10-QPeriod: Q3 FY2013

INTERNATIONAL BUSINESS MACHINES CORP Quarterly Report for Q3 Ended Sep 30, 2013

Filed October 29, 2013For Securities:IBM

Summary

International Business Machines Corporation (IBM) reported its third-quarter 2013 results, with total revenue decreasing by 4.1% year-over-year to $23.7 billion. Despite the revenue decline, both gross and net profit margins expanded, and diluted earnings per share (EPS) saw a 10.5% increase to $3.68. This performance was driven by growth in key strategic areas like cloud computing and business analytics, coupled with productivity initiatives and cost reductions. The company also announced a significant acquisition of SoftLayer Technologies, Inc., a cloud computing infrastructure provider, for $1.977 billion, aimed at bolstering its cloud offerings. Geographically, IBM faced challenges in growth markets, particularly China, which experienced a significant revenue decline impacting overall performance. However, major markets showed signs of stabilization, with revenue in the Americas improving sequentially. IBM generated strong cash flow from operations ($3.8 billion in the quarter), supporting significant shareholder returns through common stock repurchases and dividends. The company reiterated its full-year EPS guidance, signaling confidence in its strategic direction despite prevailing economic headwinds.

Financial Highlights

50 data points
Beta

Revenue

$23.34B

49.0% Gross Margin

Net Income

$4.04B

17.3% Net Margin

EPS (Diluted)

$3.68

Total Assets

$117.84B

Cash & Equivalents

$10.07B

Free Cash Flow

$2.77B

Financial Statements
Beta
Revenue$23.34B
Cost of Revenue$11.91B
Gross Profit$11.43B
R&D Expenses$1.36B
SG&A Expenses$5.26B
Interest Expense$97.00M
Net Income$4.04B
EPS (Basic)$3.70
EPS (Diluted)$3.68
Shares Outstanding (Basic)1.09B
Shares Outstanding (Diluted)1.10B

Key Highlights

  • 1Total revenue for the third quarter of 2013 was $23.7 billion, a decrease of 4.1% compared to the prior year.
  • 2Diluted earnings per share (EPS) increased by 10.5% to $3.68, reflecting improved margins and share repurchases.
  • 3Acquisition of SoftLayer Technologies, a cloud computing provider, for $1.977 billion to enhance IBM's cloud capabilities.
  • 4Growth markets experienced a revenue decline of 8.8% (5% adjusted for currency), with China being a significant factor.
  • 5Global Services revenue declined 2.8% but showed improvement at constant currency, driven by Global Business Services.
  • 6Software revenue increased 0.6% (1.7% adjusted for currency), led by middleware solutions.
  • 7Systems and Technology revenue saw a substantial decline of 16.6% (15.7% adjusted for currency), impacted by weakness in growth markets.
  • 8IBM generated $3.8 billion in cash from operations during the third quarter, demonstrating strong cash flow generation.

Frequently Asked Questions

IBM's total revenue for the third quarter of 2013 was $23.7 billion, a decrease of 4.1% compared to $24.7 billion in the third quarter of 2012. This decline was influenced by a broad-based slowdown in growth markets and challenges in specific hardware segments, though strategic growth areas like cloud and software showed resilience or growth.

IBM completed the acquisition of SoftLayer Technologies for $1.977 billion in July 2013. This acquisition is expected to significantly enhance IBM's cloud computing capabilities. While the acquisition contributed to an increase in goodwill and intangible assets, its full financial impact, including revenue and profit contributions, would be reflected in subsequent reporting periods. The company views this as a strategic investment to capitalize on the growing cloud market.

IBM's EPS increased by 10.5% to $3.68 in the third quarter of 2013. This growth was primarily driven by expanded gross and net profit margins, which benefited from productivity initiatives, cost reductions, a favorable business mix towards higher-margin software and services, and a lower effective tax rate compared to the prior year. Additionally, IBM's ongoing share repurchase program reduced the number of outstanding shares, further boosting EPS.

IBM's performance varied significantly by segment and region. Global Services showed a slight revenue decline but improved margins and backlog, driven by Global Business Services. Software revenue grew modestly, led by middleware. However, Systems and Technology experienced a substantial revenue decrease, heavily impacted by weakness in growth markets, particularly China. Geographically, growth markets, especially China, underperformed, while major markets showed relative stability, with some improvement in the Americas.