01—Abstract
Summary
Summary of the 10-K filed February 26, 2024. Cited figures are marked; the original filing is the authoritative source.
International Business Machines (IBM) closed 2023 with revenue of $61.9 billiona, up 2.2% as reported and 2.9% adjusted for currency.
Gross profit margin rose 1.4 points to 55.4%, and income from continuing operations was $7.5 billionb, versus $1.8 billion in 2022. The prior year was depressed by a one-time, non-cash $5.9 billion pension settlement charge, so the comparison flatters the headline improvement. On a non-GAAP basis, which management uses to strip out acquisition charges, retirement costs and similar items, operating earnings grew 6.5% to $8.9 billion, and diluted operating EPS rose 5.4% to $9.62.
Free cash flow was $11.2 billionc, up $1.9 billion, and the company returned $6.0 billion through dividends. Growth was led by Software (up 5.1%, with Red Hat up 9.1%) and Consulting (up 4.6%, or 6% at constant currency). Infrastructure fell 4.5%, reflecting the z16 product cycle and weaker support revenue.
Management expects the zSystems cycle to recover. The company is pursuing a hybrid cloud and AI strategy centered on Red Hat OpenShift and watsonx, and it completed nine acquisitions for $5.1 billiond, including Apptio.
Total debt rose $5.6 billion to $56.5 billion, though cash and marketable securities also increased to $13.5 billion and the company holds A-/A3/A- credit ratings. Investors should weigh the strategic progress against the slowing hardware base, rising debt, and the sensitivity of results to currency and pension assumptions.
02—Key points
Key Highlights
- Revenue of $61.9B (+2.2% reported, +2.9% constant currency); gross margin expanded 1.4 pts to 55.4%.
- GAAP EPS from continuing operations of $8.15 versus $1.95 in 2022, but 2022 included a $4.84/share pension settlement charge, so the year-over-year gain is overstated.
- Operating (non-GAAP) diluted EPS of $9.62, up 5.4%; operating earnings of $8.9B, up 6.5%.
- Software revenue up 5.1% (Red Hat +9.1%, Transaction Processing +6.2%); Consulting up 4.6% with signings up 13.9% and book-to-bill above 1.15.
- Infrastructure revenue down 4.5%, driven by z16 product-cycle dynamics and a 7.9% decline in Infrastructure Support.
- Free cash flow of $11.2B; $6.0B returned via dividends, $5.1B invested in acquisitions, and $2.0B of share repurchase authorization still available but the program suspended since 2019.
- Total debt rose to $56.5B (+$5.6B), and the company issued $5.5B of additional notes in February 2024 after year-end.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2023, International Business Machines Corp kept $0.12.
- Revenue$61.86B100.0%
- Cost of revenue−$27.56B44.6%
- Gross profit$34.30B55.4%
- Operating costs−$26.79B43.3%
- Operating income$7.51B12.1%
- Interest, other & tax−$12.0M0.0%
- Net income$7.50B12.1%
Where FY2023 revenue went
$61.86B- Cost of revenue: $27.56B, 45% of revenue
- SG&A: $19.00B, 31% of revenue
- Net income: $7.50B, 12% of revenue
- R&D: $6.78B, 11% of revenue
- Other operating costs: $1.01B, 1.6% of revenue
Kept 12% as net incomeOther operating costs $1.01B · 1.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 26, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $61.86B$60.53B | +2.2% |
| Cost of Revenue | $27.56B$27.84B | −1.0% |
| Gross Profit | $34.30B$32.69B | +4.9% |
| R&D Expenses | $6.78B$6.57B | +3.2% |
| SG&A Expenses | $19.00B$18.61B | +2.1% |
| Operating Income | $7.51B$1.78B | +321.4% |
| Interest Expense | $1.61B$1.22B | +32.2% |
| Net Income | $7.50B$1.64B | +357.7% |
| EPS (Basic) | $8.23$1.82 | +352.2% |
| EPS (Diluted) | $8.14$1.80 | +352.2% |
| Shares Outstanding (Basic) | 911.21M902.66M | +0.9% |
| Shares Outstanding (Diluted) | 922.07M912.27M | +1.1% |
05—Questions
Frequently Asked Questions
How much of IBM's 2023 earnings improvement is real versus a result of the prior-year pension charge?
A large share of the GAAP improvement is base effect. 2022 income from continuing operations was depressed by a $5.9 billion non-cash pension settlement charge ($4.4 billion after tax). Excluding that charge and other non-operating items, operating earnings grew 6.5% to $8.9 billion and operating EPS rose 5.4% to $9.62. Those non-GAAP figures are the better guide to underlying operating performance.
What is driving IBM's growth, and which segments are weakest?
Software and Consulting drove growth. Software grew 5.1%, led by Red Hat (+9.1%) and Transaction Processing (+6.2%), and Consulting grew 4.6% (6% at constant currency) with strong AI-related demand. Infrastructure was the weak spot, declining 4.5% on product-cycle effects after the z16 launch and lower support revenue. Management expects zSystems demand to remain strong over the product cycle.
Is IBM's balance sheet becoming more leveraged?
Modestly. Total debt increased $5.6 billion to $56.5 billion, mostly from net issuances, and the company issued $9.5 billion of debt in early 2023 to pre-fund 2023 and 2024 maturities. Cash and marketable securities rose to $13.5 billion, and the company reports it is in compliance with its debt covenants and has no ratings-triggered acceleration clauses. Credit ratings are A-, A3 and A-, unchanged from the prior year.
What are the main risks highlighted in the filing that investors should monitor?
Key risks include slowing demand from economic downturns, the company's heavy investment in unproven AI and quantum markets, intense competition, and cybersecurity incidents. The filing also cites exposure to international operations, which generate about 60% of revenue outside the U.S., and currency fluctuations. Pension funding and litigation, including the GlobalFoundries and BMC matters, and tax disputes with the IRS (a proposed $4.2 billion income adjustment) are additional contingencies to watch.
What capital allocation priorities does IBM emphasize?
IBM prioritizes its dividend, now $1.66 per quarter after a 2023 increase, and acquisitions that strengthen its hybrid cloud and AI platforms, with nine deals in 2023 totaling $5.1 billion. Share repurchases have been suspended since the 2019 Red Hat acquisition, though $2.0 billion of authorization remains. Management also cites productivity savings of over $1.5 billion through 2023, with a target of at least $3.0 billion in annual run-rate savings by the end of 2024.
06—Continue