10-QPeriod: Q1 FY2003

INTERNATIONAL BUSINESS MACHINES CORP Quarterly Report for Q1 Ended Mar 31, 2003

Filed May 14, 2003For Securities:IBM

Summary

International Business Machines Corporation (IBM) reported its first quarter 2003 financial results, showcasing revenue growth driven primarily by its Global Services segment and strategic acquisitions, notably the acquisition of Rational Software Corp. Total revenue increased to $20.1 billion from $18.0 billion in the prior year's quarter, representing an 11.3% increase, though growth was a more modest 4% on a constant currency basis. Net income from continuing operations rose to $1.39 billion from $1.28 billion, with diluted earnings per share increasing to $0.79 from $0.73. The company highlighted strong performance in its Global Services division, which saw revenue jump 23.6% (15% at constant currency), largely due to the integration of PwC's consulting business. The Software segment also showed positive growth, with revenue up 8.0% (2% constant currency), bolstered by the acquisition of Rational. While the Hardware segment experienced a slight revenue dip, gross profit margins improved significantly due to better performance in Microelectronics and Systems Group, and the upcoming launch of a new zSeries mainframe is anticipated to drive future results. The company ended the quarter with a solid cash position and continued to return value to shareholders through dividends and share repurchases.

Key Highlights

  • 1Total revenue increased by 11.3% to $20.1 billion in Q1 2003, compared to $18.0 billion in Q1 2002.
  • 2Net income from continuing operations rose to $1.39 billion ($0.79 per diluted share) from $1.28 billion ($0.73 per diluted share) in the prior year.
  • 3Global Services revenue grew significantly by 23.6% (15% at constant currency), driven by the acquisition of PwC's consulting business.
  • 4Software segment revenue increased by 8.0% (2% constant currency), with the acquisition of Rational Software Corp. contributing to this growth.
  • 5Hardware segment revenue saw a slight decrease of 1.3%, but gross profit margin improved by 2.1 points due to product mix and cost efficiencies.
  • 6The company acquired Rational Software Corp. for $2.09 billion in cash, significantly impacting the Software segment and increasing goodwill.
  • 7IBM maintained a strong liquidity position with $5.58 billion in cash and marketable securities at the end of the quarter.

Frequently Asked Questions

IBM's total revenue for the first quarter of 2003 increased by 11.3% to $20.1 billion, up from $18.0 billion in the same period of 2002. Excluding the impact of currency fluctuations (constant currency), the revenue growth was 4%.

The primary drivers of revenue growth were strong performance in the Global Services segment, which increased by 23.6%, and the Software segment, up 8.0%. The recent acquisition of PwC's consulting business significantly boosted Global Services, while the acquisition of Rational Software Corp. contributed to Software segment growth.

IBM acquired Rational Software Corp. for $2.09 billion in cash. This acquisition was accounted for as a purchase and resulted in an increase in goodwill by $1.365 billion. The acquisition has been integrated into the IBM Software Group and contributed to the reported revenue growth for the Software segment in the first quarter of 2003.

The Hardware segment experienced a slight revenue decline, largely due to customers anticipating a new product announcement for zSeries servers. Management anticipates that the introduction of the new zSeries box in the second quarter of 2003, along with other initiatives like continued supply chain improvements and the ramp-up of the Technology Group's new plant, will positively impact future hardware results.