10-QPeriod: Q2 FY2014

INTERNATIONAL BUSINESS MACHINES CORP Quarterly Report for Q2 Ended Apr 29, 2014

Filed April 29, 2014For Securities:IBM

Summary

International Business Machines Corporation (IBM) reported its first-quarter 2014 financial results, showing a decline in revenue and net income compared to the prior year. Total revenue decreased by 3.9% to $22.5 billion, while net income fell 21.4% to $2.38 billion. Diluted earnings per share (EPS) were $2.29, down from $2.70 in the first quarter of 2013. This decline was attributed to various factors including workforce rebalancing charges, strategic portfolio actions like divestitures (customer care business, pending x86 server sale to Lenovo), and challenges in the Systems and Technology segment. Despite these headwinds, IBM highlighted strategic investments in growth areas such as cloud computing (SoftLayer expansion, BlueMix launch), big data (Aspera and Cloudant acquisitions), and cognitive capabilities (IBM Watson investment), which are expected to drive future growth. The company maintained a strong balance sheet and liquidity position, generating $3.3 billion in cash from operations and returning $9.2 billion to shareholders through stock repurchases and dividends.

Financial Highlights

51 data points
Beta

Revenue

$24.05B

50.1% Gross Margin

Net Income

$4.14B

17.2% Net Margin

EPS (Diluted)

$4.12

Total Assets

$124.31B

Cash & Equivalents

$9.56B

Free Cash Flow

$2.67B

Financial Statements
Beta
Revenue$24.05B
Cost of Revenue$12.00B
Gross Profit$12.04B
R&D Expenses$1.36B
SG&A Expenses$5.59B
Interest Expense$136.00M
Net Income$4.14B
EPS (Basic)$4.14
EPS (Diluted)$4.12
Shares Outstanding (Basic)999.60M
Shares Outstanding (Diluted)1.01B

Key Highlights

  • 1Total revenue for Q1 2014 decreased by 3.9% year-over-year to $22.48 billion.
  • 2Net income declined by 21.4% to $2.38 billion, with diluted EPS falling to $2.29 from $2.70.
  • 3Strategic portfolio actions included the divestiture of the customer care business and the announced sale of the x86 server business to Lenovo.
  • 4Investments were made in growth areas like cloud (SoftLayer expansion, BlueMix launch) and big data (Acquisition of Aspera and Cloudant).
  • 5The Systems and Technology segment saw a significant revenue decrease of 23.0%, driven by product cycles and secular challenges.
  • 6IBM generated $3.33 billion in cash from operating activities and returned $9.2 billion to shareholders through dividends and stock repurchases.
  • 7The company reaffirmed its full-year 2014 outlook, expecting GAAP EPS of at least $17.00 and operating (non-GAAP) EPS of at least $18.00.

Frequently Asked Questions

The decline was influenced by several factors, including strategic portfolio actions such as divestitures and the pending sale of the x86 server business, workforce rebalancing charges, and challenges within the Systems and Technology segment. These strategic shifts, while impacting short-term results, are aimed at focusing on higher-growth areas.

IBM is strategically investing in key growth trends such as cloud computing, business analytics, mobile, security, and cognitive capabilities. Specific actions in Q1 2014 included expanding its SoftLayer cloud hubs, launching the BlueMix PaaS platform, acquiring Aspera and Cloudant to enhance big data and cloud capabilities, and investing in IBM Watson.

IBM reaffirmed its full-year 2014 guidance, expecting GAAP earnings per share of at least $17.00 and operating (non-GAAP) earnings per share of at least $18.00. This outlook excludes the potential gain from the sale of its System x server business to Lenovo due to the uncertainty of timing and final amount.

IBM demonstrated a strong commitment to shareholder returns. In Q1 2014, the company repurchased approximately $8.2 billion of its common stock and paid $1.0 billion in dividends, totaling $9.2 billion in gross common stock repurchases and dividends for the quarter.