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International Business Machines 8-K 2011

Documents found in this filing:

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of Report: March 8, 2011

(Date of earliest event reported)

 

INTERNATIONAL BUSINESS MACHINES CORPORATION

(Exact name of registrant as specified in its charter)

 

New York

 

1-2360

 

13-0871985

(State of Incorporation)

 

(Commission File Number)

 

(IRS employer Identification No.)

 

ARMONK, NEW YORK

 

10504

(Address of principal executive offices)

 

(Zip Code)

 

914-499-1900

(Registrant’s telephone number)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 



 

Item 7.01 (Regulation FD Disclosure)

 

Attachment I contains presentation materials for IBM’s Investor Briefing on March 8, 2011.  Attachment II (Non-GAAP Supplementary Materials) contains supplementary materials about non-GAAP financial measures in certain presentation materials for this event.

 

IBM’s web site (www.ibm.com) contains a significant amount of information about IBM, including financial and other information for investors (www.ibm.com/investor/). IBM encourages investors to visit its various web sites from time to time, as information is updated and new information is posted.

 

2



 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 

 

Date: March 8, 2011

 

 

 

 

By:

/s/ James J. Kavanaugh

 

 

 

 

 

James J. Kavanaugh

 

 

Vice President and Controller

 

3



ATTACHMENT I

 

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Introduction Patricia Murphy Vice President, Investor Relations

 


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Agenda Morning Session (10:00-noon) Strategic Overview Sam Palmisano Financial Model Mark Loughridge Smarter Planet & Growth Markets Ginni Rometty, Bruno Di Leo Afternoon Session (1:15-4:45) Services Mike Daniels, Erich Clementi, Frank Kern Integrated Systems Steve Mills, Robert LeBlanc, Mike Rhodin, Rod Adkins Enterprise Productivity Initiatives Linda Sanford Research and Watson John Kelly Group Q&A

 


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Certain comments made during this event and in the presentation materials may be characterized as forward looking under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the company’s current assumptions regarding future business and financial performance. These statements by their nature address matters that are uncertain to different degrees. Any forward-looking statement made during this event or in these presentation materials speaks only as of the date on which it is made. The company assumes no obligation to update or revise any forward-looking statements. Those statements involve a number of factors that could cause actual results to differ materially including the following: a downturn in economic environment and corporate IT spending budgets; the company’s failure to meet growth and productivity objectives, a failure of the company’s innovation initiatives; risks from investing in growth opportunities; a failure of the company’s intellectual property portfolio to prevent competitive offerings and the failure of the company to obtain necessary licenses; breaches of data security; fluctuations in financial results and purchases, impact of local legal, economic, political and health conditions; adverse effects from environmental matters, tax matters and the company’s pension plans; ineffective internal controls; the company’s use of accounting estimates; the company’s ability to attract and retain key personnel and its reliance on critical skills; impacts of relationships with critical suppliers and business with government clients; currency fluctuations and customer financing risks; impact of changes in market liquidity conditions and customer credit risk on receivables; reliance on third party distribution channels; the company’s ability to successfully manage acquisitions and alliances; risk factors related to IBM securities; and other risks, uncertainties and factors discussed in the company’s Form 10-Q, Form 10-K and in the company’s other filings with the U.S. Securities and Exchange Commission (SEC) or in materials incorporated therein by reference. Additional information concerning these factors is contained in the Company's filings with the SEC. Copies are available from the SEC, from the IBM web site, or from IBM Investor Relations.

 


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These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), certain materials presented during this event include non-GAAP information. The rationale for management’s use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information is included in supplementary materials entitled “Non-GAAP Supplementary Materials” that are posted on the Company’s investor relations web site at http://www.ibm.com/investor/events/investor0311. The Non-GAAP Supplementary Materials are also included as Attachment II to the Company’s Form 8-K dated March 8, 2011.

 


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[LOGO]

 

 


 

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Strategic Overview Samuel J. Palmisano Chairman, President and Chief Executive Officer March 8, 2011

 


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Our Results: Another Strong Performance in 2010 $99.9 Billion Revenue, up 4% $14.8 Billion Net Income, up 10% $11.52 Earnings Per Share (EPS), up 15% $16.3 Billion in Free Cash Flow*, up $1.2 Billion Gross Profit Margin of 46.1%, up for the 7th straight year Record Net Income, EPS** and Free Cash Flow *Excluding Global Financing receivables **Split Adjusted Basis

 


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Strong Results Confirm Our Strategic Choices Changes in the world: We are at the forefront of global integration Changes in technology: We are shifting to higher value segments Changes in client demand: We are focused on integration and innovation

 


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4 Outperformed the 2010 Earnings Per Share Roadmap Historical Revenue Growth $6.05 Margin Expansion $7.15 18% Yr/Yr Share Repurchase $8.89 Growth Initiatives $11.52 24% Yr/Yr Future Acquisitions Retirement Related Costs $10.01 13% Yr/Yr 15% Yr/Yr 06* 07* 08* 09 10 *2006-2008 EPS reflects the adoption of amendments to ASC 260, "Earnings Per Share"

 

 

 


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5 Added $6.5B of growth markets revenue 21% of geo revenue, up from 16% Increased software profit by $3.6B 44% of segment profit in 2010 R&D of $24B and generated more than 18,000 patents Pre-tax Income up almost 50% EPS nearly doubled Generated $58B in Free Cash Flow Over 100% returned to shareholders Increased year-end dividend rate by 117% Invested $16B to acquire 50 companies 2010 Roadmap Highlights Exceeded high-end of 2010 EPS roadmap by $0.52

 

 

 


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A Decade of Performance 2000-2010 *From continuing operations **Excluding Global Financing receivables Pre-tax Margins* 19.7% 12.0% Up 7.7 pts Pre-tax Profit Growth* $19.7B $10.2B Up $9.5B Earnings Per Share* $11.52 $3.88 Up 3.0x Free Cash Flow** $16.3B $6.7B Up $9.6B

 


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Portfolio Mix Leads to Improved Gross Profit Margin Shift to Higher-Value Spaces 2000** 2010 11% Segment Profit Mix* 25% 40% 24% 9% Segment Profit Mix* 44% 39% 8% Hardware Financing Services Software *Sum of external segment pre-tax income not equal to IBM pre-tax income **Excludes enterprise investments and stock-based compensation Gross Profit Margin 19.7% Pre-tax Income Margin 46.1% 5 10 15 20 25 30 35 40 45 50 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

 


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Cash Generation Fuels Investment and Shareholder Returns Free Cash Flow* ($ in Billions) *Excluding global financing receivables $107B returned to shareholders in form of dividends and share repurchases $70B invested in capital expenditures and acquisitions $58B spend on R&D Since the end of 2000: 00 01 02 03 04 05 06 07 08 09 10 $15.1 $16.3 $6.7 $6.8 $5.9 $8.7 $9.1 $9.6 $10.5 $12.4 $14.3

 


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The Keys to Growth Growth Markets Business Analytics and Optimization Cloud and Smarter Computing Smarter Planet

 


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10 2015 Roadmap: IBM Transformation Continues Key Drivers: Revenue Growth Operating Leverage Share Repurchase Key Objectives: Add another $100B in free cash flow Return $70B in capital to shareholders Spend $20B on acquisitions Nearly double software profits Growth markets’ revenue contribution approaching 30% of geographic revenue Sum of external segment pre-tax income not equal to IBM pre-tax income 2000 & 2001 Excludes enterprise investments and stock-based compensation *Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related expense Hardware / Financing Services Software Operating PTI / EPS* Segment Operating PTI Operating EPS At Least $20 At Least $13 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11e '12e '13e '14e '15e

 

 

 


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[LOGO]

 


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Certain comments made in the 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 web site, or from IBM Investor Relations. Any forward-looking statement made during this event or in these presentation materials speaks only as of the date on which it is made. The Company assumes no obligation to update or revise any forward-looking statements. These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the Company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), certain materials presented during this event include non-GAAP information. The rationale for management’s use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information is included in supplementary materials entitled “Non-GAAP Supplementary Materials” that are posted on the Company’s investor relations web site at http://www.ibm.com/investor/events/investor0311. The Non-GAAP Supplementary Materials are also included as Attachment II to the Company’s Form 8-K dated March 8, 2011.

 


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[LOGO]

 

 


 

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Financial Model Mark Loughridge Senior Vice President and Chief Financial Officer, Finance and Enterprise Transformation

 


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2010 Roadmap Transition to Operating Earnings 2015 Roadmap Agenda

 


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2006 EPS Estimated 2010 EPS (Base) 2010 EPS Objective Margin Expansion Share Repurchases Growth Initiatives Future Acquisitions ~$1.20 ~$0.90 ~$0.75 ~$1.00 ~$1.10 14% CAGR 16% CAGR 10% CAGR 5% Revenue Growth +1 to 2 pts Revenue Growth 10% -12% CGR EPS Model Note: 2006 EPS reflects the adoption of amendments to ASC 260, “ Earnings Per Share” May 2007 2010 Long-Term EPS Roadmap Retirement Related Yr/Yr Costs Historical Revenue Growth of 3% 2010 EPS w/o Retirement Related Yr/Yr $6.05 ~$11 ~$10 ~$9

 


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2006 2007 2008 2009 2010 18% Yr/Yr 24% Yr/Yr 15% Yr/Yr 13% Yr/Yr Achieved low end of Roadmap one year ahead of objective Beat high end of target by $0.52 Note: 2006-2008 EPS reflects the adoption of amendments to ASC 260, “ Earnings Per Share” +17% CAGR 2010 EPS Roadmap $6.05 $10 $10.01 $8.89 $7.15 $11.52

 


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Share Repurchases Historical Revenue Growth Growth Initiatives & Acquisitions Margin Expansion 2010 EPS Objective 2006 EPS $6.05 Retirement-Related Costs $10 -$11 $11.52 2006 EPS 2010 EPS Historical Revenue Growth of 3% Margin Expansion Share Repurchases Growth Initiatives & Acquisitions ~ 0.20 Note: 2006 EPS reflects the adoption of amendments to ASC 260, “ Earnings Per Share” 2007 – 2010 Performance 2010 EPS Roadmap Revenue achievement impacted by market downturn Retirement Related Yr/Yr Costs $6.05

 


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Share Repurchases Historical Revenue Growth Growth Initiatives & Acquisitions Margin Expansion 2010 EPS Objective 2006 EPS $6.05 Retirement-Related Costs $10 -$11 $11.52 2006 EPS 2010 EPS Historical Revenue Growth of 3% Margin Expansion Growth Initiatives & Acquisitions Revenue achievement impacted by market downturn ~ 0.20 Margin expansion within model ~ 1.35 Mix and productivity driving margin expansion above model ~ 2.10 2007 – 2010 Performance 2010 EPS Roadmap Retirement Related Yr/Yr Costs Share Repurchases Note: 2006 EPS reflects the adoption of amendments to ASC 260, “ Earnings Per Share” $6.05

 


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Share Repurchases Historical Revenue Growth Growth Initiatives & Acquisitions Margin Expansion 2010 EPS Objective 2006 EPS $6.05 Retirement-Related Costs $10 -$11 $11.52 2006 EPS 2010 EPS Historical Revenue Growth of 3% Margin Expansion Growth Initiatives & Acquisitions Revenue achievement impacted by market downturn ~ 0.20 Margin expansion within model ~ 1.35 Mix and productivity driving margin expansion above model ~ 2.10 2007 – 2010 Performance Share repurchases of ~$52B ~ 1.30 2010 EPS Roadmap Retirement Related Yr/Yr Costs Share Repurchases Note: 2006 EPS reflects the adoption of amendments to ASC 260, “ Earnings Per Share” $6.05

 


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Share Repurchases Historical Revenue Growth Growth Initiatives & Acquisitions Margin Expansion 2010 EPS Objective 2006 EPS $6.05 Retirement-Related Costs $10 -$11 $11.52 2006 EPS 2010 EPS Retirement Related Yr/Yr Costs Historical Revenue Growth of 3% Margin Expansion Growth Initiatives & Acquisitions Revenue achievement impacted by market downturn ~ 0.20 Margin expansion within model ~ 1.35 Share repurchases of ~$52B ~ 1.30 Mix and productivity driving margin expansion above model ~ 2.10 Market performance impacting pension expense ~ 0.55 2007 – 2010 Performance 17% CAGR 2010 EPS Roadmap Share Repurchases Note: 2006 EPS reflects the adoption of amendments to ASC 260, “ Earnings Per Share” $6.05

 


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4Q’10 IBM S&P 500 72% (1%) +17% CGR Success of IBM’s Business Model ~0% CGR Source: Capital IQ / Bloomberg Cum. Total Return IBM EPS Indexed with S&P 500 IBM EPS $6.05 S&P 500 EPS ~$85 Created $58B of Shareholder Value $47B Market Capitalization + $11B Dividends Paid Total Return as of January 19, 2011 0.25 0.50 0.75 1.00 1.25 1.50 1.75 2.00 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10

 


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Success of IBM’s Business Model Dow 30 GAAP EPS Yr/Yr Growth GAAP EPS Yr/Yr Growth GAAP EPS Yr/Yr Decline Source: Capital IQ / Bloomberg DOW COMPONENTS 2003 2004 2005 2006 2007 2008 2009 2010 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 IBM # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # 13% 22% 14% 10% 21% 11% 17% 19% 18% 8% 5% 14% 6% -25% 11% 11% 10% 51% 11% 7% 10% 15% 13% -6% 2% 2% 3% 26% 14% 9% 16% 11% 9% 3% 4% 10% 8% 28% 7% 3% 19% 17% 19% 4% 19% 15% 22% 39% 8% 6% 22% 24% 26% 14% 10% 13% -24% -21% -14% -6% 19% 15% 14% 14% 68% 115% 115% 29% 33% 90% 31% 6% 15% -84% -63% 32% 98% ### 340% 30% -1% 36% 34% 45% 24% 21% 4% -7% -12% -14% 18% 24% 28% 9% 11% 26% 61% 98% 2% 11% 222% 39% 126% 58% 36% 35% 34% 55% 48% 41% 21% 10% 3% -18% 23% 15% 18% 40% -1% -28% ### -66% -54% -67% 289% 82% 91% 306% 17% -26% 21% 33% 20% 105% 13% -34% 13% 4% 9% 72% 17% 11% 10% 6% -20% 11% -7% 11% 43% 11% 34% 17% 0% -2% 3% -18% 29% 7% 3% -11% 512% 12% 14% 3% 36% 18% -22% 32% -9% 11% 38% -26% 12% 8% 15% -22% 15% 3% 15% 81% 19% -24% 14% -18% -9% 44% 0% 54% 19% 16% 9% 272% 35% -5% 13% 136% 53% 27% 42% 211% 40% -11% -5% 54% -12% 60% 17% 110% 28% ### 30% 6% 29% 275% 19% -19% 7% -6% 10% 28% 15% 15% 12% 4% 24% 6% 21% 22% 20% 45% 12% 11% 8% 4% 9% 0% 7% 7% 3% 17% 17% 22% 25% 16% 11% 37% 13% 61% 3% -13% -5% -5% -1% -11% -4% -26% 246% 62% 40% 71% -21% 42% 60% 29% 47% 36% 80% 31% 12% 43% 12% 4% 18% 6% -4% 21% 25% 21% 68% -28% -54% -64% -66% -17% 45% 98% 47% 44% 40% 40% 88% -28% 21% 36% 40% 109% 24% 26% -5% 5% 5% 4% 30% 41% 36% 24% 35% 6% -3% 10% 6% -21% -21% -44% -19% 23% 61% 79% 13% -16% 166% 280% 337% 94% 33% 162% 49% 98% 6% -9% 9% 13% 41% 12% 40% -6% 21% 28% -24% 34% 14% 15% 120% 4% -63% -70% -50% -37% 147% 210% -3% 73% 11% 32% 20% 18% 43% 24% 17% 18% 8% -1% 11% 7% 21% 20% 9% 60% 58% 9% 12% -25% -25% 6% 7% -34% -46% -16% -4% 69% 74% 38% 13% -3% 15% 35% 151% ### 71% 19% 23% -1% 22% 35% -25% 13% 18% 35% 94% 115% 19% 9% 20% -21% 32% 16% -8% -29% -43% -23% 18% -2% 45% 31% -9% 55% 0% 100% 150% 98% 86% 93% 20% 7% 35% 22% 7% 17% -34% -55% -31% -35% 22% 47% 36% 50% -11% 27% 17% -89% -56% ### -6% 796% 291% 829% 58% 40% 8% 12% 25% 41% 26% 25% 20% 14% 16% 17% 20% 27% 23% 10% 1% -25% -24% -11% -17% -13% -60% -12% -25% ### 43% -7% -9% 781% 43% 9% 24% 76% 44% 76% ### 544% 33% ### -50% -48% -30% 202% 84% 65% 35% 261% 28% 66% 55% 21% 6% -32% -50% -56% -91% -91% -41% -46% 824% 868% 85% 281% 23% 53% -20% 6% 26% -18% -40% 82% -4% 129% 92% 36% 26% 6% 26% -18% 21% -24% 72% 11% 29% 92% -6% 49% 7% -6% -30% -26% -17% 57% 36% 50% 55% 4% 15% 16% 13% 13% 14% 15% 17% 20% 24% 19% 19% -16% -7% -6% -4% 26% 25% 17% 14% -6% -3% -37% -22% -71% -63% -85% -23% 191% 132% 880% 67% 49% 122% 24% ### 80% 24% -25% 138% -55% 45% 103% ### -43% -7% 2% 678% 485% 14% 0% 8% -36% 30% 14% -29% ### -59% -61% 13% 169% 135% 172% -11% -15% 18% -15% -11% 51% 10% -5% 5% 9% 21% 18% 20% -41% 8% 12% 3% 108% 4% 10% 16% 7% -4% -3% -20% -48% -39% -52% -48% -21% -33% 17% -17% 52% -31% -5% 41% 221% 132% 74% -1% -4% -27% 15% 2% -18% 130% 62% 90% 63% 9% -5% 3% 80% -52% -19% -49% ### ### ### -77% 80% 68% 128% -19% 178% 61% ### -30% 92% 229% 411% 76% -83% -14% -7% 124% 148% 32% ### -29% 122% 28% 745% 61% 5% 44% -14% -33% ### -47% 22% ### ### -19% -25% 150% -11% 15% 29% 33% 8% 15% 4% -5% -3% 17% 22% 4% -1% 0% 4% 24% 31% 10% 7% -31% -96% -80% -43% -82% ### 85% -54% ### -25% -34% -18% ### 75% 171% 33% 29% 157% 68% ### -49% -58% -76% 465% -53% -38% 347% -11% 525% 524% 11% 37% 23% -2% -1% -17% -80% -18% -28% -18% 358% 76% 12% 11% 28% -17% ### -22% -29% -61% -61% -16% 72% -24% -54% -14% -40% 122% 38% 53% 47% 7% 23% 1% -10% 4% 26% 35% 9% -21% -8% -15% -1% 25% -21% 25% 285% -65% 23% 6% -6% -7% -34% -25% -3% -26% 28% -32% -13% 23% 46% 46% 13% -17% -30% 7% -16% 0% -10% 10% 138% -70% 17% 16% -38% 310% 159% -6% -23% -34% 571% 116% -60% ### -51% 422% 0% 315% 49% 18% 4% -45% -13% -27% -1% -41% -8% 5% -33% 4% 11% 14% 34% 19% 2% -21% -31% -52% -76% ### -24% 143% 6% 7% -1% -26% -3% -4% -27% -19% -15% -58% 8% 2% 11% 109% -34% -57% 13% 11% 63% ### 95% 7% -27% 203% -56% -10% 216% 202% -86% -68% -93% ### 141% ### -25% -83% -60% 179% 54% 383% -86% 23% -51% -1% ### -30% 116% 255% -14% -45% -76% -68% -15% 127% 203% -90% -2% -19% 29% 144% -38% -8% -75% 267%

 


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Stock Price Appreciation 2000 - 2010 Success of IBM’s Business Model Source: Bloomberg From Dec. 29, 2000 to Jan. 19, 2011 Stock Price Appreciation 10% 10% -3% 47% 31% 9% -21% -46% -63% 83% IBM DJIA NASDAQ S&P HPQ MSFT ORCL DELL CSCO EMC

 


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Total Shareholder Return 2000 - 2010 Dividends Stock Price Appreciation Source: Bloomberg From Dec. 29, 2000 to Jan. 19, 2011 Success of IBM’s Business Model 18% 17% 39% -63% -46% -21% 11% 64% 65% 107% IBM DJIA NASDAQ S&P HPQ MSFT ORCL DELL CSCO EMC

 


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IBM Transformation Hardware / Financing Services Software Sum of external segment pre-tax income not equal to IBM pre-tax income GAAP PTI / EPS Segment PTI$ 2000 & 2001 segments not restated for stock based compensation Highlights since 2000 EPS $11.52 Added $10B revenue in growth markets 21% of geo revenue Tripled Software profit to $9.1B 44% of segment profit, up from 25% Added $10B of Pre-Tax Income EPS nearly tripled Generated $109B Free Cash Flow Returned $107B to shareholders Invested $32B to acquire 116 companies Strong performance through the decade driven by IBM transformation

 


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2010 Roadmap Transition to Operating Earnings Acquisition-related charges Retirement-related items 2015 Roadmap Agenda

 


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Merits of Operating Earnings Provides better transparency to operational results and pension plan performance Improves visibility to management decisions and operational effects Enables comparison to peers Allows for long term view of business Transition to Operating Earnings Implementation Schedule Introduced with 2015 roadmap objectives; effective 1Q 2011 Provided supplemental information on IBM current period operating earnings Provided historic information on IBM and segment level operating profit Introduced 2011 guidance on an operating earnings basis Earnings presentation to address operating earnings in addition to GAAP reporting May 2010 2Q’10 Earnings 3Q’10 January 2011 Starting 1Q’11 Earnings

 


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Interest cost (4.8) Expected return on plan assets 6.5 Recognized net actuarial (losses)/gains (1.2) Amortization of prior service cost Curtailments/Settlements/Other Pre-Tax Non-Operating (expense)/income 0.4 Service and defined contribution cost * Includes defined benefit, defined contribution and other postretirement benefit plans Classification of Retirement-Related Items (0.1) Non-Operating “The remaining items, interest cost and plan returnsare related to the relative performance of the plan assets, not the operations of the business ” Operating “To determine the portion of pension expense that is compensation (and hence operating), we combine service cost and amortization of prior service cost” Total net periodic (expense)/income (1.4) Pre-Tax Operating (expense)/income Valuation - Measuring and Managing the Value of Companies by Tim Koller, Marc Goedhart and David Wessels “retirement provisions can lead to serious distortions in operating performance. Thus, we reorganizeinto operating and non-operating items.” 0.2 (2.0) (1.8) IBM Postretirement Benefit Plans* ($B) 2010

 


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Presentation of Retirement-Related Items Defined Benefit Plans: Proposed Amendments to IAS 19 IASB Current Deliberations through February 15, 2011 IBM Operating Earnings IASB Current Proposal Operating Service Cost Service Cost Operating Amortization of Plan Amendments Plan Amendments, Curtailments and Non-Routine Settlements Defined Contribution Cost Defined Contribution Cost Non-Operating Interest Cost Net Interest Cost Financing Expected Return on Plan Assets Net Return on Plan Assets Other Comprehensive Income Amortized actuarial (losses)/gains Recognized actuarial (losses)/gains Curtailments/ Settlements/Other Routine Settlements “These proposalsmake it easier for users of an entity’s financial statements to understand how defined benefit plans affect the entity’s financial position and financial performance, and how they may affect its future cash flows.” International Accounting Standards Board

 


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Pre-Tax Retirement-Related (Cost) / Income ($B) ($1.6) ($1.6) ($1.6) ($1.3) ($1.5) ($1.7) ($1.3) Retirement-Related Cash Drivers ($B) ($0.0) $0.4 $0.5 ($0.3) ($0.7) ($0.2) $0.1 Projection based on Dec ’10 assumptions Actual * Tax-qualified defined benefit plans ($1.9) ($1.9) ($1.9) ($1.9) ($1.8) ($1.9) ($1.9) ($1.9) ($1.9) ($1.9) ($1.9) ($1.8) ($1.9) ($1.9) Retirement-Related Charges Non-Operating Operating Funded Status* Expected ROA WW US YE 2009 YE 2010 99% 99% 101% 101% Actual ROA Discount Rate WW WW 11.8% 11.7% 5.2% 4.7% WW 7.4% 7.3% 2009 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013 2014 2015

 


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($0.2) ($0.0) $0.4 $0.5 ($0.3) ($0.7) $0.1 Pre-tax (Cost) / Income ($B) ~$2B range ($1.3) ($1.3) ($1.6) ($1.6) ($1.6) ($1.5) ($1.7) Cash Drivers ($B) Projection based on Dec ’10 assumptions Actual Downside Upside Retirement-Related Charges Worldwide ROA 2011 2012+ YE ’10 Assumptions 7% 7% Upside Case 14% 7% Downside Case 0% 7% Non-Operating Retirement-Related Non-Operating Scenarios Worldwide Discount Rate 2010 2011+ YE ’10 Assumptions 4.7% 4.7% Upside Case 4.7% 5.2% Downside Case 4.7% 4.2% 2009 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013 2014 2015

 


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 Separate operating and non-operating elements of retirement-related expense Exclude amortization of purchased intangibles and acquisition-related charges No change to balance sheet and free cash flow 2010 IBM Operating EPS (Non-GAAP) $11.67 IBM GAAP EPS $11.52 Adjustments Acquisition-Related Charges $0.34 Amortization of Purchased Intangibles $0.31 Other Acquisition-Related Charges $0.03 Non-Operating Retirement-Related Expense ($0.20) Moving to operating earnings (Non-GAAP) objectives for 2015 Roadmap Operating Earnings

 


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2010 Roadmap Transition to Operating Earnings 2015 Roadmap Agenda

 


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2015 Roadmap 11% CAGR Revenue Growth ~$0.70 ~$0.90 ~$1.45 2010 Operating EPS* Base Revenue Growth Revenue Mix 2015 Operating EPS* $11.67 At Least $20 Acquisitions ~$3.05 * Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related expense Assumes current tax policy and Non-GAAP tax rate of 25% Shift to faster growing business mix provides ~1% revenue growth Base revenue growth ~2% excluding divestitures ~$20B of acquisition spend provides ~2% revenue growth

 


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Revenue Growth ~$0.70 ~$0.90 ~$1.75 ~$0.75 ~$1.45 2010 Operating EPS* Enterprise Productivity Margin Mix 2015 Operating EPS* $11.67 At Least $20 Operating Leverage ~$2.50 ~$3.05 Acquisitions 2015 Roadmap 11% CAGR * Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related expense Assumes current tax policy and Non-GAAP tax rate of 25% Base Revenue Growth Revenue Mix Shift to faster growing business mix provides ~1% revenue growth Enterprise Productivity yields margin expansion Base revenue growth ~2% excluding divestitures Shift to a higher value portfolio continues to provide leverage ~$20B of acquisition spend provides ~2% revenue growth

 


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Shift to faster growing business mix provides ~1% revenue growth Enterprise Productivity yields margin expansion ~$50B returned through share repurchase Base revenue growth ~2% excluding divestitures Revenue Growth Shift to a higher value portfolio continues to provide leverage ~$20B of acquisition spend provides ~2% revenue growth ~$0.70 ~$0.90 ~$1.75 ~$0.75 ~$2.80 ~$1.45 2010 Operating EPS* Enterprise Productivity Margin Mix Shares 2015 Operating EPS* $11.67 At Least $20 Operating Leverage ~$2.50 ~$3.05 Acquisitions 2015 Roadmap 11% CAGR * Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related expense Assumes current tax policy and Non-GAAP tax rate of 25% Base Revenue Growth Revenue Mix

 


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Growth Initiatives Business Analytics Growth Markets Smarter Planet Cloud Grows to ~$10B business by 2015 Approximately 400 recent client engagements illustrate reach Grows to ~$7B business by 2015, of which ~$3B is incremental Approaches 30% of IBM’s geographic revenue by 2015 Contributes ~50% of IBM’s growth over the Roadmap Grows to ~$16B business by 2015 Contributes ~20% of IBM’s growth over the Roadmap $11.67 Revenue Growth ~$3.05 Share Repurchase Operating Leverage 2015 Operating EPS

 


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Over the 2015 Roadmap these four initiatives deliver ~$20B of revenue growth, over two-thirds of IBM’s growth 2010 Revenue from Key Initiatives 2015 Revenue from Key Initiatives 11-12% CAGR Growth Initiatives $11.67 2015 Operating EPS ~$3.05 Revenue Growth Share Repurchase Operating Leverage ~$17B ~$7B ~$3B ~$6B ~$50B ~$30B Growth Markets Smarter Planet Business Analytics Cloud Computing

 


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* GAAP metrics Differentiated investment strategy between Growth and Major Markets Top 20 Focus Growth Markets Australia Brazil Chile China Czech Republic India Indonesia Malaysia Mexico Philippines Poland Russia Saudi Arabia Singapore South Africa South Korea Taiwan Thailand UAE Vietnam Growth Markets vs. Major Markets 2006 – 2010 CAGR* Revenue Sales and Marketing Expense Growth Markets $11.67 ~$3.05 Revenue Growth Share Repurchase Operating Leverage 2015 Operating EPS 1% (0%) 10% 15% Major Markets Growth Markets

 


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* Revenue mix percentages exclude divestitures (PCD, Printers) Growth Markets Revenue Growth @ CC By 2015, Growth Markets approaches 30% of IBM geographic revenue $11.67 ~$3.05 Revenue Growth Share Repurchase Operating Leverage 2015 Operating EPS Approaches 4% 5% 1% -1% -4% -8% -7% -1% 1% 5% 11% 14% 10% 6% 4% 1% -1% 2% 8% 9% 13% -2% -6% 13% Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Major Markets Growth Markets 2010 2009 16% 17% 18% 19% 21% 2006 2007 2008 12% 2003 11% 2000 Growth Markets Percentage of IBM Geographic Revenue* 2015 30%

 


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Acquisitions Focus acquisition investments of ~$20B on key growth areas that leverage IBM’s global reach and scale Scalable intellectual property Key to solutions offerings Drive synergies through global distribution Forward Looking Revenue Growth Estimates Forward Looking PTI Margin Estimates 27% 23% 18% 11% PTI Margin Margin excl. amortization of intangibles and acquisition-related charges $11.67 ~$3.05 Revenue Growth Share Repurchase Operating Leverage 2015 Operating EPS -20% 20% 30% 10% 10% 10% 0% 15% 30% 45% Yr1 Yr2 Yr3 Yr4 Yr5 Revenue Yr/Yr% 2% 2% 20% 15% 10% -20% -10% 0% 10% 20% 30% Yr1 Yr2 Yr3 Yr4 Yr5 PTI Margin

 


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Annual Revenue from 2010 Acquisitions (~$6B spend) ~65% 2011-15 ~35% 2010 Annual Operating EPS from 2010 Acquisitions (~$6B spend) ~40% 2011-15 ~60% 2010 Actual Projected Actual Projected 2010 investments position us ahead of pace against the acquisition objectives in the 2015 Roadmap Acquisitions $11.67 ~$3.05 Revenue Growth Share Repurchase Operating Leverage 2015 Operating EPS Roadmap Model ~$11B Roadmap Model ~$0.90 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015

 


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Invested $14B on 25 acquisitions from 2005 in the Business Analytics and Optimization space Optimized Business Performance Leverage information to better understand & optimize business performance Optimized Business Performance Leverage information to better understand & optimize business performance Trusted Information Establish accurate information for a single version of the truth, managed over time Trusted Information Establish accurate information for a single version of the truth, managed over time Integrated Data & Content Management Manage data & content over its lifecycle and as part of processes Integrated Data & Content Management Manage data & content over its lifecycle and as part of processes + + Identity Resolution 2005 Enterprise Data Integration 2005 Customer Data Integration 2005 Name Recognition 2006 Metadata Management 2006 Dynamic Data Integration 2007 Master Data Management Solutions 2010 Enterprise Data Management 2007 Database Monitoring Solutions 2009 Data & Document Capture 2010 Business Process & Content Management 2006 Real - Time, In - Memory Data Management 2008 Data Warehouse Appliances 2010 Search & Content Management 2005 Information Governance 2010 BI & Performance Management 2008 Business Rules & Optimization 2008 National Security Services 2010 Advanced Customer Analytics 2009 Predictive Analytic Solutions 2009 Integrated Risk Management 2010 Advanced Online Web Analytics 2010 On Demand Web Analytics 2010 Corporate Performance Management 2010 Acquisitions Exeros $11.67 2015 Operating EPS ~$3.05 Revenue

Growth Share Repurchase Operating Leverage

 


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Acquisitions have contributed significantly to IBM’s growth in key strategic areas Data Warehouse Appliance Quick time to value, sets up and performs analytics in hours Leadership in Business Analytics platforms Acquisition Highlights 4Q’10 revenue up ~70% Yr/Yr Signed 22 deals > $1M and added 29 new customers since closing $11.67 ~$3.05 Revenue Growth Share Repurchase Operating Leverage 2015 Operating EPS Acquisitions Acquired November 2010 ~470 resources

 


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Acquisitions have contributed significantly to IBM’s growth in key strategic areas Data Warehouse Appliance Quick time to value, sets up and performs analytics in hours Leadership in Business Analytics platforms Acquisition Highlights 4Q’10 revenue up ~70% Yr/Yr Signed 22 deals > $1M and added 29 new customers since closing Virtualization capabilities for cloud computing and other workload optimized systems Leading provider of high performance, low-latency and low-cost Ethernet switches Acquisition Highlights 4Q’10 revenue up 16% Yr/Yr Achieved 10 million port shipments milestone in first quarter of acquisition $11.67 ~$3.05 Revenue Growth Share Repurchase Operating Leverage 2015 Operating EPS Acquisitions Acquired November 2010 ~470 resources Acquired October 2010 ~400 resources

 


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Acquisitions have contributed significantly to IBM’s growth in key strategic areas Acquired November 2010 ~470 resources Data Warehouse Appliance Quick time to value, sets up and performs analytics in hours Leadership in Business Analytics platforms Acquisition Highlights 4Q’10 revenue up ~70% Yr/Yr Signed 22 deals > $1M and added 29 new customers since closing Acquired October 2010 ~400 resources Virtualization capabilities for cloud computing and other workload optimized systems Leading provider of high performance, low-latency and low-cost Ethernet switches Acquisition Highlights 4Q’10 revenue up 16% Yr/Yr Achieved 10 million port shipments milestone in first quarter of acquisition These five acquisitions represent over $4B of our 2010 investment Acquired Aug. to Oct. 2010 ~3,100 combined resources Together with WebSphere Commerce, create the foundation of Smarter Commerce strategy Recognized leaders in business-to-business commerce and marketing software solutions Acquisition Highlights 4Q’10 revenue up 11% Yr/Yr Signed 15 deals > $1M in 4Q’10 $11.67 ~$3.05 Revenue Growth Share Repurchase Operating Leverage 2015 Operating EPS Acquisitions

 


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Acquisitions Research & Development Operating Leverage Hardware Software Services Research IGF Other ~$35B ~$25B ~$20B Next 5 Years Last 5 Years $30B $22B $18B We will continue to focus our investments on higher value businesses Capital Expenditures $11.67 ~$3.05 Revenue Growth ~$2.50 Operating Leverage Share Repurchase 2015 Operating EPS 17% 11% 33% 26% 13% 9% 37% 53% 10% 6% 84%

 


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IBM Margin Performance* * Margin metrics at GAAP These investments enable continued margin improvements Operating Leverage Gross Profit Margin Expense to Revenue Pre 2006 – 2010 Pre-Tax Margin Expanded +5 pts $11.67 ~$3.05 Revenue Growth ~$2.50 Share Repurchase Operating Leverage 2015 Operating EPS 41.9% 46.1% 26.3% 27.3% 20% 30% 40% 50% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

 


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Over the 2010 Roadmap we expanded our pre-tax income margin by over 5 points Pre-Tax Income Margin 2006 – 2010 * Better / (Worse) margin metrics at GAAP Change in Gross Profit Margin* Change in E/R* Operating Leverage $11.67 ~$3.05 Revenue Growth ~$2.50 Operating Leverage Share Repurchase 2015 Operating EPS 19.7% 14.6% 4.2pts 1.0pts 2006 2010

 


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Our margin expansion has significantly outperformed other technology companies Change in Pre-Tax Income Margin 2006 – 2010 IBM HPQ MSFT ACN ORCL CSCO EMC DELL Source: Capital IQ, GAAP calendar year basis Operating Leverage $11.67 ~$3.05 Revenue Growth ~$2.50 Operating Leverage Share Repurchase 2015 Operating EPS +5pts +3pts +3pts +2pts +1pts (5pts) (4pts) (0pts)

 


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IBM 2010 19.7% S&P 500 Margin Expansion Opportunity GAAP Pre-Tax Income Margin S&P 500 ( March 2011 ) Tech Universe includes 424 worldwide Information Technology companies with market cap >$1.5B (Revenue and PTI Margins based on last 4 quarters reported) Tech Universe 25% of companies in Tech Universe have PTI margins in excess of 23% Source: Capital IQ IBM 2009 18.9% 25% of companies in S&P 500 have PTI margins in excess of 22% Operating Leverage $11.67 ~$3.05 Revenue Growth ~$2.50 Operating Leverage Share Repurchase 2015 Operating EPS -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50%

 


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IBM expands margins in 2015 Roadmap through a continuation of our shift to higher value % of Operating Segments Profit* 35% 38% ~13% ~36% ~50% * Sum of operating segment pre-tax income not equal to IBM operating pre-tax income ** Stock-based compensation expense was not recorded at the segment level and excludes Enterprise Investments 27% 16% 38% 45% Operating Leverage $11.67 ~$3.05 Revenue Growth ~$2.50 Operating Leverage Share Repurchase 2015 Operating EPS 2000** 2010 2015 Hardware/Financing Services Software

 


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We made significant investments in the Growth Markets, while driving productivity in the Major Markets 2006 – 2010 GAAP Geographic Gross Profit Bridge* Growth Markets Major Markets Revenue Growth Operating Leverage Revenue Growth Operating Leverage $3.2B $3.8B * Sum of geographic gross profit not equal to IBM gross profit Gross Profit Gross Profit Operating Leverage Geographic Geographic $11.67 ~$3.05 Revenue Growth ~$2.50 Operating Leverage Share Repurchase 2015 Operating EPS $2.9 $0.3 $1.3 $2.4 $47B $40B 2006 2010

 


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Shared Services End-to-End Process Transformation Integrated Operations Over $6B of Enterprise Productivity savings enabled our investments for growth $1.5 $2.5 $3.0 $4.7 $6.2 +$1.5 +$1.7 +$0.5 +$1.0 Cumulative Enterprise Productivity Savings ($B) Operating Leverage $11.67 ~$3.05 Revenue Growth ~$2.50 Operating Leverage Share Repurchase 2015 Operating EPS 2006 2007 2008 2009 2010

 


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Enterprise Productivity savings of $8B over the 2015 Roadmap Operating Leverage Cumulative Enterprise Productivity Savings ($B) Last Five Years ~$6B savings Next Five Years ~$8B savings ~40% of gross savings taken to bottom-line $11.67 ~$3.05 Revenue Growth ~$2.50 Operating Leverage Share Repurchase 2015 Operating EPS Shared Services End-to-End Process Transformation Integrated Operations 2006 2007 2008 2009 2010 2011e 2012e 2013e 2014e 2015e

 


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Cash Generation and Usage Last 5 Years Free Cash Flow* $B $69B Primary Uses of Cash $B $11.67 ~$3.05 Revenue Growth ~2.80 ~$2.50 Operating Leverage Share Repurchase 2015 Operating EPS Share Repurchase Dividends Acquisitions Capital * Excluding GF Receivables $0 $5 $10 $15 $20 $25 2006 2007 2008 2009 2010 $12 $18 $22 $60

 


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* Excluding GF Receivables Acquisitions Capital Share Repurchase Next 5 Years $B ~$100B Dividends $B Last 5 Years $B $69B Cash Generation and Usage Free Cash Flow* Primary Uses of Cash $11.67 ~$3.05 Revenue Growth ~2.80 ~$2.50 Operating Leverage Share Repurchase 2015 Operating EPS Share Repurchase Dividends Acquisitions Capital $12 $18 $22 $60 ~$25 ~$50 ~$20 ~$20 $0 $5 $10 $15 $20 $25 2006 2007 2008 2009 2010 2011e 2012e 2013e 2014e 2015e

 


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$11.67 ~$3.05 Revenue Growth IBM Model supports the Roadmap base and provides opportunity for upside At Least $20 Full execution on business unit objectives Full benefit of $8B in Enterprise Productivity savings to the bottom line Cash generation and capital structure +1 to 2% Additional Revenue Growth +$5B Profit +$40B Financial Flexibility 2015 Roadmap ~2.80 ~$2.50 Operating Leverage Share Repurchase 2015 Operating EPS

 


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Last 10 Years Next 5 Years Nearly tripled our EPS Nearly double our EPS ~$109B of free cash flow ~$100B of free cash flow ~$107B of capital returned to shareholders ~$70B of capital returned to shareholders ~$32B investment on acquisitions ~$20B investment on acquisitions Tripled software profit Nearly double software profit Growth Markets from 11% to 21% of geographic revenue* Growth Markets approaching 30% of geographic revenue * Revenue mix percentages exclude divestitures (PCD, Printers) 2015 Roadmap

 


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Hardware / Financing Services Software Sum of external segment pre-tax income not equal to IBM pre-tax income * Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related charges 2000 & 2001 segments not restated for stock based compensation Operating PTI / EPS * Segment Operating PTI Operating EPS At Least $20 At Least $13 Software contributes about half of our segment profit Growth initiatives deliver $20B in revenue growth Growth markets revenue approaches 30% of IBM’s total Enterprise productivity delivers $8B in gross savings IBM generates $100B in free cash flow, returning 70% to shareholders 2015 Roadmap 2015 Roadmap '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11e '12e '13e '14e '15e

 


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Certain comments made in the 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 web site, or from IBM Investor Relations. Any forward-looking statement made during this event or in these presentation materials speaks only as of the date on which it is made. The Company assumes no obligation to update or revise any forward-looking statements. These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the Company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), certain materials presented during this event include non-GAAP information. The rationale for management’s use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information is included in supplementary materials entitled “Non-GAAP Supplementary Materials” that are posted on the Company’s investor relations web site at http://www.ibm.com/investor/events/investor0311. The Non-GAAP Supplementary Materials are also included as Attachment II to the Company’s Form 8-K dated March 8, 2011.

 


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Sales and Distribution: Smarter Planet Ginni Rometty Senior Vice President and Group Executive, Sales, Marketing and Strategy

 


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Our four growth initiatives deliver ~$20B of revenue growth over the 2015 Roadmap 2010 Revenue from Key Initiatives 2015 Revenue from Key Initiatives 11-12% CGR ~$17B ~$7B ~$3B ~$6B ~$50B ~$30B Growth Markets Smarter Planet Business Analytics Cloud Computing Growth Initiatives Growth Markets Business Analytics Cloud Smarter Planet

 


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More than 800 Total Client References to Date Approximately 400 Client References – 20% Growth YTY $3B Revenue – Double-Digit Growth More Than 6000 Successful Engagements 2010 Smarter Planet Progress "IBM has successfully participated in many Smarter-Planet-oriented transformations for customers during the past year; positive results were harvested by the vendor as the initiative gained momentum it moves the conversation with customers from product-specific discussions to broader and longer-term concepts - less directly comparable to IBM competitors' more-concrete and narrow offerings." -- Gartner, November 2010

 


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Instrument to Manage Smarter Planet – How Clients Engage

 


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Instrument to Manage – Sacramento Area Sewer District 400,000 Sensors Monitor Sewer System in Real-Time Accurately Assess Sewer Pipe Conditions Shift from Reactive to Preventative Maintenance Improve Reliability and Lifespan of Assets Regulatory Reporting Resources Reduced 60% Key IBM Capabilities IBM Maximo Software Monitors 98 Pump Stations, 3000 Miles of Sewer Lines Analytics Dashboards Integrate Maps, Sensor Data, Sewer Pipe Video photos

 


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Instrument to Manage Integrate to Innovate Smarter Planet – How Clients Engage

 


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Integrate to Innovate – China Telecom Integrating Social Media to Launch New Services Understand Real-Time Demand Analyze Employee, Consumer and Partner Insight to Envision New Services SPDE Platform Enables Rapid Launch Key IBM Capabilities Cloud-based Lotus Connections IBM Idea Factory for Telco IBM Industry Framework: Service Provider Delivery Environment photos “The IBM solution enables us to deliver exciting products to the marketplace at a faster pace than ever before.” —Niu Gang Associate Director, Shanghai Research Institute, China Telecommunications

 


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Instrument to Manage Optimize to Transform Integrate to Innovate Smarter Planet – How Clients Engage

 


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Optimize to Transform – Singapore Land Transit Authority Making Public Transportation Appealing 1.6M New Bus Riders / 3M New Train Riders Per Day Integrated Fare System Manages 20M Payments Per Day Reduced Congestion and Environmental Impact Key IBM Capabilities IBM Research Traffic Analytics IBM Bus Arrival Predictor IBM Intelligent Transport Solutions IBM Cloud Labs photos

 


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Healthcare Oil and Gas Energy & Utilities Transportation Telecommunications Retail Banking Government Electronics Smarter Planet Focus Industry Electronic Medical Records Smart Sensoring Smart Meters Service Innovation RFID Tagging Core Banking Digital Surveillance Track and Trace Asset Instrumentation Instrument to Manage Collaborative Care Oilfield Modeling Intelligent Utility Network Congestion Management New Services Smarter Commerce Market Expansion Crime Prediction and Prevention Supply Chain Optimization Optimize to Transform Health Information Exchange Integrated Oilfield Management Integrated Asset Management Carrier-grade Platform Integrated Demand/Supply Systems Single View of the Customer Crime Information Warehouse Product Design Collaboration Integrated Fare Management Integrate to Innovate Smarter Planet – How Clients Engage Priority Industries Growing Faster Than The Market

 


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Smarter Planet -- Hot Industry Solutions 1,330 Healthcare Oil and Gas Energy & Utilities Transportation Telecommunications Retail Banking Electronics Health Information Exchange Intelligent Oilfield Intelligent Utility Network Services Innovation Retail Analytics Payments Optimization Smart Products Intelligent Transportation Smarter Planet Offering 100% 31% 69% 200% 43% 30% 100% 57% Increase in Engagements

 


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Potential Annual Economic Benefits of Optimizing for Collaborative Care Representative 800-bed Academic Medical Center *Source: IBM Applied Insights. The potential benefits above are modeled using publicly and privately available data. These potential benefits reflect a relative result based on a specific set of data and assumptions. Therefore, potential benefits will vary by enterprise and are not guaranteed. Smarter Planet ROI in the Healthcare Industry $81M $12M $16M $13M $21M $19M Electronic Medical Records Portals Health Information Exchange Analytics Advanced Clinical Decision Support Potential Economic Benefit Instrument to Manage Optimize to Transform Integrate to Innovate Watson OECD Countries Spend 9% of GDP on Healthcare Estimated $475B Wasted in US Healthcare System Healthcare Spending in India and China to Double by 2015

 


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Client Value Industry Thought Leadership/Business Consulting Cloud Computing R&D Workload Optimized Systems Analytics Coalition/ Standards Industry Frameworks/ Software Initiate Deployments Double YTY More than 500 Healthcare Analytics Specialists Watson $100M Evidence-Based Medicine Collaborative Cloud EHR Services, Medical Image Cloud Patient-Centered Primary Care Collaborative 8,000 Healthcare Industry Experts, including 60 MD’s What Distinguishes IBM in Healthcare

 


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Cities as an Integration Point for Smarter Planet Public Safety Government Administration Education Healthcare Transportation Energy & Utilities Social Services By 2050, Urban Population = 70% 97 of 100 Fastest Growing Cities in Growth Markets India to Create 500 New Cities by 2030

 


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Smarter Cities Showcase Clients – 2009 Major Markets = 65% Public Safety Transportation Healthcare Education Chicago Madrid Edmonton Amsterdam Venice Parma Eindhoven Zurich Stockholm London Corpus Christi Dubuque Brescia Austin Houston Dallas Copenhagen Dublin Toronto Chapel Hill Boston Pike County Washington D.C. Albuquerque New York Incheon Wellington Taiwan Queensland Prague Singapore Guangzhou Shenyang Sao Francisco Guandong Melbourne Bangkok Merida Malta Growth Markets = 35% Water Energy

 


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Smarter Cities Showcase Clients – 2010 Major Markets = 51% Public Safety Transportation Healthcare Education Chicago Madrid Barcelona Manitoba Toronto Edmonton Madison County Hessen Memphis Richmond Westphalia Amsterdam Venice Parma Helsinki Zurich Eindhoven Milan Stockholm London Nettuno Corpus Christi Dubuque Washington D.C. Sacramento Galway Brescia San Antonio San Francisco Austin Houston Dallas Copenhagen Dublin Brittany Toronto Chapel Hill Boston San Diego Pittsburgh Ottawa Louisiana Valencia Vancouver Cardiff Hamburg Pike County Calgary Rotherham Paris Clark County North Dakota Alameda Odense Madrid Tokyo Kingston Albuquerque Chesapeake New York Coventry Guizhou Parana Mumbai Sao Franscisco Shanghai Sao Paolo Guandong Melbourne Tel-Aviv Merida Fischer City Zagreb Minhang West China Yunnan Ho Chi Min City BH City Incheon Chongging Sichuan Can Tho Wellington Taiwan Queensland Prague Guangzhou Singapore New Dehli Fukuoka Shenyang Darwin Wollongong Maribor Santiago Pakistan Nairobi Puerto Rico Pavia Lima Jakarta Bolanzo Bangkok Rio de Janeiro Malta Chaoyang Beijing Growth Markets = 49% Water Energy Telco Social Services

 


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More than 2000 Smarter Cities Engagements in 2010 Transportation Energy Public Safety Healthcare Water Education Telco Social Svcs Buildings Govt Svcs By Industry Growth Markets Japan North America Europe By Geography Total = 2133 309 348 101 416 35 154 101 29 74 566 645 153 888 447

 


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Rio de Janeiro – City Crisis Management Center New Center Helps City Monitor and Respond to Emergency Situations Initial Focus - Prevent Deaths from Annual Flooding Expanded to Monitor all Emergency Situations Analyzes Weather, Energy, Transportation, Building, and Water System Data in Real-Time Nationwide Adoption in Advance of Olympics and World Cup Key IBM Capabilities Deep Thunder Weather Modeling IBM Information Management Software IBM Public Safety and Security Solutions photos

 


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Client Value Industry Thought Leadership/Business Consulting Cloud Computing R&D Workload Optimized Systems Analytics Coalition/ Standards Industry Frameworks/ Software IBM Integrated Service Management for Cities Location-based Analytics Integrated City Management Systems Deep Thunder, Traffic Modeling Municipal Shared Services Cloud IBM Green Sigma Coalition 200+ Smarter Cities Events Globally What Distinguishes IBM in Cities Long-term Local Market Presence and Leadership Brazil, 93 years Japan, 76 years China, 32 years India, 19 years Local Ecosystem Development City Infrastructure Partners

 


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Competitively Differentiating – in Strategy and Execution $10B Revenue by 2015 Leveraging Higher Value Capabilities and Assets Smarter Planet

 


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Certain comments made in the 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 web site, or from IBM Investor Relations. Any forward-looking statement made during this event or in these presentation materials speaks only as of the date on which it is made. The Company assumes no obligation to update or revise any forward-looking statements. These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the Company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), certain materials presented during this event include non-GAAP information. The rationale for management’s use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information is included in supplementary materials entitled “Non-GAAP Supplementary Materials” that are posted on the Company’s investor relations web site at http://www.ibm.com/investor/events/investor0311. The Non-GAAP Supplementary Materials are also included as Attachment II to the Company’s Form 8-K dated March 8, 2011.

 


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Sales and Distribution: Growth Markets Bruno Di Leo General Manager, Growth Markets

 


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IBM in Growth Markets Latin America Australia / New Zealand ASEAN Greater China Group South Korea Central & Eastern Europe India / South Asia Middle East & Africa

 


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Russia China Vietnam South Korea Philippines Taiwan Brazil Chile Mexico Saudi Arabia South Africa Czech Republic Poland UAE Thailand Indonesia Singapore Malaysia India Australia GM20: investments in markets beyond BRICs Selection Criteria IT Market Size & Growth GDP Size & Growth IT as a % of GDP Macro-economic Environment Business Environment IT Environment Political Environment Human Capital Physical Infrastructure 2010 revenue @ CC BRIC +18% yr/yr GM20 +10% yr/yr

 


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IBM Growth Markets 2010 performance What we told you last year Revenue growth, outpace major markets by at least 8 points Growth faster than the market Increase at least one point per year as a share of total IBM revenue Significant investments that differentiate IBM and beyond BRICs Research Labs in Brazil, Australia – 1st in southern hemisphere China Institute for Electronic Government; China Energy & Utilities Solutions Lab; Natural Resource Solution Centers in Perth, Rio; expanded banking centers in Singapore, Sao Paulo; Business Resiliency Center, Ho Chi Minh; LA Micro-financing Hub, Lima 3 new countries, 42 new branches How we performed in 2010 Revenue growth +11% @ CC, outpaced majors by 10 points Gained market share, 40 countries grew double digits Increased 2 points to 21% of IBM geographic revenue

 


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5 IMF predicts developing countries will account for 50% of the global economy 40% of the world’s population will live in emerging market cities The number of people moving to urban areas every year = 10 New York Cities China will build another 45 airports over the next five years > $1T in infrastructure spending will be invested in Middle East economies Indonesia to spend $155B in infrastructure on toll roads and railways Asia Pacific will handle 68% of global container traffic Source: IMF, UN, Financial Times Growth Markets by 2015: investments in energy, technology, public services and infrastructure

 


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2015 Roadmap Objectives 2010 – 2015 ~ $17B incremental revenue Grow faster than market Outpace Major Markets growth > 8 pts Approach 30% of IBM geographic revenue Drive margin expansion IBM Growth Markets strategies Country / Market Selection Industry Leadership IT Infrastructure Development Market Expansion

 


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2000: Countries with IBM Branches Market Expansion 42 95 Countries with IBM Branches Branch Offices China: 80% IT opportunity outside major cities India: 63% IT opportunity outside major cities 2000

 


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 Market Expansion 2015: Countries with IBM Branches 42 95 53 218 78 451 Countries with IBM Branches Branch Offices ASEAN: 72% IT opportunity outside capital cities Brazil: 6 metro areas outside Sao Paulo, Brasilia, Rio with >$500M IT opportunity each China: 80% IT opportunity outside major cities India: 63% IT opportunity outside major cities 2000 2010 2015


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Branch Opening 4 Mar – Hohhot, Inner Mongolia Market Expansion Inner Mongolia one of China’s fastest growing regions with 2010 Regional GDP $177B +15% IBM helping with Hohhot’s Smarter City agenda

 


 

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http://www-07.ibm.com/in/city/gujarat/ahmedabad/index.html?ca=vbo_map Market Expansion Each branch on the web – Ahmedabad

 


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IT Infrastructure Development Examples of high-end systems and software solutions in support of economic growth Russia Taiwan Ministry of Finance

 


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Mexico securities depository speeds compensation and increases liquidity Russia’s largest water supplier manages budget automation with analytics China Wuxi government cloud computing platform to spur SW innovation Tanzania National Microfinance Bank transforms core banking Vietnam bank chooses z10 Mainframe to better manage risk and growth Australia National Broadband Network IT for core business functions IT Infrastructure Development Examples of high-end systems and software solutions in support of economic growth

 


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Russia Mature Emerging Repeatable Solutions Quality & Sustained Value Asset Creation & Replication New Deal Structures Cross Brand Teams Transformational IT Infrastructure Development Differentiated approach to services marketplace

 


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Pakistan, Ghana: Mobile Data Center field ready capacity for disaster recovery Korea: Desktop management cloud for 300 University Faculty and Researchers Russia, China: Flagship bank “Branch of the Future” to enhance user experience China: First Level IV Data Center with green and energy saving technologies UAE: State-of-the-art IT infrastructure for healthcare provider Singapore: Smart Business Desktop Cloud for consumer electronics maker Brazil: Rio De Janeiro disaster response information management center India, LA: Co-op bank extends micro-financing to deep rural locations IT Infrastructure Development Examples of infrastructure services in support of economic growth

 


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11 of the world’s top 20 banks by market cap are in Growth Markets Double healthcare spending to 2015 World’s largest and smartest electricity grid, world’s largest wind farms China nuclear plants:10 (today) 70 (2020) 150 (2030) 80 - 90% of all natural resource reserves in growth markets China, Russia, India = 3 of the world’s 6 largest rail companies 8B train trips per year China to invest up to $600B in high speed rail through 2015 China Ministry of Rail 4M, India railways 1.6M employees Source: Government reports Industry Leadership Client value through focused industry leadership Banking Healthcare Energy & Utilities Natural Resources Transportation & Rail

 


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Industry Leadership Transportation across Growth Markets Rail IBM core systems handling growing traffic and demand China: high speed rail & ticketing Russia: consolidate data centers Kazakhstan: smarter freight & passenger operations India: manage, analyze, maintain train schedules New Zealand: analytics for rail safety, speed, reliability Airlines IBM innovative leader in online booking, baggage handling, analytics Expanded footprint in clients with new products / servives + 5 logos: Air China, Cathay Pacific, Garuda, Jet Airways, LAN

 

 


 

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Industry Leadership IT Infrastructure Development Market Expansion Source: Analyst reports  By 2015... Africa’s overall GDP will likely reach $2T Rising incomes will boost consumption to $1.1T 60 African companies will have revenues >$3B 10 IBM Countries 16 Bharti-Airtel Countries   4 IBM & Bharti-Airtel  Africa: the new growth frontier IBM and Bharti-Airtel

 


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IBM Growth Markets strategies drive margin expansion Leverage IBM global infrastructure New clients, new markets  High-end systems Leverage software acquisitions, increase mix Repeatable services assets  Transformational services deals Repeatable industry solutions Smarter Planet / Smarter Cities Country / Market Selection Industry Leadership IT Infrastructure Development Market Expansion

 


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  2010 – 2015 ~ $17B incremental revenue Grow faster than the market Outpace Major Markets growth > 8 pts Approach 30% IBM geographic revenue Drive margin expansion Delivering growth 2015 Roadmap  Investments that differentiate IBM Significant investments in growth strategies beyond BRICs  Prioritized 20 markets  Expanding beyond major cities  High-end systems   Software solutions  Large services projects  Investing in skills  Leading in Key Industries  Creating new IT markets Market Expansion IT Infrastructure Development Industry Leadership Growth Markets Summary

 


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Certain comments made in the 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 web site, or from IBM Investor Relations.  Any forward-looking statement made during this event or in these presentation materials speaks only as of the date on which it is made.  The Company assumes no obligation to update or revise any forward-looking statements.    These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together.  In an effort to provide additional and useful information regarding the Company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), certain materials presented during this event include non-GAAP information.  The rationale for management’s use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information is included in supplementary materials entitled “Non-GAAP Supplementary Materials” that are posted on the Company’s investor relations web site at http://www.ibm.com/investor/events/investor0311.  The Non-GAAP Supplementary Materials are also included as Attachment II to the Company’s Form 8-K dated March 8, 2011. 

 


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Services Mike Daniels Senior Vice President and Group Executive, Services

 


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IBM Services 2010 roadmap performance exceeded profit targets 2010 Roadmap Performance Highlights: Delivered over $8B of profit in 2010 39% of IBM’s segment profit 13% CAGR over roadmap period Over 50% of revenue growth from Growth Markets Growth markets 18% of Services revenue, grew signings by over 30% @CC in 2010 IBM Services in growth markets grew 1.5x faster than the market from 2006-2010 Services backlog of $142B Outsourcing backlog at $97B; growing over the roadmap period Total Growth Markets backlog up over $5B year to year in 2010 $5.0B $8.1B Total Services Pre-Tax Income: Global Business Services (GBS) and Global Technology Services (GTS) GBS GBS GTS GTS GAAP View 2006 2010

 


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Operational excellence in IBM Services surpassed 2010 objectives 2010 Roadmap Operational Highlights: Portfolio Increased asset / intellectual property (IP) content in solutions Standardization and automation in offering development and go-to-market to scale insights globally Creation of the Business Analytics and Optimization service line Delivery Delivery excellence drove quality service; Service Level Agreement attainment at 99.7%, improving over the roadmap period In GTS, Global Delivery Framework deployed across 60% of delivery population, driving first-year productivity improvement of 12% In GBS, deployed the next generations of Globally Optimized Delivery, driving improved utilization of 10 points ’06-’10 CAGR 14% ’06-’10 CAGR 11% GAAP View GTS Pre-Tax Income ($B) $3.3 $5.6 2006 2010 GBS Pre-Tax Income ($B) $1.7 $2.6 2006 2010

 


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IBM Services will continue to lead by pursuing new opportunities presented by monumental shifts in market dynamics and client demands Next-generation analytics 80% data growth is unstructured1b Growth Markets Emerging markets, led by China, will continue to drive global IT spending growth, with 2.6x the growth rate of developed markets, contributing over 50% of all new growth2a Big Data ‘Digital universe’ will grow to 1.8ZB in 2011, up 47% from 2010, and rocketing toward over 7ZB by 20152a Cloud Computing 2011 spending on private IT cloud services is $13Bgrowth over next four years will exceed public clouds' 26% annual growth2a Smart IT By 2015, information-smart businesses will increase recognized IT spending per head by 60%1a Sustainability Data Centers can consume more than 40x the energy of offices they support1b Sources: 1 – Gartner, 2 - IDC Security Security and vulnerability management remains robust because the vast majority of these solutions support regulatory and policy compliance needs2b Mobile Enterprise By 2013, 80% of businesses will support a workforce using tablets1a Social Business Computing By 2015, 40% of large enterprises will have a corporate "Facebook," for circulating both business and personal data1c

 


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IBM Services is poised to capture growth and attain its 2015 roadmap objectives, building on the success of the 2010 roadmap Foundation for delivering growth to achieve 2015 objectives: Smarter Planet solutions provide tangible value to clients and generate profit for IBM Growth Markets continue to drive ~50% of incremental revenue by 2015 Cloud computing will drive ~$7B IBM revenue by 2015 Business Analytics and Optimization revenue for IBM will grow to ~$16B by 2015 and is fueled by software, services and optimized systems ’10-’15 CAGR 8% - 10% ~ ’10-’15 CAGR 8% - 10% ~ GBS Operating Pre-Tax Income* ($B) GTS Operating Pre-Tax Income* ($B) *Non-GAAP View $2.5 $1.9 $4 2006 2010 2015e $3.4 $5.5 $8 2006 2010 2015e

 


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Smarter Planet offerings bring new value to clients and IBM Assets Deliver New Forms of Value Smarter Planet Offerings Comprised of pre-defined set of assets, including Global Business Services code assets and IP Differentiated industry-specific offerings, based on software industry frameworks and products Supported by assets that accelerate solution development and delivery Smarter Commerce Smarter Refinery Smarter Cities value to clients: More predictable outcomes Faster time to value Higher quality delivery value to IBM: Higher margin Lower risk based on proven assets More predictable time to value

 


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Growth Market opportunities also play to IBM Services’ strengths, including its global footprint, integrated delivery capabilities, and IBM Research Expected to account for ~25% of 2015 Services revenue and ~50% of incremental revenue through 2015 Leveraging industry and infrastructure expertise IBM Research labs in the Growth Markets Russia Latin America Australia / New Zealand ASEAN Greater China Group South Korea Central & Eastern Europe India / South Asia Middle East & Africa IBM India Research Lab IBM China Research Lab IBM Brazil Research Lab Westpac IBM Australia Research Lab

 


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Cloud is both a transformational IT trend and opens new opportunities for IBM IBM Cloud Strategy & Opportunity Most of the opportunity is enterprise transformation from traditional IT to cloud Cloud also enables new business models – an opportunity in which IBM is investing IBM uniquely positioned with end-to-end capabilities Consulting & Implementation services Leading Hardware, Software & Research Managed Services across workloads Leading industry & process expertise Cloud will be ~$7B in 2015 (~$3B incremental) Infrastructure to business solutions in multiple deployment models Business Services Platform Infrastructure Managed Services Consulting and Implementation Services

 


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IBM is leading the enterprise transformation to cloud Enterprise Cloud adoption presents unique challenges Integration of cloud and traditional IT Migration over time Security and compliance issues Global business process transformation Cloud Implementation in the Enterprise is an Evolution, not a Revolution Traditional IT VIRTUALIZE Increase Utilization STANDARDIZE Operational Efficiency AUTOMATE Flexible delivery & Self Service SHARED RESOURCES Common workload profiles CLOUD Dynamic provisioning for workloads

 


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IBM has unmatched capabilities to help enterprise clients move to cloud IBM’s business from virtualization-capable hardware, software and virtualized service delivery environments $30B For more than 4,000 clients in the IBM Cloud 13B security events managed/day Private Cloud On the IBM Cloud Provisioned for the cloud in less than one hour by IBM software Engaged enterprises to transform to cloud 2K enterprise clients in 2010 5K virtual servers

 


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IBM has built a powerful set of business services in the IBM Cloud Marketers across 4 continents utilize IBM Marketing Operations on demand daily on the IBM Cloud Consumer interactions managed in 2010 on the IBM Cloud Client transactions managed per business day on the IBM Cloud 35K 6B 4.5M North American shipping carriers use the IBM Cloud 9K Supply Chain Retail/ Marketing

 


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Global Technology Services Erich Clementi Senior Vice President, Global Technology Services

 


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IBM Global Technology Services is well positioned to achieve $8B of profit in 2015 by growing revenue with or better than the industry while expanding margins 2015 Roadmap Drivers: Revenue Growth Growth Markets account for ~60% of GTS incremental revenue through 2015 Standardized and automated offering development and go-to-market drive new business and base growth New opportunity from market shifts, like cloud computing Operating Leverage Continued productivity through Global Delivery Framework Standardizing and automating delivery processes improve efficiency, quality, and client satisfaction Enterprise productivity ~$8B $5.5B ’10-’15 CAGR 8% - 10% GTS Operating Pre-Tax Income* ($B) *Non-GAAP View

 


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GTS continues to lead and transform the IT Services market 2006-2010 2000-2005 2011-2015e Custom Primarily custom, one-off engagement model Era of “mega-deals” in Strategic Outsourcing Established Global Technology Delivery organization Global Delivery Center professionals <12% Standardization 35+ years of data center experience; ~8M sq. ft., 430+ data centers 700+ clients supported by the Global Delivery Framework; driving 12% productivity improvement in year one Defect prevention reduces problem tickets 10% Client Quality Metrics Portal offers clients real-time insights Global Delivery Center professionals >30% GTS Gross Profit up 5 points from 2006 to 2010 Automation and Engineering Engineering offering development, go-to-market, and delivery processes Scale enterprise cloud capabilities across the spectrum of services Accelerate infusion of technologies into offerings Dedicate +200 Researchers via Services Innovation Lab Global Delivery Center professionals >50%

 


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GTS continues to lead and transform the IT Services market 2006-2010 2000-2005 2011-2015e Custom Primarily custom, one-off engagement model Era of “mega-deals” in Strategic Outsourcing Established Global Technology Delivery organization Global Delivery Center professionals <12% Standardization 35+ years of data center experience; ~8M sq. ft., 430+ data centers 700+ clients supported by the Global Delivery Framework; driving 12% productivity improvement in year one Defect prevention reduces problem tickets 10% Client Quality Metrics Portal offers clients real-time insights Global Delivery Center professionals >30% GTS Gross Profit up 5 points from 2006 to 2010 Automation and Engineering Engineering offering development, go-to-market, and delivery processes Scale enterprise cloud capabilities across the spectrum of services Accelerate infusion of technologies into offerings Dedicate +200 Researchers via Services Innovation Lab Global Delivery Center professionals >50%

 


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GTS continues to lead and transform the IT Services market 2006-2010 2000-2005 2011-2015e Custom Primarily custom, one-off engagement model Era of “mega-deals” in Strategic Outsourcing Established Global Technology Delivery organization Global Delivery Center professionals <12% Standardization 35+ years of data center experience; ~8M sq. ft., 430+ data centers 700+ clients supported by the Global Delivery Framework; driving 12% productivity improvement in year one Defect prevention reduces problem tickets 10% Client Quality Metrics Portal offers clients real-time insights Global Delivery Center professionals >30% GTS Gross Profit up 5 points from 2006 to 2010 Automation and Engineering Engineering offering development, go-to-market, and delivery processes Scale enterprise cloud capabilities across the spectrum of services Accelerate infusion of technologies into offerings Dedicate +200 Researchers via Services Innovation Lab Global Delivery Center professionals >50%

 


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Engineering our services approach enhances client value, delivery quality, and price competitiveness, providing new sources of revenue growth Go To Market Offering Delivery Modernizing the Sales Engagement Process Bringing in the best of IBM Base Growth Initiative Expanding innovation partnerships with top 100 SO accounts Offering Management & Development GTS offering development organization creating scalable, market-leading offerings Cloud computing, services management, Information Lifecycle Management Global Delivery Framework Improving quality and productivity in services delivery In December 2010, SO SLA at 99.7% 10% reduction in problem tickets due to proactive defect prevention in 2010 Delivery Technology & Engineering ~50 IBM Fellows & Distinguished Engineers ~200+ Senior Technical Leaders Accelerating automation capabilities 5-Year agreement for IT infrastructure services Data center services and expanding with cloud Enterprise strategic sourcing and HR BTO agreement

 


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GTS capabilities provide clients with choices in addressing market dynamics and their most pressing problems Information Protection Maintenance & Technical Support Server Management Storage Management Big Data Business Continuity & Resiliency Information Protection Integrated Service Management Security Services Security IT Strategy & Design Site & Facilities Services Global Process Services Information Management Middleware Services Global Business Services Next-generation Analytics Sustainability End User Services Mobility Services Service Desk Unified Communications Mobile Enterprise Cloud computing Global Process Services Strategic Outsourcing Smart IT

 


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GTS is leading the transformation of enterprise IT with the most complete set of cloud offerings Business Services Platform Infrastructure Managed Services Consulting & Implementation Services Run Services - Managed Security Services - Information Protection Services - Software and Business Process as a Service Build Services Service Delivery Manager Cloud Service Provider Platform Development & Test Cloud Storage Cloud Desktop Cloud Design Services Infrastructure Strategy and Design Data Center Strategy Networking Strategy Professional Security Services Strategy & Change Services (GBS)

 


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The IBM cloud platform is designed to meet enterprise requirements IBM enterprise cloud platform Integrated Service Management Integrated Security Dedicated or Shared Environments Entire Application Lifecycle: Development through production Broad Set of Workloads Business Services Platform Infrastructure Managed Services Consulting & Implementation Services

 


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A full spectrum of GTS services supports client needs while seamlessly integrating traditional and cloud delivery models for client value Traditional Delivery Cloud Delivery Remote Server Management Project-Based Services Co-Location Managed Services Strategic Outsourcing Global Process Services IBM enterprise cloud platform “Help me with some tasks” “Monitor my servers” “Host my Server” “Manage my Server” “Manage my apps” “Take IT off my hands” “Run my Process”

 


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IBM Business Analytics & Optimization; Global Business Services Frank Kern Senior Vice President, Global Business Services

 


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7% CAGR 6% CAGR 3% CAGR Source: IBM Market Insights (BAO includes Non-IT) $155B $208B 6% CAGR $82B $114B $75B $57B $16B $19B Business Analytics and Optimization drives $11B ~$16B 9% CAGR Significant Opportunity Cross-IBM Revenue Growth

 


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 Why analytics matter CIOs rank analytics as the #1 factor contributing to an organization’s competitiveness. – CIO study 2009 Financial outperformers are 64% more likely to use analytics to evaluate talent supply and demand on an ongoing basis. – CHRO study 2010 Enterprises that apply advanced analytics have 33% more revenue growth and 12X more profit growth. – CFO study 2010 Eight out of ten CEOs expect complexity to increase significantly in the next five years; insight and intelligence is ranked a top 3 priority. – CEO study 2010 Top-performing enterprises use business analytics 5 times more than lower performers. – 2010 joint study, MIT and IBM Institute for Business Value

 


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IBM is making unmatched investments to lead the BAO market Investment Consulting Capability Technology Client Engagement Research 500 analytics patents/year World’s largest math department in private industry $14B for 25 acquisitions since 2005 8 Analytic Solution Centers worldwide 7,800 consultants delivering IBM solutions Over 100,000 training days of education Power7: workload optimized analytic processing Smart Analytics cloud 720 Information Agendas delivered to clients 325 analytics strategy engagements Experts & Expertise 5,500 PhDs 77,000 Masters degrees 69 IBM Fellows 516 Distinguished Engineers 1,000 Researchers dedicated to Services and analytics 200 person Research & Services asset lab 25 Researchers dedicated four years to creating Watson

 


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Optimized Systems Solutions Predictive Analytic Solutions 2009 Advanced Customer Analytics 2009 National Security Services 2010 Advanced Online Web Analytics 2010 Addressing the full breadth of the BAO market category Optimized Business Performance Leverage information to better understand & optimize business performance Trusted Information Establish accurate information for a single version of the truth, managed over time Integrated Data & Content Management Manage data & content over its lifecycle and as part of processes Database Monitoring Solutions 2009 + Exeros Master Data Mgmt Solutions 2010 Data and Document Capture 2010 2010 Integrated Risk Management 2010 On Demand Web Analytics Governance Information 2010 2010 Corporate Performance Management BI & Performance Management 2008 Business Rules Optimization 2008 2010 Real-time, In Memory Data Management 2008 Identity Resolution 2005 Enterprise Data Integration 2005 Customer Data Integration 2005 Name Recognition 2006 Metadata Management 2006 Dynamic Data Integration 2007 Search & Content Management 2005 Business Process & Content Management 2006 Enterprise Data Management 2007

 


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Analytics fuel Smarter Planet solutions and unlock new client possibilities Advertising spend reduced 7% and increased sales and customer loyalty 50% reduction in commute time; estimated productivity savings $5M per day Personalized real-time promotions and improved revenues Customer retention increased 119%; revenue increased 187% Analytics reduced worldwide parts inventory by 10% Analytics inform the redesign of technical sensing capabilities Analytics-driven organizations understand, predict, and act to optimize business outcomes AssurSolnlogo.jpg

 


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Retail Banking and Financial Markets Healthcare Government Providing automated and intelligent investment advisory services for the masses of newly prosperous citizens in emerging and mature markets. Allowing retailers to both "hear" the global conversation about their products, services and brands, and then determine the right answer to questions like: "What is our next best action with Jane Smith?" Creating a massively intelligent physician’s assistant that compares the symptoms of an individual patient with millions of related case histories to suggest the most accurate diagnoses. Enabling agencies of all kinds to immediately answer citizens' questions on myriad issues, from zoning regulations to licensing requirements or eligibility for specific services. After Watson: What is . . . Our clients’ greatest possibility?

 


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The GBS model combines revenue growth with margin expansion Revenue Growth At or above market Aligned to IBM’s growth initiatives Represents over 60% of growth Differentiated cross-IBM solutions Asset-enabled revenue Growing to >50% Margin Expansion Enabled by asset deployment Globally Optimized Delivery Differentiated Solutions Operational Excellence 2015 Roadmap Drivers GBS Operating Pre-Tax Income* ($B) ’10–’15 CAGR 8% - 10% *Non-GAAP view $2.5 ~$4.0 2010 2015e

 


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Fraud and Abuse Management Tax Audit & Compliance System Corporate Brand & Reputation Analysis Dynamic Inventory Optimization Merger & Acquisition Accelerator Advanced Customer Insight Assets drive client value Merger & Acquisition Accelerator Major U.S. exchange carrier $50M in annual capital spending synergies $1M GBS contract led to $20M in 2011 pipeline 20 client engagements and growing Asset content drives revenue growth, client value, business outcomes Fraud and Abuse Management 25 signings in 2010 70 total client projects Healthcare, Insurance, Tax Collection Expanding to property & casualty insurance, insider security threat detection Solutions enabled with Assets drive 2+ points higher margin

 


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Delivery Excellence Predictive analytics applied to 23K projects Flagged 8K projects with "green light" evaluations 1K projects added to “watch list” for management attention/pre-emptive action Contributed to overall $130M delivery excellence improvement in 2010 Margin Expansion Eliminated 20K hours in procurement system overhaul for major global retailer Delivered $1M profit to IBM 50 engagements Application Assembly Optimization Application Development Implementation ERP Solution Workbench Optimatch Delivery Excellence Predictive Analytics Test Planning Optimization Workbench Assets drive operational excellence Asset content drives productivity, operational excellence, margin

 


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Global consistency in solutions, proposals, asset deployment Increased win rates, delivery quality, profit Contributed significantly to GBS and IBM signings Global Centers of Competence Tools and methods developed with Research for application productivity Deployed to all GBS strategic global delivery centers 15-20% productivity improvement in service delivery Application Assembly Optimization Method for process improvement and productivity output Trained practitioners 2010 – 15%; 2011 – 25%; 2015 -- >50% LEAN Methodology 32 Fifth generation Globally Optimized Services delivery Application Assembly Optimization Standardized global solution creation and asset deployment LEAN process methodology Business Analytics Process and technology innovation 12 Global Centers of Competence Global Services Integration Hubs

 


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IBM Services has unmatched competitive advantages IBM Services is uniquely positioned to resolve clients' most pressing problems and realize their greatest possibilities, today and in the future Superior value of IBM's end-to-end portfolio -- Research, Software, Systems and Services Thousands of Smarter Planet engagements provide the most informed industry points of view Unparalleled abilities to assemble and integrate business analytics into industry frameworks Leadership in enterprise cloud computing Unequalled global delivery and go-to-market capabilities in developed and growth markets

 


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Sources for Chart 4: IBM Services will continue to lead by pursuing new opportunities presented by monumental shifts in market dynamics and client demands Gartner Sources 1a: Gartner Research Note: Gartner's Top Predictions for IT Organizations and Users, 2011 and Beyond: IT's Growing Transparency, Brian Gammage, Daryl C. Plummer et al. ID Number: G00208367, Nov 2010. 1b: Gartner Symposium: Infrastructure & Operations: Top 10 Trends to Watch, David Cappuccio, SYM20_117, Oct 2010. 1c: Gartner Research Note: Predicts 2011: When Social and Business Processes Collide, David Mario Smith, Nikos Drakos et al, ID Number G00209204, Nov 2010. IDC Source 2a: IDC, “IDC Predictions: Welcome to the New Mainstream” Doc #225878, Dec 2010. 2b: IDC, “Market Analysis Worldwide IT Security Products 2011-2014 Forecast and 2009 Vendor Shares: Comprehensive Security Product Review” Doc #226923, Feb 2011.

 


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Certain comments made in the 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 web site, or from IBM Investor Relations. Any forward-looking statement made during this event or in these presentation materials speaks only as of the date on which it is made. The Company assumes no obligation to update or revise any forward-looking statements. These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the Company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), certain materials presented during this event include non-GAAP information. The rationale for management’s use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information is included in supplementary materials entitled “Non-GAAP Supplementary Materials” that are posted on the Company’s investor relations web site at http://www.ibm.com/investor/events/investor0311. The Non-GAAP Supplementary Materials are also included as Attachment II to the Company’s Form 8-K dated March 8, 2011.

 


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Integrated Systems The Value of Integrated Software and Hardware Steve Mills Senior Vice President and Group Executive, Software and Systems

 


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 2010 Roadmap Performance: Total Software and Systems 2006 2010 $10.7B 8 pts of Margin Expansion Software Software and Systems Pre-Tax Income ’06–’10 CGR 10% Profit Performance Double-digit average annual growth Margin expansion of 8 points Contributed ~½ of IBM’s segment PTI growth Key Investments and Shifts Enhanced delivery capabilities and shifted technology investments toward higher growth areas, in support of 2015 game plan Growth Markets Integrated Systems Cloud GAAP View Business Analytics & Optimization Smarter Planet Acquisitions Systems Systems Software $7.2B © 2011 International Business Machines Corporation

 


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GAAP View 2010 Roadmap Performance: Software Performance 21% Margin 2000** 27% Margin 2006 2010 6 pts 36% Margin 9 pts $2.8B $5.5B $9.1B Pre-Tax Income 2000 2006 2010 + $5.6B $12.6B $18.2B Revenue $22.5B + $4.3B ’06–’10 CGR 13% ’00–’06 CGR 6% * Source: IBM Market Insights ’00–’06 CGR 12% ’06–’10 CGR 5% **Excludes Stock Based Compensation Expense A Decade of Growth Grew revenue 1.8X and profit 3.3X expanding pre-tax margin 15 points #1 Middleware Market Leader* Key Branded Middleware increased from 38% to 62% of Software revenues Acquired 70+ companies Increased number of development labs globally from 15 to 43 2010 Roadmap Performance Segment PTI 13% CGR to $9B in 2010 9 points of PTI Margin expansion Launched high growth initiatives Smarter Planet solutions Business Analytics & Optimization

 


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2015 Roadmap: Software Segment Software will Grow Operating Profit by $8B +1.4X Strategic Acquisitions Base Revenue Growth 2015e 2010 Operating Leverage Proven track record of profit growth Continued investments in high-growth areas Software positioned to contribute ~50% of IBM’s segment profit by 2015 2000 2006 2010 $2.6B $5.7B $9.5B Operating Pre-tax Income 2015e ~$17B Non GAAP View +1.6X ’06–’10 CGR 13% ’00–’06 CGR 14% ’10–’15 CGR 12-15% +2.2X +1.8X

 


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Different Workloads Have Different Characteristics BUSINESS INTELLIGENCE AND ANALYTICS TRANSACTION PROCESSING AND DATABASE BUSINESS PROCESS MANAGEMENT Fewer users Complex queries Multiple data sources Large data warehouse Thousands of online users Large transactional databases 24x7 operation Unite content, people and process flows Orchestrate multiple services Empower business users

 


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Optimize Workloads Volume, Velocity and Variety of Information Drives the Requirements of Diverse Workloads Understand workload characteristics Purpose built Workload optimized system design (hardware & software) Best fit approach Workload Attributes System Requirements Optimal System Design 1. Drive 2. Impact 3. Optimize

 


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Optimized Systems Flexible Focused Optimized by Design Packaged Solutions Appliances Capability IBM WebSphere Datapower XC10 Appliance IBM Netezza TwinFin IBM Smart Analytics System 7600 IBM DB2 & WebSphere on IBM POWER System Install Time Days Weeks Days Hours Technical Skills Required Deep Product and Performance Tuning Knowledge Basic Product Knowledge Little or No Product Knowledge

 


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Anatomy of an Optimized System: Power7 Example 2x transistor density 28% transistor speed 4x array density 45nm SOI Semiconductor Technology

 


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Anatomy of an Optimized System: Power7 Example Balanced design: Power, Speed, Cost Integrated L3 cache Extensive RAS 4x cores, 8x threads 8x FLOPs/chip Up to 7x performance per chip in real applications 45nm SOI Semiconductor Technology Power7 Microprocessor Design

 


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Anatomy of an Optimized System: Power7 Example 99.997% uptime Designed for 90%+ utilization 45nm SOI Semiconductor Technology Power7 Microprocessor Design Power Systems Design Modular, rack-opt and scalable systems High bandwidth memory Enterprise Reliability, Serviceability and Availability (RAS) IBM Power 7 Family of Servers

 


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Anatomy of an Optimized System: Power7 Example Hardware-based virtualization Memory expansion EnergyScale technology Dynamic thread and memory optimization Memory affinity +10 - 15% single thread boosted performance +10% on OLTP due to affinity option Up to 2x effective memory expansion 40 - 110% nominal frequency scaling 45nm SOI Semiconductor Technology Power7 Microprocessor Design Power Systems Design Virtualization & Operating Systems

 


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Anatomy of an Optimized System: Power7 Example Custom Power7 optimization Non-Uniform Memory Access (NUMA) aware memory management Up to +50% serial performance +10 - 15% OLTP and ERP +18 - 50% on HPC applications +15 - 25% on 64-bit Java 9 - 10x on RSA crypto 45nm SOI Semiconductor Technology Power7 Microprocessor Design Power Systems Design Virtualization & Operating Systems XL Compilers & IBM Java Virtual Machine

 


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Anatomy of an Optimized System: Power7 Example 45nm SOI Semiconductor Technology Power7 Microprocessor Design Power Systems Design Virtualization & Operating Systems XL Compilers & IBM Java Virtual Machine IBM Optimized Middleware Threading and memory management Clustered memory and lock management +85% WebSphere scale-up performance Up to 6x parallelism in WebSphere Protection keys enable fast and reliable user code DB2 pureScale scales out nearly linearly Results IBM Power Systems have recorded more than 100 industry-leading performance benchmarks Average 5x throughput increase on 2x circuit density

 


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IBM Smart Analytics System Better Performance at Lower Cost 240% More complex reports per hour 41% More intermediate reports per hour 17% Lower Total Cost of Acquisition (TCA) 0.75 0.22 33.5 23.75 $1,744,250 $2,120,900 Complex Reports per Hour 2TB (Higher is better) Immediate Reports per Hour 2TB (Higher is better) Cost – 3 year TCA System List Price IBM Smart Analytics System 5600 Competitor

 


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 IBM Netezza TwinFin™ Data Warehouse Appliance For Faster Installation and Operation Dedicated High Performance Disk Storage Blades With Custom FPGA Accelerators Workload optimized for high performance analytics Deeply integrated hardware, software and storage to greatly simplify and accelerate deployment Appliance simplicity Focused appliance ideal for departmental data warehouse solutions and for satellite data marts Installs in hours Requires no tuning and minimal administration Petascale data capacity

 


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IBM Workload Optimized Solution Examples Infrastructure Data Management Application Development Cloud Security IBM Cloudburst Private Cloud WebSphere DataPower Cast Iron XH40 Cloud Integration IBM Smart Analytics System 7600 Business Analytics IBM DB2 & WebSphere on IBM Power System WebSphere Cloudburst Appliance WebSphere App Server IBM Rational Power Appliance for AIX Appl Development Solution IBM Proventia Family Security Appliances IBM WebSphere DataPower Family SOA Appliances IBM Netezza TwinFin Data Warehouse

 


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 Sprint estimates that it saved between 300 and 500 percent over the cost of a server-based software solution. WebSphere DataPower Integration Appliance XI50 “Within 24 hours we were up and running. I’m not exaggerating, it was that easy” eHarmony IT executive IBM Netezza Boosts performance of its SAP ERP system by 20% and reduces database storage costs by 50% when Plansee migrated its SAP data to IBM DB2 for AIX running on IBM Power Systems IBM Smart Analytics System Enabled a shift for merchandisers from performing low-value activities, such as data gathering, to higher-value analysis of product placement, performance and customer preference “ it’s a 1-hour process instead of two days.” Dillard’s analyst IBM DB2 on IBM Power System

 


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 Smarter Computing Use of hardware and software technologies to increase operational efficiencies and optimize workload performance while reducing Total Cost of Ownership Doing More for Less

 


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Middleware Transforming Computing Robert LeBlanc Senior Vice President, Middleware Software

 


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IBM Delivers Software that Provides Clients the Capabilities Required to Transform Their Industries IBM Software Capabilities Connect & Collaborate Business Integration & Optimization Product & Service Innovation Operations Effectiveness & Efficiency Risk, Security & Compliance Information into Insights s Delivered through our Middleware

 


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IBM Software Middleware Market Leader $78B $127B #1 IBM #1 IBM Profit more than tripled since 2000 $29B R&D, $20B+ Acquisitions (2000-2010) 43 Labs, 35K Developers 20K+ Software Patents since 2000 17K Business Partner organizations Systems Level Thinking “Big Data” analytics Information Integration Cloud Computing Integrated optimized systems InfoSphere BigInsights Continuing Growth & Investment 2000 2010 Branded Middleware IBM Software Revenue 2000 2010 Middleware Marketshare New Opportunities $22.5B $12.6B

 


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Virtualized Standardized Automated End-to-end capabilities Public Hybrid Private Business Services Platform Infrastructure Managed Services Consulting and Implementation Services Collaborative business process design Real-time analytics Pre-configured workload patterns Automated application virtualization Automated Service Provisioning & Management Security across data centers Dynamic elasticity Client Engagements >2K successful cloud engagements in 2010 50% of Fortune 10 and Fortune 50 working with IBM on private clouds >80% of Fortune 500 companies using IBM cloud capabilities Managing >1M virtual machines worldwide >18M SaaS users Continuing Leadership Recognized as cloud computing leader by analysts 11 Cloud Labs worldwide >200 IBM researchers working on cloud security and privacy Software-Enabled Cloud Computing

 


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Clients are Realizing the Value from Cloud Computing Connecting & Empowering People 120 hours per year, per employee productivity gains Transforming the Data Center By reducing 18 data centers to 3, achieved end-to-end lifecycle management, reduced cost and risk, and improved time-to-market Collaborative Business Process Design 90% reduction in customer complaints Cost savings of $2.2M Transforming Customers’ Business Models AT&T Cloud platform supports network-resident applications and services Integrated orchestration across IT and VPN provides business-class cloud services IBM Cloud Service Provider Platform IBM BPM BlueWorksLive IBM LotusLive IBM Tivoli Service Automation Manager

 


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Turning Information Into Insights Information Integration & Governance Content Management Unstructured information Database Software Structured information $8B 2015 Opportunity Growth: +6% CAGR Business Analytics & Optimization Business intelligence Advanced analytics Financial performance management $21B 2015 Opportunity Growth: +2% CAGR $28B 2015 Opportunity Growth: +7% CAGR $18B 2015 Opportunity Growth: +8% CAGR Source: 1H11 Market Insights CAGR 2010-15 Business Momentum $14B in IBM Business Analytics & Optimization acquisitions since 2005 5K Information Server installations >38K professionals gained recognized skills across IM and BAO in 2010 >1K Information Agenda client workshops (2009-2010) Leadership Leader in 15 key analyst comparisons across IM, ECM and BAO Watson leverages DB2, Content Analytics and Information Integration capabilities Competitive Edge >1K Oracle Database customers chose DB2 instead in 2010 Netezza selected 84% of the time over competition based on Proof of Concept

 


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Clients are Turning Information into Insights One of the biggest insurance companies in the China Established 1996 Life, pension, health 3.5M customers 120 branch offices Siloed Information Disparate applications Many departments Information in different formats Before After Single view of trusted data 360-degree view of customers Real-time reporting New applications deployed faster First insurance company in China to achieve nationwide integration 10 employees Several weeks

 


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Information Integration & Governance Unstructured Information Structured Information Business Analytics & Optimization $10M-$20M Annual Savings from Cost Reduction, Fraud Prevention, New Revenue, Service Improvement Efficient Data Infrastructure DB2 $340K annual savings 12% lower environmental costs Improved Customer Service FileNet, DataCap $3M annual savings ~50% increase in productivity Single View of the Customer InfoSphere Saved $11M in first year & more to come Eliminated 14K cases of double billing 600+ multiple customer instances 22K instances wrong service delivery to customer Real-time view of the business Cognos Saved $7M in first year & more to come Real time instead of days for reporting Oakland, California-based agency Serves 1.5M citizens, handling 200k requests daily Promoting the social and economic well-being of their citizens

 


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Software Solutions Capturing the Growth Mike Rhodin Senior Vice President, Software Solutions

 


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Why analytics matters Finance organizations with business insight All other enterprises > 12x more Profit Growth 33% more Revenue Growth 32% more Return on Invested Capital 12.5% 9.4% 7.3% 0.6% 11.9% 9.0% Business analytics is the key to enabling our clients to turn oceans of data into predictive models and actionable decisions Business Analytics and Optimization Source: IBM Global Business Services, The Global CFO Study 2010 1H11 IBM Market Insights $75B software opportunity in 2015

 


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Smarter Commerce is a smarter way for companies to buy, sell, and market their products, by integrating operations and enhancing interactions through community, collaboration, process, and analytics - all within an industry context. 85% of CEOs want to gain more visibility into their businesses – IBM CEO Study 2010 57% of CEOs want to better understand customer needs – IBM CHRO Study 2010 Why Smarter Commerce matters Smarter Commerce $20B commerce software opportunity in 2015 Source: 1H11 IBM Market Insights

 


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Industry Solutions enable us to focus on making our clients successful in their own industries, and has allowed us to identify new opportunities, new buyers, and new markets Memphis Police Department Reduced city crime rate by 27% over 4 years Infinity Property & Casualty Corporation Achieved a 400% return in just three months Sun World International Decreased water usage by 8.5% since 2006, and reduced fuel usage by 20% Why Industry Solutions matter Industry Solutions Growing almost 2X traditional middleware market Source: 1H11 IBM Market Insights

 


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Growing almost 2X middleware market Industry Solutions Industry Solutions enable us to focus on making our clients successful in their own industries, and has allowed us to identify new opportunities, new buyers, and new markets Smarter Commerce Smarter Commerce is a smarter way for companies to buy, sell, and market their products, by integrating operations and enhancing interactions through community, collaboration, process, and analytics - all within an industry context. Business Analytics & Optimization Business analytics is the key to enabling our clients to turn oceans of data into predictive models and actionable decisions. New Markets, New Solution Spaces $75B software opportunity $20B commerce software opportunity Source: 1H11 IBM Market Insights

 


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Systems and Technology Continued Innovation Rod Adkins Senior Vice President, Systems and Technology Group

 


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2010 Roadmap Performance: Systems and Technology *Sources: IDC WW Quarterly Server Tracker (02/28/11); IDC WW Quarterly Disk Storage Tracker (03/03/11) FY 2010 – Turnaround Year for STG Revenue Trend 1Q09 to 4Q10 YTY 2010 Roadmap Performance Highlights IBM revenue share*: System z: +2.6 pts since 2008; +5.9 pts in 2010 UNIX: +13.5 pts since 2006; +9.4 pts since 2008 x86: +2.1 pts since 2008 External disk: +.6 pt since 2008 Improved competitiveness and enhanced business execution Pre-Tax Income

 


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2010 Highlights System z Revenue grew 16%, MIPS grew 22% Gained 61 new accounts Power Systems 5.1 pts revenue share gain* Nearly 1,200 competitive takeouts, generating almost $1B Storage 975 new clients with XIV Continued to enhance data efficiency portfolio Microelectronics OEM revenue up 25% from networking, wireless communications, game consoles Retail Store Solutions Revenue grew 22% extending leadership in point of sales Systems Software Strong growth in virtualization and systems management System x Revenue grew 27%, 5th consecutive quarter of double-digit growth Expanded margin 3 pts © 2011 International Business Machines Corporation Overall Strong Results: 11% Revenue Growth, 12% PTI Growth Systems Networking Strong core networking relationships Blade Network Technologies acquisition for data center integration *Source: IDC WW Quarterly Server Tracker (02/28/11)

 


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Systems are designed Data is analyzed and managed IT is delivered and consumed Our Systems Environment IT infrastructure has reached a new inflection point New business requirements and economic pressures are driving the need for continued innovation and changes in the way: Workload optimized Fully virtualized Trusted and highly secure Efficiency and insights Pre-integrated Cloud

 


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INVEST Smarter Computing Growth Markets Analytics Cloud Smarter Planet TRANSFORM Go-To-Market Supply Chain Optimization Technology Innovation Workload Optimized Systems Information Management Service Delivery DELIVER Systems and Technology Group Strategy Deliver operating pre-tax income long-term growth model: 6% to 8% MARGIN EXPANSION REVENUE GROWTH

 


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IBM’s Differentiation: Systems Stack Integration and Optimization Storage Networking Servers Applications IBM Middleware IBM Tivoli and Systems Director VM Control Energy Manager Operating Systems zOS, zLinux, AIX, i Linux, Windows Hypervisors zVM, PowerVM VMWare, KVM, Hyper-V, Xen IBM Server Architectures z, Power, eX5 Processors IBMz, Power x86 Applications IBM Middleware Database Content Files Tivoli Storage Manager and Systems Director Recovery HSM Archive Operating Systems Data Efficiency Deduplication, Compression Virtualization, Encryption, Analytics, Tiering IBM System Storage Disk Systems Tape Systems Storage Devices Disk Drives Flash Tape Applications IBM Middleware IBM Tivoli and Systems Director Network Control VMControl Operating Systems zOS, zLinux, AIX, i Linux, Windows IBM System Network Infrastructure IBM Adapters Industry Adapters and Integrated and Integrated Switches Switches IBM Data Center Industry Network Core Switches Switches and Routers Network Industry Network ASICs Processors and Processors Hypervisors zVM, PowerVM, VMWare, KVM, VMready Hyper-V, Xen

 


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Our Sustained Investment Drives Technology Innovation and Systems Leadership Systems Investment $3B annual investment in R&D for hardware design and systems software Innovation and integration at every layer of systems stack – semiconductor technology thru application optimization * See Benchmark Footnotes page. Patent Leadership IBM: 18 years as U.S. patent leader with record 5,896 in 2010 Approximately 2,860 earned by STG for hardware design and systems software Strategic Acquisitions XIV / Diligent: Contributed to storage growth and market differentiation Storwize / Blade Network Technologies: New opportunities in data efficiency and systems networking Benchmarks* Power7: #1 SAP; #1 transactional processing/core; #1 Java; #1 High Performance Computing System x: #1 virtualization Storage: #1 throughput; #1 bandwidth Growth Markets Systems and Technology Group accounted for 27% of IBM Growth Markets revenue in 2010 Grew 20% YTY Competitive Migrations Record 2,900+ competitive displacements to IBM servers and storage in 2010 More than 1,100 from Oracle/Sun and 750+ from HP

 


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FIRST HALF Real-time compression appliances DataPower for System z System x database blade, system networking Power7 High Performance Computing system Smart Analytics and Cloud updates Data Protection and Retention offerings System z Business Class, zEnterprise GA2 XIV, SONAS updates System x solutions updates New flexible form factor for systems Storwize V7000, DS8000, enterprise tape updates Systems Director updates for Power and System x 2011 Offerings Build on Momentum from 2010 Launches SECOND HALF Data center efficiency redefined Systems architected to transform IT Statements regarding IBM's future direction of product enhancements are subject to change or withdrawal without notice, and represent goals and objectives only

 


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Systems and Technology in the Growth Markets 53% of China 27% of Growth Markets 18% of IBM In 2010, STG revenue was Hardware establishes footprint in Growth Markets Hardware strategy to continue to deliver double-digit growth: Expanding into new countries and cities that are focused on IT infrastructure development Leading with high-end systems and in key industries Investing in skills and ecosystem Every dollar of Hardware revenue drives an incremental dollar of other IBM revenue Growth Markets % of IBM Geographic Revenue* 2010 2010 2010 2006 2008 2010 2015e 16% 18% 21% Approaches 30% * Revenue mix percentages exclude divestitures (PCD, Printers)

 


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High-End Systems in the Growth Markets Challenge Customs officers needed real-time access to country’s border checkpoints Solution New System z10 Business Class solution to transform import and export processes Benefits 70% better performance, 20% less power, 30% lower operating costs Senegal Ministry of Finance Brazil Australia Korea Namibia China India Romania Malaysia Russia

 


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2015 Roadmap: Systems and Technology Group ~$2B 2009 2015e $1.3B 2010 actual Non-GAAP view Operating Pre-Tax Income 2011-2015 $0.2B ~$0.6B Operating pre-tax income long-term growth model: 6% to 8% IT infrastructure has reached a new inflection point driving changes in the way: Systems are designed Data is analyzed and managed IT is delivered and consumed Our sustained investments in innovation drive differentiation and economic value Integration and deep optimization at every layer of systems stack STG gained momentum in 2010 By 2015, expect 40% of STG’s revenue to be driven by Growth Markets

 


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Positioned to contribute over $19B of operating profit Continue investment and shift to higher-growth areas Key Branded Middleware Systems Growth Market Expansion Continue Acquisition Strategy Differentiate through integration and optimization Workload Optimized Systems Integrated Server, Storage and Networking Stack Leverage leading Cloud capabilities Smarter Planet and Business Analytics & Optimization 2015 Roadmap: Systems and Software Business Services Platform Deploy consumer created or acquired applications on the Cloud infrastructure Consume business processes, analytics, applications running on Cloud infrastructure Infrastructure Managed Services Consulting and Implementa tion Services Rapidly provision computing resources for deploying and running software

 


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Benchmark Footnotes IBM Power 795 on two-tier SAP SD standard application benchmark running SAP enhancement package 4 for the SAP ERP 6.0 application (Unicode): 32 processors / 256 cores / 1,024 threads, POWER7, 4.0 GHz, 4,096 GB memory, 126,063 SAP SD benchmark users, 0.98 seconds dialog response time, 96 percent CPU utilization running AIX® 7.1 and DB2® 9.7. Certification #2010046. IBM Power 780 cluster (3 x 64 core) (24 chips, 192 cores, 768 threads) with DB2 9.7 TPC-C result of 10,366,254 tpmC, $1.38/tpmC, configuration available 10/13/10) IBM Power 780 SPECompL2001 result on a 64-core 3.86 GHz POWER7 (8 chips, 64 cores, 256 threads) of 1,797,211 (1,721,106 base). SPECvirt_sc2010 result for the IBM System x® 3850 X5 server of 5466 @ 336 VMs. 8 chips/64 cores/8 cores per chip), Red Hat Enterprise Linux® 6.0, and Kernel-based Virtual Machine (KVM) hypervisor. IBM DS8700 SPC-1 result of 380,489 IOPS ($18.83/IOPS over 97,581.66 GB ASU Capacity), mirroring in a 6-node SVC 5.1 cluster. IBM DS8800 SPC-2 result of 9,705.74 SPC-2 MBPS, price/performance of $270.38 at a ASU Capacity of 71,536.975 GB, RAID5. Sources: http://www.sap.com/benchmark, www.tpc.org, www.spec.org, www.storageperformance.org; Results current as of 2/11/11. SAP, mySAP and other SAP product and service names mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. TPC-C ,TPC-H, and TPC-E are trademarks of the Transaction Performance Processing Council (TPPC). SPEC, SPECint, SPECfp, SPECjbb, SPECweb, SPECjAppServer, SPECjEnterprise, SPECvirt, SPECompM, SPECompL, SPECsfs, SPECpower, SPEC MPI and SPECpower_ssj are trademarks of the Standard Performance Evaluation Corporation (SPEC). SPC Benchmark 1, SPC-1, SPC Benchmark 1/Energy, and SPC-1/E are trademarks of the Storage Performance Council.

 


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Certain comments made in the 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 web site, or from IBM Investor Relations. Any forward-looking statement made during this event or in these presentation materials speaks only as of the date on which it is made. The Company assumes no obligation to update or revise any forward-looking statements. These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the Company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), certain materials presented during this event include non-GAAP information. The rationale for management’s use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information is included in supplementary materials entitled “Non-GAAP Supplementary Materials” that are posted on the Company’s investor relations web site at http://www.ibm.com/investor/events/investor0311. The Non-GAAP Supplementary Materials are also included as Attachment II to the Company’s Form 8-K dated March 8, 2011.

 


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Enterprise Productivity Initiatives Linda Sanford Senior Vice President, Enterprise Transformation

 


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Enterprise Productivity $1.5 $2.5 $3.0 $4.7 $6.2 +$1.5 +$1.7 +$0.5 +$1.0 Cumulative Enterprise Productivity Savings ($B) Shared Services End-to-End Process Transformation Integrated Operations Next generation transformation Radical simplification, integration and innovation Growth and productivity Smarter phase of our transformation Confident in ability to further improve productivity by $8B from 2011 to 2015 2006 2007 2008 2009 2010

 


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Progress to Date Shared Services Spend ($B) Year-to-Year Enterprise Productivity Savings ($B) $4.8B spending reduction in Shared Services from 2005 through 2010 $1.4B productivity improvement in end-to-end process transformation and integrated operations Shared Services End-to-End Process Transformation Integrated Operations Productivity improvements of $6.2B were achieved through 2010 0.5 1.2 0.6 0.5 0.6 1.0 1.5 0.3 0.0 0.5 1.0 1.5 2.0 2006 2007 2008 2009 2010

 


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Operating Leverage Applying transformation principles to all of IBM’s spending to drive $8B in productivity benefits over the next 5 years End-to-End Process Transformation $2.6B Radically simplify Integrate operations across units Drive differentiated innovation Enable growth and productivity Integrated Operations $3.1B Shared Services $2.3B 2010 $11.4B $16.3B 2005 2010 Shared Service Spending Total Cost and Expense ~$80B

 


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Radical Simplification and Integration Integrated Operations End-to-End Process Transformation Shared Services Our transformation initiatives play a critical role in achieving our 2015 roadmap objectives Human Resources Global Sales Operations Integrated Supply Chain Real Estate Operations Finance Legal Information Technology Marketing and Communications Sales Transaction Hub Hardware Product Management Transformation Incentives Order-to-Cash Opportunity-to-Order Service Labor Management Transformation Service Product Transformation Business Partner Enablement Business Operations Global Client Centers Center-Based Operations Sales Management and Support Development Globally integrated organizational units providing support services to all of IBM Horizontal, end-to-end process transformation initiatives Programs that draw on synergies in our worldwide enterprise processes, skills and assets to drive integration

 


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Radical Simplification and Integration Our transformation initiatives play a critical role in achieving our 2015 roadmap objectives Integrated Operations End-to-End Process Transformation Shared Services Globally integrated organizational units providing support services to all of IBM Horizontal, end-to-end process transformation initiatives Programs that draw on synergies in our worldwide enterprise processes, skills and assets to drive integration Human Resources Global Sales Operations Integrated Supply Chain Real Estate Operations Finance Legal Information Technology Marketing and Communications Sales Transaction Hub Hardware Product Management Transformation Incentives Order-to-Cash Opportunity-to-Order Service Labor Management Transformation Service Product Transformation Business Partner Enablement Business Operations Global Client Centers Center-Based Operations Sales Management and Support Development Streamline sales forecasting through business analytics and process simplification Increase time sellers and sales managers spend in high-value client activities by 10% and 20% respectively Deliver $200M of benefit through 2015 Drive radical change in labor supplier sourcing and resource capacity management Optimize supplier portfolio and concentrate spending with preferred suppliers to nearly 90% by year end Accelerate labor optimization of IBM's deployable resources by 0.5% Deliver $450M of benefit through 2015 Improve manufacturing cycle time and operations to perform final configuration internally Eliminate need to stock Power Systems inventory at business partners Drive work elimination savings of $3.5M Deliver overall Shared Service elimination savings of $300M through 2015 Integrated Supply Chain Service Labor Management Transformation Sales Management and Support

 


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Advanced analytics to enable improvements in sales performance, staffing and risk Example: Territory Optimization Program, Simplified Coverage Model Growth Enablement Enabling growth ensures we have the capacity and capability to support the 2015 objectives Support for Growth Market expansion objectives Example: IT infrastructure in-a-box, Shared Services in-a-box Enabling the Growth Markets Investing in analytics Optimization of integration and infrastructure to drive performance Example: Portfolio and Risk Management analytics engine Supporting the acquisition strategy Advancement of our internal capabilities for Smarter Planet, Cloud and Business Analytics and Optimization Example: Blue Insight Cloud, Smarter Buildings Becoming the leading showcase for growth plays

 


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Advanced analytics to enable improvements in sales performance, staffing and risk Example: Territory Optimization Program, Simplified Coverage Model Enabling the Growth Markets Growth Enablement Enabling growth ensures we have the capacity and capability to support the 2015 objectives Support for Growth Market expansion objectives Example: IT infrastructure in-a-box, Shared Services in-a-box Investing in analytics Optimization of integration and infrastructure to drive performance Example: Portfolio and Risk Management analytics engine Supporting the acquisition strategy Advancement of our internal capabilities for Smarter Planet, Cloud and Business Analytics and Optimization Example: Blue Insight Cloud, Smarter Buildings Becoming the leading showcase for growth plays Territory Optimization Program has been deployed to 13,000 seller territories Optimized territories show an average of 10% sales performance improvement Competitive Advantage Descriptive Predictive Prescriptive Standard reporting Ad hoc reporting Query/drill down Alerts Simulation Forecasting Predictive modeling Optimization Stochastic optimization

 


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Transformation Maturation 2002 Sharing & partnering The “Smarter” phase of our transformation is underway 2010 Making things smarter Instrumented, interconnected, intelligent Enable growth and productivity Optimize the whole system 2006 Globally integrating Right skills, right place, right cost Rationalize support functions for greater efficiency Radically simplify processes Consistent set of processes worldwide Leverage best practices Standardize and reduce waste Governance and performance discipline

 


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Enterprise-wide governance model with programmatic methods and approaches Quantitative benefit realization measurement and tracking Disciplined change management driven by global understanding of 2015 goals and a growth and innovation mindset Proactive risk management and mitigation strategy Differentiators Growth and Productivity Radical Simplification Integration Innovation

 


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Enterprise Productivity Summary Apply the proven principles of the Globally Integrated Enterprise to all of IBM’s spending The Smarter phase of our transformation is underway New levels of cross-enterprise collaboration and integration Our proven governance model, methods and tools give us confidence to achieve the $8B 2015 roadmap productivity objective Cumulative Enterprise Productivity Savings Shared Services End-to-End Process Transformation Integrated Operations Last Five Years ~$6B savings Next Five Years ~$8B savings 2006 2007 2008 2009 2010 2011e 2012e 2013e 2014e 2015e

 


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Certain comments made in the 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 web site, or from IBM Investor Relations. Any forward-looking statement made during this event or in these presentation materials speaks only as of the date on which it is made. The Company assumes no obligation to update or revise any forward-looking statements. These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the Company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), certain materials presented during this event include non-GAAP information. The rationale for management’s use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information is included in supplementary materials entitled “Non-GAAP Supplementary Materials” that are posted on the Company’s investor relations web site at http://www.ibm.com/investor/events/investor0311. The Non-GAAP Supplementary Materials are also included as Attachment II to the Company’s Form 8-K dated March 8, 2011.

 


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Research  John Kelly Senior Vice President and Director, Research  

 


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IBM Research and Development IBM continues to make consistent and sizable investments in R&D R&D Investment $5.8B 2005 2010 $6.0B ~2950 Patents 6% E/R 6% E/R ~5900   Patents

 


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IBM Research:  Supporting IBM’s Growth Growth Initiatives 40% 60% Base Research 2010

 


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IBM Research:  Services and Business Analytics  ~1000 Researchers Globally Doubled math skills 200  400 Hiring industry research experts (e.g. 5 medical doctors) > 500 patents/year   Focused on Assets New 200 person joint GTS/GBS asset research lab Client value and internal productivity 

 


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Data cleansing (in growth markets) VOCA for call center analytics Strategic planning Contingency planning AMS efficiency/quality Résumé screening >2000/day Optimizes SO productivity  Optimizes matching skills to projects Smarter Workforce & Extreme Automation Research Client Value Unique Capability Internal Productivity Optimizes IT strategy for clients Smarter commerce Optimizes shareholder value NeverDown OptiServe Prospect Catapult OptiManage OptiUtilize eMigration GDF Dispatch CBM Tools Retail Analytics CFO Dashboard CaaTS VOCA Services: An Assets-based Business

 


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OptiManage (Smarter Deployment) Advanced text analytics to compute matching scores Constraint programming to identify compatible matches (OptiMatch) Mathematical programming to find optimal matches Web-enabled user interface Architecture / Scenario Diagram Recommendations for 45,000 employees per day! Productivity Database Seat JRSS GBS PMP Backend GBS  TalentPool Database Data Query, Filtering and Cleaning Supply Rpt. + Travel Readiness Rpt. Matching Engine WEB based User Interface Substitutable JRSS matrix e.g. App Dev-J2EE: App Dev-Java App Architect Java: App Dev-J2EE Matches are updated in daily at 7 am Demand Attributes Supply Attributes Band Low Band High Start Date Seat Location Required Skills Position Description Win Odds Resume Practitioner Band RDM Avail Date Delivery Center Visa Status Skill Assessments Additional JRSS RM / DM

 


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Today’s IT Services Outsourcing  Migration to Enterprise-scale Cloud Infrastructure eMigrate and Extreme Automation  Using Cloud-based Assets to Transform IT Services Outsourcing Organization Framework (Playbook) Migrate and Manage Automated Service Management Continuous Innovation Loop Automated Help Desk Automated Migration

 


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CaaTS: Cleansing as a Transient Service Filter noise and handle semantic, syntactic and format variation  Advanced automated methods  Estimate accuracies (when  human verification is not possible) for millions of client records Numerous clients in India Client Value Estimation Discovery Management Noise Handling Classifications Rule Exceptions  IBM Infosphere Quality Stage Investigate Standardize Deduplicate Data Cleansing Pipeline Relationship Discovery BI & Reporting Noisy Source

 


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4 Technologies that Will Change the World – and IBM Will Lead Exascale (Datacenter-in-a-box) Massive parallelism Flexible system optimization Nano Devices 1B Transistors Power7 chip 1T Devices Nano Systems (Systems-on-a-chip) Workload Optimized Systems Big Data Compute+ Natural Language+ Analytics Cognitive Computing “Synapse” devices Photonics DNA Transistor BIG/Fast Data + analytics (zettabytes + milli / microseconds 1,000 1,000,000 X 1000X 1000X Program Learn Deep Q&A Computers Smarter Planet (Internet of Things + People)

 


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From Nano Devices to Nano Systems Exascale (Datacenter-in-a-box) Massive parallelism Flexible system optimization Nano Devices 1B Transistors Power7 chip 1T Devices Nano Systems (Systems-on-a-chip) Workload Optimized Systems Big Data Compute+ Natural Language+ Analytics Cognitive Computing “Synapse” devices Photonics DNA Transistor BIG/Fast Data + analytics (zettabytes + milli / microseconds 1,000 1,000,000 X 1000X 1000X Program Learn Deep Q&A Computers Smarter Planet (Internet of Things + People)


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Device Structure Research Pipeline Innovation and Disruptive Technology at Each Node 22/20 nm 15/11 nm 8 nm & Beyond Conventional Planar Device FINFET ETSOI Si Nano-Wire C Electronics Fully Depleted Devices

 


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Vision: >1 Tbps on a 3D chip Light out  for off-chip traffic Light Modulator Photo-detector Analog CMOS Digital CMOS Inter-layer 3D vias Multiplexor

 


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DNA Transistor Experimental Setup

 


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From Petascale to Exascale Exascale (Datacenter-in-a-box) Massive parallelism Flexible system optimization Nano Devices 1B Transistors Power7 chip 1T Devices Nano Systems (Systems-on-a-chip) Workload Optimized Systems Big Data Compute+ Natural Language+ Analytics Cognitive Computing “Synapse” devices Photonics DNA Transistor BIG/Fast Data + analytics (zettabytes + milli / microseconds 1,000 1,000,000 X 1000X 1000X Program Learn Deep Q&A Computers Smarter Planet (Internet of Things + People)

 


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From Disruptive Technologies in HPC to Transfer to Commercial Leadership BG/L 0.3PF BG/P 1PF Roadrunner 1PF ~300PF ~1000PF z9 z10 zEnterprise pSeries P5 pSeries P6 pSeries P7 Blue Waters 10PF High Efficiency Multicore SoC Scalability Fast Network Hybrid Architecture Workload Optimized HPC Commercial BG/Q ~20PF Relative Performance (log) Time Future Power and Z Systems

 

 


 

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From Silicon to Structure: A Holistic Approach Processor MCM Drawer Rack Machine Room Subfloor Machine Room Gallery Modern Data Center

 


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The Charge to Exascale: Future Technologies 1 PetaFlop = 1/3 rack Software Phase Change Memory CPU Silicon Photonics 3D 10 PetaFlop 100 P7IH Racks 1 PetaFlop 72 BG/P Racks Overall Performance = 1000X Performance / watt = 135X Performance / $ = 1000X Footprint = <2% Referenced to 1PF system The Next Ten Years

 


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From Big Data to Big Analytics Exascale (Datacenter-in-a-box) Massive parallelism Flexible system optimization Nano Devices 1B Transistors Power7 chip 1T Devices Nano Systems (Systems-on-a-chip) Workload Optimized Systems Big Data Compute+ Natural Language+ Analytics Cognitive Computing “Synapse” devices Photonics DNA Transistor BIG/Fast Data + analytics (zettabytes + milli / microseconds 1,000 1,000,000 X 1000X 1000X Program Learn Deep Q&A Computers Smarter Planet (Internet of Things + People)

 


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Smarter Planet will Drive the Creation of Big/Fast Data Multiple Sources: Intel, Ericsson, Gartner, etc. Number of Connected Devices 2010 15 Billion 7 Billion 50 Billion 10 20 30 40 50 2015 2020

 


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Every Smarter Planet Solution Has Big/Fast Data and Needs Big/Fast Analytics Smarter Planet Data at Rest Data in Motion Deep Analytics Reactive Analytics Predictive Models Real-time Awareness Deeper Insights Faster Decisions Fast BIG

 


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New Big/Fast Data Brings New Opportunities, Requires New Analytics Telco Promotions 100,000 records/sec, 6B/day 10 ms/decision 270TB for Deep Analytics DeepQA 100s GB for Deep Analytics 3 sec/decision Smart Traffic 250K GPS probes/sec 630K segments/sec 2 ms/decision, 4K vehicles Homeland Security 600,000 records/sec, 50B/day 1-2 ms/decision 320TB for Deep Analytics Up to 10,000 Times larger Up to 10,000 times faster Data in Motion Data at Rest

 


Maximum Insight Requires Combining Deep and Reactive Analytics Feedback Reactive Analytics Reality Fast Observations Actions Integration Integration Integration History Deep Analytics Deep Hypotheses Predictions Big Insights System s New Client Value

 


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From Programming to Systems that Learn Exascale (Datacenter-in-a-box) Massive parallelism Flexible system optimization Nano Devices 1B Transistors Power7 chip 1T Devices Nano Systems (Systems-on-a-chip) Workload Optimized Systems Big Data Compute+ Natural Language+ Analytics Cognitive Computing “Synapse” devices Photonics DNA Transistor BIG/Fast Data + analytics (zettabytes + milli / microseconds 1,000 1,000,000 X 1000X 1000X Program Learn Deep Q&A Computers Smarter Planet (Internet of Things + People)

 


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What is Watson? Hypothesis Generation Hypothesis & Evidence Scoring Final Confidence Merging & Ranking Synthesis Question & Topic Analysis Decomposition Workload Optimized

 


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Watson Y/E 2010 Starting Point & State-of-the-Art 2007 DeepQA: Major Leap in Precision and Confidence % Answered 100% 0% 0% 100% Precision “Winners Cloud”

 


DeepQA Can Adapt to New Domains % Answered 100% 0% 0% 100% Precision DeepQA Adapted for Medical Questions Baseline Performance With the Jeopardy System ~3 person-month effort This is the selective aldosterone blocker that limits ventricular remodeling after acute myocardial infarction. This is the most common cause of unilateral decreased vocal fremitus.

 


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IBM’s Innovation Approach: Watson-Style vs. Exadata-Style Exadata Watson Feature Leap-ahead in science, opens new application areas Amplifies human expertise and reasoning capacity Engage humans with natural language interface Compute over structured and unstructured information Machine learning for continuous performance gain Parallel computing and local memory to reduce latency Mainly used to consolidate legacy applications

 


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New Computing Architecture for Learning Systems New Switch New Chips New Architecture New Interconnect

 


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We Are Entering a New Era Computer Intelligence Time Tabulating Era Computing Era Smart Systems Era

 


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Certain comments made in the 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 web site, or from IBM Investor Relations. Any forward-looking statement made during this event or in these presentation materials speaks only as of the date on which it is made. The Company assumes no obligation to update or revise any forward-looking statements. These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the Company’s financial results and other financial information as determined by generally accepted accounting principles (GAAP), certain materials presented during this event include non-GAAP information. The rationale for management’s use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information is included in supplementary materials entitled “Non-GAAP Supplementary Materials” that are posted on the Company’s investor relations web site at http://www.ibm.com/investor/events/investor0311. The Non-GAAP Supplementary Materials are also included as Attachment II to the Company’s Form 8-K dated March 8, 2011.

 


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ATTACHMENT II

 

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Non-GAAP Supplementary Materials

 


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Non-GAAP Supplementary Materials In an effort to provide investors with additional information regarding the company's results as determined by generally accepted accounting principles (GAAP), the company also discusses in these materials the following Non-GAAP information which management believes provides useful information to investors. Operating (Non-GAAP) Earnings, EPS, Pre-Tax Income, and Segment Profit Management presents certain financial measures excluding the effects of certain acquisition-related charges, non-operating retirement-related costs, and any related tax impacts. Management uses the term "operating" to describe this view of the company's financial results and other financial information. For acquisitions, these measures exclude the amortization of purchased intangible assets and acquisition-related charges such as in-process research and development, transaction costs, applicable restructuring and related expenses, and tax charges related to acquisition integration. For retirement-related costs, the company has characterized certain items as operating and others as non-operating. The company includes service cost, amortization of prior service cost and the cost of defined contribution plans in its operating results. Non-operating retirement-related costs include interest cost, expected return on plan assets, amortized actuarial gains/losses, the impacts of any plan curtailments/settlements, multi-employer plan costs, pension insolvency costs, and other costs. Non-operating costs primarily relate to changes in pension plan assets and liabilities which are tied to market performance, and management considers these costs to be outside the operational performance of the business. Management’s calculation of these operating measures, as presented, may differ from similarly titled measures reported by other companies. Overall, management believes that providing investors with an operating view as described above provides increased transparency and clarity into both the operational results of the business and the performance of the company’s pension plans, improves visibility to management decisions and their impacts on operational performance, enables better comparison to peer companies, and allows the company to provide a long term strategic view of the business going forward. For the 2015 earnings per share road map, the company is utilizing an operating view to establish its objectives and track its progress.

 


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Non-GAAP Supplementary Materials Constant Currency Management refers to growth rates at constant currency or adjusting for currency so that certain financial results can be viewed without the impact of fluctuations in foreign currency exchange rates, thereby facilitating period-to-period comparisons of the company's business performance. Financial results adjusted for currency are calculated by translating current period activity in local currency using the comparable prior year period’s currency conversion rate. This approach is used for countries where the functional currency is the local currency. Generally, when the dollar either strengthens or weakens against other currencies, the growth at constant currency rates or adjusting for currency will be higher or lower than growth reported at actual exchange rates. Cash Flow Management uses a free cash flow measure to evaluate the company’s operating results, plan share repurchase levels, evaluate strategic investments and assess the company’s ability and need to incur and service debt. The entire free cash flow amount is not necessarily available for discretionary expenditures. The company defines free cash flow as net cash from operating activities less the change in Global Financing receivables and net capital expenditures, including the investment in software. A key objective of the Global Financing business is to generate strong returns on equity, and increasing receivables is the basis for growth. Accordingly, management considers Global Financing receivables as a profit-generating investment, not as working capital that should be minimized for efficiency. Therefore, management includes presentations of both free cash flow and cash flow from operations that exclude the effect of Global Financing receivables. Divestitures Management presents certain financial results excluding the effects of the divestitures of the printer business and the personal computer (PCD or PC) business. In June 2007, the company divested 51 percent of its printer business and divested the remaining 49 percent quarterly over the following 3 years. In April 2005, the company completed the sale of its PCD business. Management believes that presenting certain revenue measures without these items is more representative of the company’s operational performance and provides additional insight into, and clarifies the basis for, historical and/or future performance, which may be more useful for investors.

 


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Non-GAAP Supplementary Materials 9.1 (3.7) 12.9 2.5 $15.3 2004 9.6 (3.5) 13.1 1.8 $14.9 2005 8.7 (3.9) 12.6 1.9 $14.5 2003 5.9 (4.6) 10.5 3.3 $13.8 2002 6.8 6.7 Free Cash Flow (excluding GF Receivables) (4.9) (4.3) Net Capital Expenditures 2001 2000 11.7 11.1 Net Cash from Operations (excluding GF Receivables) 2.0 (2.5) Less: Global Financing Receivables $13.7 $8.6 Net Cash from Operations $ in Billions 16.3 (4.0) 20.3 (0.7) $19.5 2010 15.1 (3.7) 18.9 1.9 $20.8 2009 14.3 (4.5) 18.8 0.0 $18.8 2008 12.4 10.5 Free Cash Flow (excluding GF Receivables) (5.0) (4.7) Net Capital Expenditures 2007 2006 17.4 15.3 Net Cash from Operations (excluding GF Receivables) (1.3) (0.3) Less: Global Financing Receivables $16.1 $15.0 Net Cash from Operations Reconciliation of Free Cash Flows (excluding GF Receivables) The above serves to reconcile the Non-GAAP financial information contained in the slides entitled “Our Results: Another Strong Performance in 2010,” “2010 Roadmap Highlights,” “A Decade of Performance 2000-2010,” and “Cash Generation Fuels Investment and Shareholder Returns” in the “Strategic Overview” presentation and the slides entitled “IBM Transformation,” “Cash Generation and Usage,” and “2015 Roadmap” in the “Financial Model” presentation. See the third slide in this presentation for additional information on the use of these Non-GAAP financial measures.

 


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Non-GAAP Supplementary Materials Reconciliation of Major Markets Revenue Growth @Constant Currency As Reported 4% 5% 1% (1%) (4%) (8%) (6%) (7%) (2%) (1%) 1% 5% 11% 13% 5% (5%) (10%) (13%) (7%) (2%) 2% (1%) (1%) 4% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 Yr/Yr The above serves to reconcile the Non-GAAP financial information contained in the slide entitled “Growth Markets” in the “Financial Model” presentation. See the third slide in this presentation for additional information on the use of these Non-GAAP financial measures.

 


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Non-GAAP Supplementary Materials Reconciliation of Growth Markets Revenue Growth @Constant Currency As Reported 11% 14% 10% 6% 4% 1% (1%) 2% 8% 9% 13% 13% 19% 21% 13% (7%) (12%) (11%) (6%) 14% 20% 14% 16% 15% 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 Yr/Yr The above serves to reconcile the Non-GAAP financial information contained in the slide entitled “Growth Markets” in the “Financial Model” presentation. See the third slide in this presentation for additional information on the use of these Non-GAAP financial measures.

 


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Non-GAAP Supplementary Materials Reconciliation of Growth Markets Revenue Mix Excluding Divestitures (PCD and Printers) As Reported 11% 12% 16% 17% 18% 19% 21% 13% 14% 16% 17% 18% 19% 21% 2000 2003 2006 2007 2008 2009 2010 The above serves to reconcile the Non-GAAP financial information contained in the slides entitled “Growth Markets” and “2015 Roadmap” in the “Financial Model” presentation and the slide entitled “Systems and Technology in the Growth Markets” in the “Integrated Systems: The Value of Integrated Software and Hardware” presentation. See the third slide of this presentation for additional information on the use of these Non-GAAP financial measures.

 


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Non-GAAP Supplementary Materials Reconciliation of Impact on Segment PTI Mix The above serves to reconcile the Non-GAAP financial information contained in the slides entitled “Portfolio Mix Leads to Improved Gross Profit Margin” and “2015 Roadmap: IBM Transformation Continues” in the “Strategic Overview” presentation and the slides entitled “Operating Leverage” and “2015 Roadmap” in the “Financial Model” presentation. See the second slide in this presentation for additional information on the use of these Non-GAAP financial measures. Note: Numbers may not add due to rounding As reported in 2000 and 2001, which excludes ($ in billions) Stock-Based Compensation expense:  2000 Segment PTI % 2001 Segment PTI % Hardware $2.7 25% $1.9 17% Financing $1.2 11% $1.1 10% Services $4.5 41% $5.2 47% Software $2.8 26% $3.2 29% Enterprise Investments $(0.3) -3% $(0.3) -3% Total $10.9 $11.0   Excludes Enterprise Investments: 2000 Segment PTI % 2001 Segment PTI % Hardware $2.7 24% $1.9 16% Financing $1.2 11% $1.1 10% Services $4.5 40% $5.2 46% Software $2.8 25% $3.2 28% Total $11.2 $11.3

 


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Non-GAAP Supplementary Materials Reconciliation of Segment Pre-Tax Income The above serves to reconcile the Non-GAAP financial information contained in the slide entitled “2015 Roadmap: IBM Transformation Continues” in the “Strategic Overview” presentation; the slides entitled “Operating Leverage” and “2015 Roadmap” in the “Financial Model” presentation; and the slides entitled “2015 Roadmap: Software Segment” and “2015 Roadmap: Systems and Technology Group” in the “Integrated Systems: The Value of Integrated Software and Hardware” presentation. This information also serves to reconcile the Non-GAAP financial information contained in the “Services” presentation regarding capturing growth and attaining 2015 roadmap objectives, the GTS position to achieve $8B of profit in 2015, and the GBS model. See the second slide in this presentation for additional information on the use of these Non-GAAP financial measures. 1 Excludes Enterprise Investments. See the eighth slide in this presentation for reconciliation to GAAP. Note: Numbers may not add due to rounding As Reported Acquisition Non-Operating Operating Segment Profit $B % Total Related Retirement Related $B % Total 2000¹ Services $4.5 40% $0.0 ($0.8) $3.7 38% Software $2.8 25% $0.1 ($0.3) $2.6 27% Hardware $2.7 24% $0.1 ($0.6) $2.2 23% Financing $1.2 11% $0.0 ($0.1) $1.1 12% 2006 Global Business Services $1.7 12% $0.1 $0.1 $1.9 13% Global Technology Services $3.3 24% $0.1 $0.1 $3.4 24% Software $5.5 40% $0.2 $0.1 $5.7 40% 2009 Hardware $1.4 7% $0.0 ($0.1) $1.3 7% 2010 Global Business Services $2.6 12% $0.0 ($0.0) $2.5 12% Global Technology Services $5.6 27% $0.0 ($0.1) $5.5 26% Software $9.1 44% $0.5 ($0.1) $9.5 45% Hardware $1.6 8% $0.0 ($0.1) $1.5 7% Financing $2.0 9% $0.0 ($0.0) $2.0 9%

 


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Non-GAAP Supplementary Materials Reconciliation of Segment Pre-Tax Income ($) The above serves to reconcile the Non-GAAP financial information contained in the slide entitled “2015 Roadmap: IBM Transformation Continues” in the “Strategic Overview” presentation and the slide entitled “2015 Roadmap” in the “Financial Model” presentation. See the second slide in this presentation for additional information on the use of these Non-GAAP financial measures. Note: 2000 & 2001 segments not restated for stock based compensation and exclude Enterprise Investments. See the eighth slide in this presentation for reconciliation to GAAP. Numbers may not add due to rounding. Segment Pre-Tax Income Acquisition Related Non-Operating Retirement Related Operating Pre-Tax Income 2000 $11.2 $0.2 ($1.8) $9.6 2001 $11.3 $0.1 ($2.0) $9.4 2002 $6.8 $0.2 ($1.9) $5.1 2003 $9.4 $0.4 ($1.3) $8.5 2004 $11.6 $0.4 ($0.5) $11.4 2005 $11.5 $0.4 $0.3 $12.2 2006 $13.7 $0.3 $0.3 $14.3 2007 $15.2 $0.4 $0.3 $15.9 2008 $17.5 $0.5 ($0.7) $17.4 2009 $19.3 $0.5 ($0.5) $19.3 2010 $20.8 $0.6 ($0.4) $20.9

 


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Non-GAAP Supplementary Materials Reconciliation of Consolidated EPS The above serves to reconcile the Non-GAAP financial information contained in the slide entitled “2015 Roadmap: IBM Transformation Continues” in the “Strategic Overview” presentation and the slide entitled “2015 Roadmap” in the “Financial Model” presentation. See the second slide in this presentation for additional information on the use of these Non-GAAP financial measures. Note: Numbers may not add due to rounding $11.67 ($0.20) $0.34 $11.52 2010 $10.03 ($0.25) $0.27 $10.01 2009 $8.86 ($0.32) $0.29 $8.89 2008 $7.46 $0.14 $0.17 $7.15 2007 $6.31 $0.12 $0.14 $6.05 2006 $5.18 $0.13 $0.14 $4.91 2005 $4.33 ($0.19) $0.13 $4.39 2004 $3.41 ($0.48) $0.13 $3.76 2003 $1.81 ($0.68) $0.07 $2.43 2002 $3.26 ($0.72) $0.04 $3.94 2001 $3.32 ($0.62) $0.05 $3.88 2000 Operating EPS Non-Operating Retirement Related Acquisition Related EPS (As Reported)

 


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Non-GAAP Supplementary Materials Reconciliation of Historical Revenue Growth @Constant Currency As Reported 18% 10% 11% 1% 23% 18% 16% 1% BRIC Growth Markets 20 Growth Markets Major Markets The above serves to reconcile the Non-GAAP financial information contained in the slides entitled “GM20: investments in markets beyond BRICs” and “IBM Growth Markets 2010 performance” in the “Sales and Distribution: Growth Markets” presentation. See the third slide in this presentation for additional information on the use of these Non-GAAP financial measures. FY10 Yr/Yr

 


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