10-QPeriod: Q2 FY2015

INTERNATIONAL BUSINESS MACHINES CORP Quarterly Report for Q2 Ended Jun 30, 2015

Filed July 28, 2015For Securities:IBM

Summary

IBM's second quarter 2015 results show a significant top-line decline, with total revenue down 13.5% year-over-year (or 0.8% adjusted for currency and divestitures). This decline is attributed to unfavorable currency movements and the impact of divested businesses. Despite the revenue challenges, IBM's strategic imperatives (data, cloud, engagement) demonstrated strong growth, increasing over 20% as reported and over 30% adjusted for currency and divestitures. Key areas like business analytics and cloud showed robust performance. Profitability also saw a decline, with net income down 16.6% year-over-year. However, the company is actively transforming its business towards higher-value areas. This transformation is supported by substantial investments in strategic initiatives, including acquisitions in the cloud and healthcare sectors. IBM continues to return value to shareholders through dividends and share repurchases, and maintains a strong liquidity position.

Financial Highlights

51 data points
Beta

Revenue

$20.81B

49.9% Gross Margin

Net Income

$3.45B

16.6% Net Margin

EPS (Diluted)

$3.50

Total Assets

$112.73B

Cash & Equivalents

$8.39B

Free Cash Flow

$3.02B

Financial Statements
Beta
Revenue$20.81B
Cost of Revenue$10.42B
Gross Profit$10.39B
R&D Expenses$1.30B
SG&A Expenses$5.18B
Interest Expense$115.00M
Net Income$3.45B
EPS (Basic)$3.51
EPS (Diluted)$3.50
Shares Outstanding (Basic)982.30M
Shares Outstanding (Diluted)986.70M

Key Highlights

  • 1Total revenue decreased by 13.5% to $20.813 billion, largely due to currency impacts and divestitures.
  • 2Strategic imperatives revenue grew over 20% as reported and over 30% adjusted for currency and divestitures.
  • 3Net income decreased by 16.6% to $3.449 billion.
  • 4Diluted earnings per share from continuing operations were $3.58, a decrease from $4.23 in the prior year.
  • 5Global Services backlog increased slightly year-over-year on a constant currency basis, driven by improved signings.
  • 6Systems Hardware revenue declined significantly as reported but showed growth adjusted for divestitures and currency, led by z Systems and Power Systems.
  • 7The company continues to invest in strategic growth areas like cloud and analytics, while managing its portfolio through divestitures and acquisitions.

Frequently Asked Questions

The primary drivers for the revenue decline were the unfavorable impact of currency fluctuations, which significantly weakened non-U.S. currencies against the U.S. dollar, and the impact of divested businesses from prior periods.

IBM's strategic imperatives, which include data, cloud, and engagement-related offerings, showed strong growth, increasing by over 20% as reported and over 30% when adjusted for currency and divestitures. This indicates a successful shift towards higher-value business areas.

IBM reaffirmed its full-year GAAP earnings per share guidance from continuing operations to be in the range of $14.25 to $15.00, and operating (non-GAAP) earnings per share in the range of $15.75 to $16.50. The company expects modest year-over-year improvement in free cash flow.

IBM is undertaking a transformation to higher-value business areas, which involves shifting investments and resources. This includes significant investments in strategic imperatives like Watson and cloud, while also managing workforce rebalancing charges and productivity improvements. The company expects these investments to yield benefits over the longer term.