How did IBM perform financially in 2000?

IBM reported revenue of $88.4 billion, net income of $8.1 billion, and diluted EPS of $4.44, all record levels. Reported revenue growth was only about 1% because of adverse currency movements, although growth was roughly 4% at constant currency.

What drove growth in 2000, and what segments lagged?

Global Services (revenue up 3%, 6% at constant currency) and Software-related middleware (up 3%) were the main growth engines, with Global Financing revenue up 10.4%. Hardware revenue was flat, Enterprise Systems declined 1.4%, and Enterprise Investments/Other fell 16.9% after discontinued product lines.

How much debt does IBM carry, and is it a concern?

Total debt was $28.6 billion at year-end 2000, but more than 95% is attributable to the Global Financing segment, which funds customer leases and loans. Excluding Global Financing, IBM's debt was only about $1.1 billion, and management considers the Global Financing leverage (6.6x debt-to-equity) within its target range.

What are the main risks flagged for 2001?

Management cited possible worsening of U.S. economic softness spreading to non-U.S. markets, increasingly aggressive price competition, ongoing adverse currency movements, and the risks inherent in its customer financing business, including credit and residual value risk.

IBM 10-K FY2000 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 13, 2001. Cited figures are marked; the original filing is the authoritative source.

International Business Machines Corporation (IBM) reported record results for fiscal 2000, with revenue of $88.4 billion^a (up about 1% as reported, roughly 4% at constant currency), net income of $8.1 billion, and diluted EPS of $4.44 (up from $4.12 in 1999).

Gross profit margin improved slightly to 36.7%^b, and SG&A fell as a share of revenue to 17.7% from 19.2% when excluding one-time items. Currency movements were a notable headwind, reducing reported growth by roughly three points. Growth was driven by services and software, with Global Services revenue rising 3% and its contract backlog nearly doubling?

No, growing to $85 billion^c from $60 billion, reflecting $55 billion in new contracts signed during the year. Hardware revenue was essentially flat, with server revenue mixed: pSeries UNIX and storage grew while zSeries and iSeries declined. Cash flow remained strong, with operating cash flow of $9.3 billion, and capital returns were substantial, including $6.7 billion of share repurchases and $0.9 billion of dividends.

Total debt rose slightly to $28.6 billion^d, but nearly all of it sits in the Global Financing segment; non-global-financing debt fell to about $1.1 billion. The company ended the year with $3.7 billion of cash and current marketable securities and a current ratio of 1.21:1. Management flagged risks for 2001, including a possible deterioration of U.S. economic softness spreading abroad, aggressive price competition, and continued adverse currency movements.

The company also announced a $5 billion multi-year chip-manufacturing investment and roughly $1 billion of planned Linux investment in 2001. For investors, the filing shows a company whose mix is shifting toward services and software, supported by disciplined cost management and aggressive buybacks. Important watch items include the pace of services backlog conversion, hardware margin sustainability in a softening economy, and the financing-heavy balance sheet within Global Financing.

02—Key points

Key Highlights

Record 2000 results: revenue of $88.4B (+1% reported, ~+4% at constant currency), net income of $8.1B, and diluted EPS of $4.44 versus $4.12 in 1999
Global Services backlog grew to $85B from $60B, supported by $55B of new services contracts signed in 2000
Gross profit margin improved to 36.7% from 36.4%, driven by hardware microelectronics and PC margin gains
Operating cash flow of $9.3B, with $6.7B of share repurchases and $0.9B of dividends paid in 2000
Total debt of $28.6B is concentrated in Global Financing (debt/equity 6.6x), while non-global-financing debt fell to $1.1B
Currency movements reduced 2000 revenue growth by roughly 3 points; management flagged U.S. economic softness and price competition as 2001 risks
Announced $5B chip-manufacturing investment program and approximately $1B of planned 2001 Linux investment

03—Questions

Frequently Asked Questions

How did IBM perform financially in 2000?
IBM reported revenue of $88.4 billion, net income of $8.1 billion, and diluted EPS of $4.44, all record levels. Reported revenue growth was only about 1% because of adverse currency movements, although growth was roughly 4% at constant currency.
What drove growth in 2000, and what segments lagged?
Global Services (revenue up 3%, 6% at constant currency) and Software-related middleware (up 3%) were the main growth engines, with Global Financing revenue up 10.4%. Hardware revenue was flat, Enterprise Systems declined 1.4%, and Enterprise Investments/Other fell 16.9% after discontinued product lines.
How much debt does IBM carry, and is it a concern?
Total debt was $28.6 billion at year-end 2000, but more than 95% is attributable to the Global Financing segment, which funds customer leases and loans. Excluding Global Financing, IBM's debt was only about $1.1 billion, and management considers the Global Financing leverage (6.6x debt-to-equity) within its target range.
What are the main risks flagged for 2001?
Management cited possible worsening of U.S. economic softness spreading to non-U.S. markets, increasingly aggressive price competition, ongoing adverse currency movements, and the risks inherent in its customer financing business, including credit and residual value risk.

04—Continue

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