10-QPeriod: Q2 FY2017

INTERNATIONAL BUSINESS MACHINES CORP Quarterly Report for Q2 Ended Jun 30, 2017

Filed July 25, 2017For Securities:IBM

Summary

This IBM 10-Q filing for the period ending June 29, 2017, reveals a challenging quarter marked by a decline in revenue and net income compared to the previous year. Total revenue decreased by 4.7% to $19.29 billion, and net income fell by 6.9% to $2.33 billion, or $2.48 per diluted share. This performance was impacted by a decline across most business segments, including Systems, Global Business Services, and Technology Services & Cloud Platforms, though the strategic imperatives (cloud, analytics, mobile, security) showed continued growth, representing 45% of revenue for the quarter. The company also saw a significant increase in non-operating retirement-related costs, which impacted GAAP earnings, though operating (non-GAAP) earnings remained relatively stable. Despite the revenue and profit declines, IBM's financial position remained solid with $12.3 billion in cash and marketable securities. The company continued its capital allocation strategy, repurchasing $1.4 billion in common stock during the quarter and returning value through dividends. Management reiterated full-year expectations for GAAP earnings per share and operating earnings, while noting the expected positive impact of new product cycles and large services contracts in the latter half of the year.

Financial Highlights

51 data points
Beta

Revenue

$19.29B

46.5% Gross Margin

Net Income

$2.33B

12.1% Net Margin

EPS (Diluted)

$2.48

Total Assets

$120.50B

Cash & Equivalents

$11.70B

Free Cash Flow

$2.78B

Financial Statements
Beta
Revenue$19.29B
Cost of Revenue$10.32B
Gross Profit$8.97B
R&D Expenses$1.44B
SG&A Expenses$5.03B
Operating Income$4.08B
Interest Expense$147.00M
Net Income$2.33B
EPS (Basic)$2.49
EPS (Diluted)$2.48
Shares Outstanding (Basic)934.92M
Shares Outstanding (Diluted)939.56M

Key Highlights

  • 1Total revenue for the quarter was $19.29 billion, a 4.7% decrease year-over-year, or 3.3% decrease adjusted for currency.
  • 2Net income decreased by 6.9% to $2.33 billion, resulting in diluted earnings per share of $2.48, down 5.0% from the prior year.
  • 3Strategic imperatives revenue grew 5% (7% adjusted for currency) and now represents 45% of total revenue.
  • 4Cloud revenue increased 15% (17% adjusted for currency) with an as-a-Service revenue run rate of $8.8 billion.
  • 5Systems revenue declined 10.4% (10% adjusted for currency) due to product cycle dynamics, particularly in z Systems.
  • 6The company repurchased $1.4 billion of common stock and paid $1.5 billion in dividends during the quarter.
  • 7Operating (non-GAAP) earnings per diluted share were $2.97, a slight increase of 0.7% year-over-year.

Frequently Asked Questions

IBM's total revenue for the second quarter of 2017 was $19.29 billion, representing a 4.7% decrease compared to the prior year. When adjusted for currency fluctuations, the revenue decline was 3.3%.

Net income from continuing operations decreased by 6.9% to $2.33 billion, or $2.48 per diluted share, compared to the same quarter in the previous year. The company's operating (non-GAAP) earnings per diluted share showed a slight increase of 0.7% to $2.97.

IBM's strategic imperatives, which include cloud, analytics, mobile, and security solutions, continued to show growth. For the quarter, this segment grew 5% (7% adjusted for currency) and represented 45% of IBM's total revenue, indicating a strategic shift towards these areas.

The Systems segment experienced a significant revenue decline of 10.4% (10% adjusted for currency) due to product cycle dynamics, particularly a decrease in z Systems revenue.

IBM generated $3.5 billion in cash from operations in the second quarter of 2017, which was flat compared to the prior year. The company also maintained a strong liquidity position with $12.3 billion in cash and marketable securities.