This summary is based on the third quarter fiscal 2007 earnings call conducted by International Business Machines Corp. (IBM) on October 16, 2007.
Senior Vice President & Chief Financial Officer: Mark Loughridge
Vice President, IR: Patricia Murphy
Key Investors Issues
- Earnings per share increased to $1.68 as against $1.45 per share in prior year.
- Quarterly revenue of $24.1 billion represents an increase of 7% over last year.
- Year to date EPS from continuing operations were $4.42 compared with $3.81 in 2006.
Third Quarter Fiscal 2007 Financial Highlights
The earnings of $1.68 per share from continuing operations compared with earnings of $1.45 per share in the third quarter of 2006, an increase of 16%.
Third-quarter income from continuing operations was $2.4 billion compared with $2.2 billion in the third quarter of 2006, an increase of 6%.
Total revenues for the third quarter of 2007 of $24.1 billion increased 7% (3%, adjusting for currency) from the third quarter of 2006.
From a geographic perspective, the Americas'' third-quarter revenues were $10.2 billion, an increase of 4% from the 2006 period. Revenues from Europe/Middle East/Africa were $8.1 billion, up 11%. Asia-Pacific revenues increased 9% to $4.9 billion. OEM revenues were $890 million, down 12% compared with the 2006 third quarter.
Total
Global Services revenues grew 14%, the highest growth since third quarter of 2003, with strong performance in all geographic regions and business sectors.
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Global Business Services segment revenues, marked by significant growth in core consulting and application management services, increased 16% to $4.6 billion.
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Global Technology Services segment revenues increased 13% to $9.1 billion, benefiting from sales of new business to existing clients. IBM signed services contracts totaling $11.8 billion, up 12% year over year, and ended the third quarter with an estimated services backlog, including Strategic Outsourcing, Business Transformation Outsourcing, Integrated Technology Services, Global Business Services and Maintenance, of $116 billion, an increase of $7 billion year to year.
Revenues from the
Systems and Technology segment totaled $4.9 billion for the quarter, down 10%. Revenues decreased 6% excluding the year-to-year impact of the Printing System Division divestiture in June 2007. Systems and Technology revenues from the System p UNIX server products increased 6% compared with the 2006 period and revenues from the System x servers increased 6%. Faced with a difficult comparison, revenues from System z server products decreased 31% versus the year-ago period. Total delivery of System z computing power, which is measured in MIPS (millions of instructions per second), decreased 21%. Revenues from the System i servers decreased 21%. Revenues from System Storage increased 1% and revenues from Microelectronics decreased 15%.
Revenues from the
Software segment were $4.7 billion, an increase of 7% compared with the third quarter of 2006. Revenues from IBM''s middleware products, which primarily include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.6 billion, up 6% versus the third quarter of 2006. Operating systems revenues of $564 million increased 2% compared with the prior-year quarter.
For the WebSphere family of software products, which facilitate customers'' ability to manage a wide variety of business processes using open standards to interconnect applications, data and operating systems, revenues increased 10%. Revenues for Information Management software, which enables clients to leverage information on demand, increased 9%. Revenues from Tivoli software, infrastructure software that enables clients to centrally manage networks including security and storage capability, increased 5%, and revenues for Lotus software, which allows collaborating and messaging by clients in real-time communication and knowledge management, increased 9% year over year. Revenues from Rational software, integrated tools to improve the processes of software development, increased 3% compared with the year-ago quarter.
Global Financing segment revenues increased 6% in the third quarter to $623 million.
Revenue by Geography
Americas revenue growth was 3% at constant currency. The U.S. growth was also 3%, with differentiation by sector. The firm had strength in public sector, which was up double-digits. However, IBM had weakness in financial services sector, down year to year.
Europe had more steady performance. It was up 11% as reported and 4% at constant currency. Most major countries were up at constant currency led by Germany and Spain, which were each up over 5%. The market environment continues at a moderate IT spend.
Asia Pacific again had the firm’s best performance at constant currency, up 9% as reported and 6% at constant currency. Asia Pacific economy remains strong, led by India, China and Australia/New Zealand. The company had solid contribution from all of these regions, where it continues to accelerate its investment.
Japan''s revenue, at approximately one-half of Asia-Pacific revenue, was essentially flat. In Japan, the growth that the firm has seen in services and software continues, but it was mitigated by declines in systems business.
Emerging countries are leading growth in the global economies. In the third quarter, the revenue in Brazil, Russia, India and China grew 19% as reported and 10% at constant currency. Three of the four countries continued very strong growth. China and Russia were both up over 20% at constant currency, and India once again was up over 30%. Brazil declined, however this quarter at constant currency, after double-digit growth in third quarter last year; so it was more an issue of compares than performance. The firm remains committed to driving growth in excess of the market rate in these emerging countries over the long term, with an objective of doubling the revenue by 2010. Given the performance this year, the firm is on track to this objective. IBM''s geographic mix provides diversification and the ability to capitalize on these fast-growing emerging markets.
