10-QPeriod: Q1 FY2002

INTERNATIONAL BUSINESS MACHINES CORP Quarterly Report for Q1 Ended Mar 31, 2002

Filed May 15, 2002For Securities:IBM

Summary

International Business Machines Corporation (IBM) reported its first-quarter 2002 financial results, showing a year-over-year decline in revenue and net income, primarily attributed to a weak global business environment and customer deferral of technology purchases. Total revenue for the quarter ended March 31, 2002, was $18.55 billion, a decrease of 11.8% from $21.04 billion in the prior-year period. Net income fell to $1.19 billion, or $0.68 per diluted share, down from $1.75 billion, or $0.98 per diluted share, in the first quarter of 2001. Despite the top-line pressure, IBM highlighted strong services signings exceeding $15 billion and continued share gains in key businesses. The company's gross profit margin declined to 34.7% from 36.1%, largely due to a significant reduction in hardware margins. Operating expenses were managed, with SG&A and R&D expenses decreasing year-over-year. IBM also benefited from the adoption of new accounting standards, notably the elimination of goodwill amortization under SFAS No. 142, which positively impacted reported earnings per share. The company remains optimistic about an improvement in business conditions later in the year and is focused on strategic investments and shareholder value.

Key Highlights

  • 1Total revenue decreased by 11.8% year-over-year to $18.55 billion, impacted by a weak global economy and deferred customer spending.
  • 2Net income for the quarter declined to $1.19 billion ($0.68/share) from $1.75 billion ($0.98/share) in the prior year.
  • 3Global Services revenue saw a modest decline of 2.9% but secured record first-quarter signings of over $15 billion, with a backlog of $108 billion.
  • 4Hardware revenue experienced a significant drop of 25.1% due to customer purchase deferrals and intense price competition.
  • 5Software revenue slightly decreased by 0.7%, though middleware revenue showed growth, aided by the Informix acquisition and strong performance in WebSphere and DB2.
  • 6The company adopted SFAS No. 142, eliminating goodwill amortization, which boosted reported earnings per share.
  • 7Cash flow from operations significantly increased to $2.66 billion from $1.94 billion in the prior year, driven by working capital improvements.

Frequently Asked Questions

The primary drivers of the revenue decline were a weak global business environment and customers deferring technology purchases. This impacted most of IBM's major business segments, particularly hardware and certain areas within Global Services and Enterprise Investments.

The adoption of SFAS No. 142, which eliminates the amortization of goodwill, had a positive impact on IBM's reported net income and earnings per share. For the first quarter of 2002, the elimination of goodwill amortization (net of tax effects) added $65 million to net income. This change resulted in adjusted net income of $1.825 billion and adjusted basic/diluted EPS of $1.04/$1.02 for Q1 2001, compared to reported figures of $1.75 billion and $1.00/$0.98 respectively.

IBM's Global Services segment, while experiencing a slight revenue decline, secured record first-quarter signings of over $15 billion and maintained a substantial backlog of $108 billion. The company highlighted strong demand for Strategic Outsourcing Services and continued growth in management services, indicating a positive underlying demand for its services despite the broader economic challenges.

IBM is actively managing its expenses, with Selling, General, and Administrative (SG&A) expenses decreasing by 1.6% and Research, Development, and Engineering (RD&E) expenses decreasing by 6.3% year-over-year. These reductions were achieved through lower discretionary spending, workforce balancing initiatives, and efficiencies gained from integrations. The company also benefited from the elimination of goodwill amortization.