Beat ?: YES (reported $1.98/share vs. analysts' consensus of $1.82/share...reported a normalized $1.50/share in 2Q07, real EPS grew by 32% year over year...2Q07 results included a 5 cent one time gain from IBM's sale of its printer division)
Profit --> up 22% to $2.77 Billion (from $2.26 Billion)
Sales --> up 13% to $26.8 Billion (from $23.8 Billion)
*Sales up 6% year over year when adjusting for the currency impact of a weaker U.S. dollar ('adj for c')
* Revenue Growth By Business Unit:
1.) Software: Gross Margins of 85% (down 0.3 pts yoy)
Total Software Sales: up 17% to $5.57 Billion (up 9% adjusting for currency)
Middleware Sales: up 17% to $4.3 Billion
Operating System Sales: up 4% to $592 million
Sales Growth By Middleware Product -
WebSphere Software: up 9%
Information Management Software: up 30%
Tivoli Software: up 9%
Lotus Software: up 21%
Rational Software: up 37%
2.) Systems and Technology: 39% Gross Margins (up 1.3 pts yoy)
Total S+T Sales: up 2% to 5.2 Billion (down 3% adj for c)...when excluding year over year one time impact of printer division divestiture sales are up 5% (flat when adj for c)
Systems Sales: up 10% (up 4% adj for c)
Sales Growth By Product -
System Z: up 32% year over year
System P: up 29% yoy
System X: down 5% yoy
System I: down 47% yoy
System Storage: up 12%
Retail Store Solutions: flat yoy
Microelectronics/OEM: down 19% yoy
3.) Business Services: 26% Gross Margins (up 1.5 pts yoy)
Total BS Sales: up 18% to $5.11 Billion (up 9% adj for c)
4.) Technology Services: 32% Gross Margins (up 1.8 yoy)
Total TS Sales: up 15% to $10.1 Billion (up 8% adj for c)
5.) Global Financing: 55% Gross Margins (up 9.3 pts yoy)
Total GF Sales: up 6% to $634 million (down 2% adj for c)
* Revenue Growth By Geographic Region:
- The Americas: Sales up 8% yoy to $10.9 Billion (up 6% adj for c)
- Asia Pacific: Sales up 16% yoy to $5.3 Billion (up 6% adj for c)
- EMEA: Sales up 20% yoy to $9.8 Billion (up 7% adj for c)
* BRIC (Brazil, Russia, India and China): Sales increased by 31% year over year during the quarter (up 20% adjusted for currency)
* At constant currency, U.S. sales were up 5% year over year...Canada up 11%...Germany up 7%...France up 6%...Italy up 5% and U.K. up 4% yoy
* Total Services Revenue % By Sub-Unit:
1. Global Business Services: 34% of Total Service Revs...up 18% yoy
2. Strategic Outsourcing: 34% of Service Revs...up 13% yoy
3. Integrated Technology: 16% of Service Revs...up 16% yoy
4. Maintenance: 12% of Service Revs...up 16% yoy
5. BTO: 4% of Service Revs...up 29% yoy
* Total Systems + Technology Revenue % By Sub-Unit:
1. Servers: 67% of S+T Revs
2. Storage: 18% of S+T Revs
3. Micro OEM: 11% of S+T Revs
4. RSS: 4% of S+T Revs
* Software Revenue % By Sub-Unit:
1. Key Branded Middleware: 55% of Software Revs
2. Other Middleware: 22% of Revs
3. Other: 12% of Revs
4. Operating Systems: 11% of Revs
Other Highlights + Guidance:
* IBM Raised its Full Year 2008 Earnings Guidance...from $8.50/share to $8.75/share (Bloomberg analyst consensus expectations prior to earnings was $8.54/share for 2008)
* IBM's 2Q08 Gross Profit Margin: 43.2% (vs. 41.8% during 2Q07)
* IBM's Services Backlog: IBM ended 2Q08 with an estimated Services Backlog (including Strategic Outsourcing, Business Transformation Outsourcing, Integrated Technology Services, Global Business Services and Maintenance) of $117 Billion, adjusting for currency, an increase of approximately $1 Billion year over year
* Total Service signings: up 12% to $14.7 Billion...at constant currency Total Service signings were up 4% to $12.2 Billion
* Short-term Service signings: up 18% year over to $7.0 Billion (up 9% to $5.8 Billion adjusting for currency)
* Long-term Service signings: up 7% year over year to $7.7 Billion (flat with 2Q07's $6.4 Billion when adjusting for currency)
* OEM revenues down 17% from 2Q07 to $706 million
* IBM's Stock Buyback Program: IBM used cash to repurchase $4.7 Billion worth of company stock during 2Q08. The weighted-average number of diluted common shares outstanding in the second-quarter 2008 was 1.40 billion compared with 1.46 billion shares in the same period of 2007. As of June 30, 2008, there were 1.35 billion basic common shares outstanding.
* IBM's 2Q08 effective Tax Rate was 27.5% (vs. 28% during 2Q07)
* IBM ended 2Q08 with $9.8 Billion in cash
Conference Call Quotes:
* IBM CFO + SVP Mark Loughridge on IBM's progress towards 2010 Profit Plan Roadmap (achieve earnings per share of $10-11 for full year 2010): "...it’s difficult not to say we’re ahead of track. I’m not going to give a longer term forecast today. We’ll do that at the end of the year once we’ve completed the year and get ready for the -- our annual analyst meeting but I quite agree with you; I’m very encouraged by our performance and looking at that performance going forward, you know, I would have to admit that we are ahead of track and we feel like we’ve got a very strong half to 2008 ahead of us as well."
* IBM CFO on Stock Buyback: "And if you look at share buy-back, we repurchased $19 billion last year. We got the authorization from the board this year for $15 billion, of which $12 billion would be in the year, and that is a very logical -- that is a very logical objective for us."
* IBM CFO on Projects/Solutions in Emerging Markets: "Now let me give you a couple of examples of the kinds of things we are doing in with our clients in these emerging markets. In the Czech Republic, we are helping the Ministry of Finance automate their tax systems. In Russia, we have consolidated the settlement systems for the Central Bank of Russia and provided a centralized disaster recovery solution. In addition, our Information Warehouse and Cognos products were selected as the platform to analyze each member bank’s compliance with various regulations, like Basel II. And in China, we are partnering with one of the country’s largest real estate companies to construct a new financial management system to meet the needs of a rapidly growing enterprise. So we’re not just selling products -- we’re selling major backbone solutions as these high growth economies build out their infrastructure, and we expect these rapidly growing markets to continue to fuel IBM’s revenue and profit engine in the second half of 2008 and into the future
* IBM CFO on Software Acquisitions: "...acquisitions play a very strong part. Now you’ve seen that we’ve just completed some very big acquisitions with Cognos and Telelogic which we are integrating in the business, but at today’s prices there are also some very attractive candidates out there...if you look at the acquisitions as a whole that we have in the first half, and remember we’ve done 13 overall in the first half, of which nine were in software, but if you just look at the nine in software, and obviously that’s where the biggest ones are with Cognos and Telelogic, we’re -- on our revenue case, we’re slightly ahead of our profit case in those. Against a 17% growth that we had in the software group, about seven points was driven by acquisitions in total; for organic performance, about 10%.
*IBM CFO on Global Financing Unit + potential credit crisis impact: "Now, as far as a credit risk, we don’t see very much additional risk in our financing base. There’s nothing exotic, there’s no mortgage financing, there’s nothing outside of our sweet spot of capability there, and our -- generally our customer set is very high quality customers, two-thirds of it at investment grade and we’re very confident."
Full Disclosure: I own shares of IBM.
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