10-QPeriod: Q3 FY2010

INTERNATIONAL BUSINESS MACHINES CORP Quarterly Report for Q3 Ended Sep 30, 2010

Filed October 26, 2010For Securities:IBM

Summary

IBM's third quarter and nine-month performance for 2010 showed continued revenue growth and margin expansion, with a strong emphasis on investing in growth markets and returning capital to shareholders. Total revenue increased by 3.0% (4% adjusted for currency) in Q3 and 3.4% (2% adjusted for currency) year-to-date, driven by robust performance in growth markets (up 15.7% in Q3) and key segments like Systems and Technology and Global Business Services. The company demonstrated improved profitability with a higher net income margin and double-digit earnings per share growth, attributed to revenue growth, operating leverage, and a lower effective tax rate. Financially, IBM maintained a strong balance sheet and liquidity position. While total assets and liabilities saw slight decreases, equity remained robust. The company generated significant cash flow from operations ($12.8 billion year-to-date), which was deployed towards strategic acquisitions, common stock repurchases, and dividends. The company raised its full-year 2010 diluted earnings per share outlook to at least $11.40, signaling confidence in its ongoing business transformation and strategic investments.

Financial Statements
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Key Highlights

  • 1Total revenue increased by 3.0% (4% adjusted for currency) in Q3 2010 and 3.4% (2% adjusted for currency) year-to-date, indicating steady business growth.
  • 2Growth markets revenue surged by 15.7% (13% adjusted for currency) in Q3, with BRIC countries showing a remarkable 28.8% (26% adjusted for currency) increase, highlighting successful expansion strategies.
  • 3Earnings per diluted share (EPS) saw significant year-over-year growth, increasing by 17.5% to $2.82 in Q3 and by 15.0% to $7.38 year-to-date, reflecting strong operational performance and effective capital deployment.
  • 4The company raised its full-year 2010 EPS guidance to at least $11.40, signaling strong confidence in future performance.
  • 5Strategic acquisitions, including Sterling Commerce, Coremetrics, and Unica Corporation, were completed to bolster the Software segment and business analytics capabilities.
  • 6IBM's balance sheet remained strong, with $9.9 billion in cash and cash equivalents and $11.1 billion in cash and marketable securities at quarter-end.
  • 7Significant capital was returned to shareholders through $11.8 billion in common stock repurchases and $2.4 billion in dividends year-to-date.

Frequently Asked Questions

IBM reported a 3.0% increase in total revenue (4% adjusted for currency) for the third quarter of 2010 compared to the same period in 2009. For the first nine months of 2010, total revenue increased by 3.4% (2% adjusted for currency) year-over-year.

Growth markets showed particularly strong performance, with revenue increasing by 15.7% (13% adjusted for currency) in the third quarter and 16.3% (10% adjusted for currency) year-to-date. The BRIC countries (Brazil, Russia, India, and China) were significant contributors, with revenue up 28.8% (26% adjusted for currency) in Q3.

IBM raised its expectation for full-year 2010 diluted earnings per share to at least $11.40, reflecting confidence in its strategic initiatives and business performance.

The increase in net income and EPS was driven by a combination of revenue growth, operating leverage, a favorable mix of earnings in lower tax jurisdictions, an increase in foreign tax credit benefits, and the benefits from the company's common stock repurchase program.