10-QPeriod: Q3 FY2006

INTERNATIONAL BUSINESS MACHINES CORP Quarterly Report for Q3 Ended Sep 30, 2006

Filed October 31, 2006For Securities:IBM

Summary

International Business Machines Corporation (IBM) reported strong third-quarter and year-to-date financial results for the period ending September 30, 2006. Revenue saw a notable increase of 5.1% in the third quarter, driven by robust performance across its Software and Hardware segments, and continued modest growth in Global Services. The company demonstrated improved profitability, with a significant increase in income from continuing operations, up 46.6% for the quarter and 24.7% for the first nine months. Key strategic moves, including targeted acquisitions in the Software segment and continued investment in high-growth areas, are contributing positively to IBM's performance. The company also highlighted its commitment to returning value to shareholders through share repurchases and dividends, while maintaining a strong financial position. The financial statements reflect disciplined cost management and a focus on higher-margin businesses, positioning IBM for continued success.

Key Highlights

  • 1Total revenue increased by 5.1% to $22.6 billion for the third quarter, compared to the prior year.
  • 2Income from continuing operations saw a substantial increase of 46.6% to $2.2 billion for the third quarter.
  • 3Diluted earnings per share from continuing operations rose by 54.3% to $1.45 in the third quarter.
  • 4The Software segment demonstrated strong revenue and pre-tax profit growth, driven by demand for SOA and Information on Demand products.
  • 5Hardware revenue increased by 8.9% in the third quarter, led by strong performance in System z and System p.
  • 6Global Services revenue grew modestly by 2.7% in the third quarter, with an improving sequential growth rate.
  • 7IBM repurchased 19.7 million shares of common stock during the third quarter for approximately $1.5 billion.

Frequently Asked Questions

IBM's total revenue for the third quarter of 2006 was $22.617 billion, an increase of 5.1% compared to $21.529 billion in the same period of 2005. Adjusted for currency, revenue grew by 3.7%.

The Software segment showed solid growth in revenue and pre-tax profit, becoming the largest profit contributor. The Hardware segment also had strong results, particularly with System z and System p. Global Services revenue saw modest growth, with an improvement in its growth rate compared to the previous quarter. Global Financing revenue experienced a slight decline.

IBM is focused on its balanced portfolio of hardware, software, and services, aiming for double-digit earnings per share growth. The strategy involves revenue growth, productivity improvements, and effective cash utilization, with continued investment in higher-margin businesses and targeted acquisitions, particularly in the Software segment. The company is also focused on converting its opportunity pipeline into longer-term services signings and leveraging leading technologies across its product lines.

In the third quarter, IBM announced and/or completed acquisitions including Micromuse, Cims Lab, Language Analysis Systems, Buildforge, Unicorn Solutions, Rembo Technology, and Webify Solutions, primarily within the Software segment. Notably, the company completed acquisitions of MRO Software Inc., FileNet Corporation, and Internet Security Systems Inc. shortly after the quarter's end in October 2006. The divestiture of the Personal Computing business to Lenovo, completed in April 2005, continued to impact year-over-year revenue comparisons for the nine-month period.