mature offerings like Custom Systems Integration and Y2K
Remediation to our e-business offerings.
Normalized for Y2K -- Business Innovation Services increased more than 20%
in the quarter.
'next' -- INTEGRATED TECHNOLOGY SERVICES -- which includes product support
services and maintenance -- is about 30% of Global Services.
I-T-S -- excluding maintenance -- grew 21% in the quarter.
A large piece of this growth was driven by our partnership with Cisco. We
continue to be the largest integrator of Cisco hardware in the world.
We also continued to see increases in e-business enablement, where we
build our customers' website infrastructure.
Click on the 'next' button for Chart 16, and I'll discuss software.
SOFTWARE
Our software business -- at $3.6 billion in the 4th quarter -- grew 6% at
constant currency.
o Operating System revenue increased 1% versus a 4% decline last
quarter.
The growth was driven by strong i-Series and p-Series server
shipments.
o Middleware grew 9% -- a good improvement from third quarter's 3%
growth.
The key was improved execution.
Closure rates in the 4th quarter returned to historical levels -- and
business in the pipeline continued to grow.
Regarding Tivoli --
Although revenue declined year-to-year again this quarter -- we had good
results in Tivoli's security and storage products.
For example, Tivoli Storage software grew 80% -- offsetting some of
the decline in Enterprise Systems Management.
And, we added new products during the quarter
While our restructuring of Tivoli is on track -- the full turnaround will
take some time -- as I indicated last quarter.
3
In other parts of our software business in the 4th quarter -- we saw continued
outstanding growth for key products on UNIX and NT platforms.
o MQ Series rebounded with 70% year-to-year growth.
o Our DB2 database grew 50%.
o And WebSphere tripled this quarter -- yet again -- taking significant
share from the industry leader and narrowing the gap, according to a
recent report out of Giga.
o One last point. UNIX and NT-based products accounted for more than 40%
of our total middleware revenue in the quarter -- and over half of
this was on non-IBM servers.
On another front -- we signed 17 new ISV alliances this quarter -- with
companies like Synquest, Sanchez, and Manhattan.
Along with companies like Siebel, I2, and Ariba -- we have formed 50 of
these alliances this year -- to help our mutual customers build
applications.
When we work together -- for every dollar of revenue our partners
generate, we generate about 4 dollars -- in services, middleware,
and hardware -- in many cases at the expense of our competitors.
o Our server business has begun to benefit as ISV's such as Retek,
IT Design, and Q-A-D now install most of their new business on
IBM e-Servers instead of on our competitors' servers.
o And our software business is winning as ISV's such as PeopleSoft
are installing most of their new business using our DB2 product.
Overall, our Software business had a solid year.
Now click on the 'next' button for Chart 17 -- Technology.
TECHNOLOGY
Our microelectronics business continued to post strong results reflecting the
solid demand for IBM's leading-edge-technologies.
During our analyst meeting in November, we told you about both short-term and
strategic actions we were taking to rectify the supply issues in the 3rd
quarter.
These actions significantly improved the supply/demand imbalance during the
4th quarter.
Although demand continued to exceed supply -- particularly in ceramic-based
products -- we will continue to bring additional supply on line in the 1st
quarter
The nearly 35% growth in microelectronics was driven by three fast-growing
industry segments -- Networking, Pervasive Computing, and Server logic.
We anticipated the industry shift into networking and pervasive devices and
-- in the 4th quarter -- over half of our logic business came from these
devices.
IBM is the world's #1 supplier of ASICs.
Turning to our OEM Storage -- revenue shifted from decline to growth of 8% in
the 4th quarter:
10K server drive shipments doubled from the 3rd quarter -- and we have
announced our 'next' generation 10K drive product, which will ship 'next'
quarter.
Now let's turn to eServers and Storage -- Chart 18
eSERVERS AND STORAGE
IBM eServers had a terrific quarter growing 35%.
o pSeries -- our high-performance leadership UNIX platform including the
RS/6000 -- grew revenue nearly 50%.
o Demand for mainframes was very strong.
In December, we started shipping our new z900.
But even without z900 volumes -- MIPS shipments of our G5 and G6
models grew more than 20% from last year's 4th quarter.
With the additional z900 volumes, total MIPS grew over 100% in the
quarter. And as you know -- we were supply constrained.
In addition to tremendous performance improvements, our new z900 gives
our customers the increased bandwidth and ability to handle workload
spikes required by e-business solutions.
o iSeries -- our integrated server platform including the AS/400 -- grew
revenue by over 15% -- fueled by recent enhancements using technology
like silicon-on-insulator.
o Completing the eServer brand -- our xSeries servers -- including
Netfinity PCs and Numa -- grew 29%.
Running across many of the server platforms is Linux which continues to gain
momentum.
It is no longer just being evaluated by early adopters. We see mainstream
customers putting their applications in production on various platforms.
The largest commercial roll out of Linux at Japan's leading convenience
store chain utilizes 15,000 xServers at over 7,500 stores.
Disk revenue was up 19% driven by Shark.
We shipped 55% more terabytes of Shark than a year ago -- increasing the
installed base to over 5,000 terabytes in just over 12 months.
Tape revenue grew 25%.
This was driven by our new products that double the capacity and
performance currently available -- and are based on the new Linear Tape
Open standard.
As our customers grow the functionality of their e-businesses in a heterogeneous
environment -- IBM servers and storage provide the performance, scalability, and
interoperability required to run these critical applications.
Now let me turn to Personal Systems -- Chart 19.
PERSONAL SYSTEMS
During the 4th quarter, we all heard a lot of discussion regarding the PC
industry.
But our PC business grew 15% in the quarter and was again a profit contributor
to IBM.
Strong growth in mobile and server units was offset by a slight decline in
desktop.
o Our Netfinity servers -- which are now part of our xSeries -- grew
both revenue and volumes at over 40% -- proof positive that our
customers value IBM's unique ability to share technology across the
eServer brand.
o Although industry estimates are not yet final -- we anticipate share
gains in both mobile and server segments during the 4th quarter.
o The decline in desktop shipments was driven by consumer products --
the result of a business decision we made a year ago, and one that has
proven to be well timed.
I've mentioned our company-wide focus on building a competitive cost and expense
structure.
This has been crucial in enabling us to price PCs aggressively and remain
profitable in a challenging industry environment in the 4th quarter.
Now, if you'll hit the 'next' button, let me summarize my remarks.
CLOSING REMARKS
As I said in my opening remarks, our 4th-quarter results indicate we have some
momentum as we enter 2001:
o Our strategies are continuing to take hold, and the marketplace
continues to move in our direction.
o We see increasing demand for our products and services that is driven
by e-business.
o And our team is executing well.
As I've also said -- our crystal ball isn't any clearer than yours.
However -- we do extensive survey work that covers thousands of customers
worldwide. Our surveys demonstrate quite clearly that the e-business opportunity
is huge and is growing around the world.
But it's not driven by the dot-com mania.
It will be serious enterprises -- IBM's prime customer base -- building
serious applications and infrastructure -- applications and infrastructure
that are important in good times as well as in not-so-good times.
IDC projects spending on IT to grow 11% over the 'next' five years -- with the
fastest growth coming in Services, Software, and Microelectronics -- the areas
IBM has been focusing on.
So let me reiterate what I said in my opening remarks:
Based on our 4th-quarter results and everything we know today about the
coming year -- we remain comfortable with the consensus EPS estimate for
2001-- which is consistent with our longer-term business model.
We enter the year with a strong position -- driven by our Services
leadership and our powerful e-business portfolio
Now Hervey and I will take your questions.
- -1-
================================================================================
IBM 4Q 2000
- ----------------------------
Earnings Presentation
- ----------------------------
January 2001
- ----------------------------
- -2-
================================================================================
Certain comments made in this presentation may be characterized as forward
looking under the Private Securities Litigation Reform Act of 1995.
Those statements involve a number of factors that could cause actual results to
differ materially.
Additional information concerning these factors is contained in the Company's
filing with the SEC. Copies are available from the SEC, from the IBM web site,
or from IBM Investor Relations.
- -3-
[LOGO OF IBM]
- -4-
IBM GROWTH - 2000
------------------------------
Quarterly Improvement
-------------------------------------------------
Revenue @CC EPS*+
----------- -----
1Q - 3% + 6%
2Q 0 +16%
3Q + 6% +20%
4Q +12% +32%
FY + 4% +19%
-------------------------------------------------
o 4Q - Improving Financial Performance
o Revenue Growth
- Services - Servers
- Middleware - Personal Systems
- Technology
o 4Q - Improving Operational Execution
* Excludes 2Q99 and 3Q99 Actions, comprised of the Global Network sale and other
2Q99/3Q99 Actions
- -5-
IBM 2000 QUARTERLY GROWTH PATTERNS
----------------------------------------------
% of
@ Constant Currency 1Q 2Q 3Q 4Q FY FY Rev
-- -- -- -- -- ------
---------------------------- ----- -----
Higher-Growth Businesses 7% 9% 10% 14% 11% 46%
Services, Middleware SW,
Technology
Addl. Annuity-Like Businesses 3% 1% 6% 4% 4% 13%
Maintenance, Financing,
Operating Systems SW
Hardware (9%) (5%) 6% 16% 3% 38%
Enterprise Systems, PSG,
HDDs
Businesses Exited (49%) (38%) (26%) (32%) (37%) 3%
---------------------------- ----- -----
---------------------------- ----- -----
Global Network, DRAM
Manufacturing Networking
Hardware
---------------------------- ----- -----
Total IBM (3%) 0% 6% 12% 4% 100%
- -6-
IBM 4Q 2000 RESULTS
----------------------------------------------
($B) B/(W)
4Q00 Yr/Yr
---- -----
--------------------------------------
Revenue - as reported 25.6 6%
@CC 12%
--------------------------------------
GP% 37.7% 1.0 pts
E/R% 23.0% 1.4 pts
--------------------------------------
Pre-tax Income 3.8 27%
Pre-tax Income Margin 14.8% 2.5 pts
--------------------------------------
Tax Rate% 29.5% 0.5 pts
Net Income 2.7 28%
Net Income Margin 10.4% 1.8 pts
--------------------------------------
--------------------------------------
Average Shares - Diluted (M) 1791 3.1%
EPS - Diluted $1.48 32%
--------------------------------------
- -7-
IBM 4Q 2000 GEOGRAPHIC REVENUE
----------------------------------------------
B/(W) Yr/Yr @CC
B/(W) --------------------------------
($B) 4Q00 Yr/Yr 1Q00 2Q00 3Q00 4Q00
---- ----- ---- ---- ---- -----
-------------- --------------------------------
Americas 10.8 3% (4%) (3%) 1% 4%
Europe/ME/A 7.4 3% (4%) 0% 8% 18%
Asia Pacific 5.0 13% 8% 13% 17% 20%
OEM 2.4 13% (19%) (7%) 5% 14%
-------------- --------------------------------
-------------- --------------------------------
IBM 25.6 6% (3%) 0% 6% 12%
-------------- --------------------------------
- -8-
CURRENCY: YEAR-TO-YEAR COMPARISON
----------------------------------------------
QUARTERLY AVERAGES PER US$
1/16 @1/16 Spot
3Q00 4Q00 Spot 1Q01 2Q01
-------- -------- -------- -------- --------
Euro 1.11 1.15 1.06
Yr/Yr -16% -19% -5% 1%
Pound 0.68 0.69 0.68
Yr/Yr -8% -13% -9% -4%
Yen 108 110 118
Yr/Yr 5% -5% -10% -10%
Canadian $ 1.48 1.53 1.50
Yr/Yr -- -4% -3% -2%
Negative Yr/Yr growth signifies a translation hurt
- -9-
IBM 4Q 2000 REVENUE
---------------------------------
B/(W) Yr/Yr
--------------
% of
----
($B) 4Q00 Rptd @CC FY Rev
---- ---- --- ------
-------------------------- ------
Hardware 11.4 10% 15% 43%
Global Services 9.2 5% 12% 37%
Software 3.6 (1%) 6% 14%
Global Financing 1.0 6% 10% 4%
Enterprise Inv. / Other 0.4 (11%) (3%) 2%
-------------------------- ------
-------------------------- ------
IBM 25.6 6% 12% 100%
-------------------------- ------
- -10-
IBM 4Q 2000 GROSS PROFIT MARGIN
--------------------------------------------------
B/(W)
4Q00 Yr/Yr
---- -----
-------------------
Hardware 30.4% 3.5 pts
Global Services 27.0% (0.9 pts)
Software 83.4% --
Global Financing 54.9% 6.1 pts
Enterprise Inv./Other 44.9% 6.6 pts
-------------------
-------------------
IBM 37.7% 1.0 pts
-------------------
- -11-
IBM 4Q 2000 EXPENSE SUMMARY
-----------------------------------------
B/(W)
($B) 4Q00 Yr/Yr
---- -----
Operating Expenses
---------------------
SG&A 4.3 2%
R&D 1.5 (2%)
---------------------
---------------------
Net Interest / Other Income 0.1 (0.1)
---------------------
---------------------
Total Expense 5.9 --
E/R% 23.0% 1.4 pts
---------------------
- -12-
IBM 2000 - FOCUS ON PRODUCTIVITY
--------------------------------------------
Year-to-Year Change B/(W)
-------------------------
1Q00 2Q00* 3Q00* 4Q00 FY00
---- ----- ----- ---- ----
------------------------------------------------ --------
GP% 0.5 pts (0.8 pts) (0.6 pts) 1.0 pts --
E/R% 0.4 pts 2.5 pts 2.0 pts 1.4 pts 1.6 pts
PTI Margin 0.9 pts 1.7 pts 1.4 pts 2.5 pts 1.6 pts
------------------------------------------------ --------
* Excludes 2Q99 and 3Q99 Actions, comprised of the Global Network sale and
other 2Q99/3Q99 Actions
- -13-
IBM CASH FLOW
--------------------------
($B) 4Q99 4Q00 FY99 FY00
---- ---- ---- ----
Net Income 2.1 2.7 7.7 8.1
Depreciation/Amortization 1.3 1.4 6.6 5.0
Working Capital / Other 2.0 4.0 (1.9) (0.8)
- --------------------------------------------------------------------------------
Total Operating Sources 5.4 8.0 12.4 12.3
- --------------------------------------------------------------------------------
Capital Expenditures, Net (1.6) (1.7) (5.2) (4.6)
Other Operating Uses 0.1 (0.2) (0.3) (0.5)
- --------------------------------------------------------------------------------
Total Operating Uses (1.6) (1.8) (5.5) (5.0)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Free Cash Flow 3.8 6.2 7.0 7.3
- --------------------------------------------------------------------------------
Dividends (0.2) (0.2) (0.9) (0.9)
Acquisitions (0.3) -- (1.3) (0.3)
Share Repurchase (2.1) (1.4) (7.3) (6.7)
Other (0.2) 0.1 0.1 0.2
Sale of Global Network 0.1 -- 4.9 --
Global Financing, Net (2.1) (3.4) (2.0) (0.8)
Core Debt, Net 0.8 (0.7) (0.4) (0.9)
- --------------------------------------------------------------------------------
Net Cash Flow (0.2) 0.7 0.1 (2.1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EBITDA to Interest Expense (Core) 19X 24X
- --------------------------------------------------------------------------------
- -14-
IBM BALANCE SHEET
---------------------------
($B) Dec Dec Dec
1998 1999 2000
---- ---- ----
------------------------------
Cash 5.8 5.8 3.7
Core Assets* 43.3 43.6 45.1
Global Fin. Assets* 37.0 38.1 39.6
Total Assets 86.1 87.5 88.3
------------------------------
------------------------------
Other Liabilities 37.3 38.6 39.1
Core Debt 1.7 1.6 1.1
Global Fin. Debt 27.8 26.8 27.5
Total Debt 29.4 28.4 28.6
Total Liabilities 66.7 67.0 67.7
------------------------------
------------------------------
Equity 19.4 20.5 20.6
------------------------------
------------------------------
Core Debt/Cap 10% 9% 6%
Global Fin. Leverage 6.5 5.5 6.6
------------------------------
* Excluding Cash
- -15-
GLOBAL SERVICES
---------------
Revenue $9.2B, +12% @CC
- -------------------------------------- ------------------------
Services +13% (+17% w/o Y2K) Signings $13B
Maintenance + 2% Backlog $85B
- -------------------------------------- ------------------------
o Continued acceleration in revenue growth
o Fueled by e-business, with 70+% YTY growth
o Solid 4Q signings and strong backlog going into 2001
o 11% Strategic Outsourcing growth
o Asia Pacific region growth continued
o Continued growth in e-hosting
o 12% Business Innovation Services growth
o Continued transition to high growth offerings
o Driven by e-commerce, ERP, and SCM offerings
o 21% Integrated Technology Services growth
o Driven by Cisco and other OEM alliances
o Growth in e-business infrastructure enablement
- -16-
SOFTWARE
--------
Revenue $3.6B, +6% @CC
------------------------------------------------------- ------
1Q 2Q 3Q 4Q
-- -- -- --
Software +3% +5% +1% +6%
o Operating Systems -7% -10% -4% +1%
o Middleware +9% +11% +3% +9%
------------------------------------------------------- ------
o Operating system revenue increased on strong iSeries and pSeries shipments
o Continued growth and competitive wins in key distributed products
o WebSphere + 190% YTY
o MQ Series + 70% YTY
o DB2 + 50% YTY
o Continue to leverage ISV alliances
- -17-
TECHNOLOGY
----------
o IBM OEM up 14% @CC
o Continued technology leadership
o Microelectronics up 34%
o Logic up 65%
-- Networking +175%
-- Pervasive + 58%
-- Enterprise IT + 32%
o Supply/demand imbalance improved
o Executing planned capacity expansion
o OEM Storage revenue up 8%
o Mobile leadership, #1 market position
o Desktop growth
o 10K RPM Server return to growth
- -18-
eSERVERS AND STORAGE
--------------------
o IBM eServers revenue up 35% YTY @CC
o pSeries revenue up 49%
o zSeries MIPS up >100%
o iSeries revenue up 15%
o xSeries revenue up 29%
o Linux momentum continues
o Storage
o Shark delivers advanced function
o Disk revenue up 19%, Shark terabytes up >55%
o Tape revenue up >25%, driven by Linear Tape Open
- -19-
PERSONAL SYSTEMS
----------------
o Profitable in tough environment
o Industry price pressure
o End-to-end cost focus
o Revenue +15% @CC
o Continued shift to mobile and server
o Mobile units up 28%
o eServer xSeries units up 45%
o Desktop units down 4%
- -20-
[IBM LOGO]
- -21-
IBM 2Q/3Q 1999 ACTIONS
----------------------
2Q99 3Q99
---- ----
($B) Net Net
Income EPS Income EPS
------ --- ------ ---
- --------------------------------------------------------------------------
Total IBM as Reported 2.4 $1.28 1.8 $0.93
- --------------------------------------------------------------------------
Effect of Actions:
Global Network Sale 2.1 $1.12 0.4 $0.19*
DRAM / MiCRUS (1.0) ($0.51)
Storage (0.2) ($0.11)
PC Life Adjustment (0.2) ($0.13)
NW Hardware/Storage (0.2) ($0.10)
Sequent/DASCOM/Mylex (0.1) ($0.06)
---- ----- ---- ------
- --------------------------------------------------------------------------
0.7 $0.37 0.1 $0.03
- --------------------------------------------------------------------------
* Rounding