International Business Machines Corp. (
IBM)
Q3 2009 Earnings Call Transcript
October 15, 2009 4:30 p.m. ET
Executives
Patricia Murphy - Vice President, Investor Relations
Mark Loughridge - Senior Vice President and Chief Financial Officer
Analysts
David Grossman - Thomas Weisel Partners
Toni Sacconaghi - Sanford Bernstein
Keith Bachman - BMO Capital Markets
Benjamin Reitzes - Barclays Capital
William Shope - Credit Suisse
Moshe Katri - Cowen and Company, LLC
Richard Gardner - Citigroup
Robert Cihra - Caris & Company
David Bailey - Goldman Sachs
Chris Whitmore - Deutsche Bank
Presentation
Operator
Welcome. And thank you for standing by. At this time, all participants are in the listen-only mode. Today’s conference is being recorded. If you have any objections you may disconnect at this time.
Now, I will turn the meeting over to Ms. Patricia Murphy, Vice President of Investor Relations. Ma’am, you may begin.
Patricia Murphy
Thank you. This is Patricia Murphy, Vice President of Investor Relations for IBM. I’m here with Mark Loughridge, IBM Senior Vice President and Chief Financial Officer. Thank you for joining our third quarter earnings presentation. The prepared remarks will be available in roughly an hour and a replay of this webcast will be posted to our Investor Relations website by this time tomorrow.
Our presentation includes certain non-GAAP financial measures in an effort to provide additional information to investors. All non-GAAP measures have been reconciled to their related GAAP measures in accordance with SEC rules. You’ll find reconciliation charts at the end and in the Form 8-K submitted to the SEC.
Let me remind you that certain comment made in this presentation may be characterized as forward looking under the Private Securities Litigation Reform Act of 1995. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the company’s filings with the SEC. Copies are available from the SEC, from the IBM website or from us in Investor Relations.
Now, I’ll turn the call over to Mark Loughridge.
Mark Loughridge
Thank you for joining us today. We just finished another great quarter, driven by strong profit performance in Software and Services and share gains in both hardware and software. This quarter our revenue was up sequentially and our growth rate improved versus second quarter. We expanded gross margin by almost two points and pre-tax margin by over three points year-to-year.
Our earnings per share is up 18% to $2.40, in addition, we generated $3.4 billion of free cash flow, up almost $1.3 billion year-to-year and ended the quarter with $11.5 billion of cash on hand, while reducing our debt by $4 billion since June.
We now expect to deliver at least $9.85 per share for the year, up $0.15 from our previous view of at least $9.70. When you look at the third quarter as compared to the second quarter though earnings per share growth is the same both up 18%, we extended our share gains this quarter. For instance, in software we gained almost three points a share in WebSphere, where we compete head-to-head with Oracle. We also gained share in information management Tivoli and Rational, these share gains drove five points of constant currency growth in branded middleware revenue.
In hardware we gained five points of share in System p and two points of share in System x, that’s a lot of share and we are taking it from both Sun and HP. These share gains drove the improvement in our hardware revenue growth rate, which is 11 points better than last quarter.
Revenue growth from our services business was fairly consistent with second quarter, but the real story here was our ability to deliver double-digit profit growth by continually expanding margins. This quarter our services pre-tax margin was almost 15%. On a comparable basis our services margin is better than any of our key competitors and believe me we are not done. Overall with an improving trend in revenue performance, we’ve continued to generate profit growth through margin expansion.
