Macro Notes from the IBM Earnings Call

  • Diluted EPS:
    • GAAP: $3.19, up 13 percent;
    • Operating (non-GAAP): $3.28, up 15 percent;
  • Revenue: $26.2 billion, up 8 percent, up 3 percent adjusting for currency;
  • Net income:
    • GAAP: $3.8 billion, up 7 percent;
    • Operating (non-GAAP): $4.0 billion, up 9 percent;
  • Pre-tax income:
    • GAAP: $5.0 billion, up 7 percent;
    • Operating (non-GAAP): $5.2 billion, up 10 percent;
  • Gross profit margin:
    • GAAP: 46.5 percent, up 1.2 points;
    • Operating (non-GAAP): 46.8 percent, up 1.5 points;
  • Software revenue up 13 percent, 8 percent adjusting for currency;
  • Services revenue up 8 percent, 2 percent adjusting for currency;
    • Services backlog of $137 billion, up $2.4 billion;
  • Systems and Technology revenue up 4 percent, 1 percent adjusting for currency:
    • Power Systems up 15 percent;
  • Growth markets revenue up 19 percent, 13 percent adjusting for currency;
  • Business analytics revenue up 19 percent year to date;
  • Smarter Planet revenue up 50 percent year to date;
  • Cloud revenue year to date has doubled full-year 2010 revenue;
  • Full-year 2011 Operating (non-GAAP) EPS expectations raised to at least $13.35 from at least $13.25.

Conference Call

Our geographic performance was again led by the growth markets in North America. I’ll discuss the geographic results on a local-currency basis. Revenue in our major market countries was essentially flat year-to-year. The U.S., our largest market, was up 4%, and Canada was up 7%, driven by continued momentum in our software business and great performance in Power Systems. In Europe, we had good growth in Spain, which was up 9%; and in the U.K., up 5%. We’ve now had 8 consecutive quarters of constant currency revenue growth in the U.K.

Our growth markets, again, had fantastic performance, outpacing the majors by 12 points. With 13% revenue growth, this is the fifth consecutive quarter of double-digit revenue growth in share gains compared to a strong third quarter last year. Performance was broad-based. As I mentioned, we had double-digit growth in 40 growth market countries including each of the BRICs. Our success is broad-based from a segment perspective as well. In fact, growth markets led the performance in each segment, with strong growth and expected share gains in GTS, GBS, Software and Systems and Technology. Within growth markets, we’re expanding into new countries and territories to reach new clients and enterprises. And so far this year, we’ve opened over 80 new branches…

Algorithmics expands IBM’s capabilities in the financial services industry by helping clients quantify, manage and optimize their risk exposure across a range of financial risk domains. Q1 Labs helps clients more intelligently secure their enterprises by applying analytics to correlate information from key security domains and creating security dashboards for their organizations…

Now to your other question, let’s look at it on a geographic standpoint. I mean, first of all, the U.S. was up 4%, Canada was up 7%, Latin America was up 17%. Within the overall growth markets unit, it was up 13%. I mean 13% is very, very strong, a very strong quarter for us…

…on a more macro basis, we do see a very good pipeline in the fourth quarter for our software business. I think they had a very good quarter in the third, and they’ve got a very good pipeline to extend that performance into the fourth. As I said earlier, we see very similar performance for GTS as we go from the third to the fourth, and we can see improved performance on our GBS business growing to low to mid-single-digit growth rate. As well, a lot of those same characteristics that help us expand margin so substantially within the quarter are going to be able to — we’ll take advantage of those as well as we go into the fourth quarter…

Q:  Any of the more anecdotal indicators that would suggest things are getting more difficult in the services side of your business, any color there?

A: No, I don’t think I would say that. I mean, if we look at the services base of business, as I said, from a GTS side going into the fourth quarter, we would expect that GTS would have a similar quarter in the fourth quarter to what they had in the third. I guess from a macro standpoint, we could talk a little more about GBS. I mean, on a GBS basis, one thing from a macro position to remember, they have kind of an outsized distribution of their business in Japan and public sector. In fact, within GBS, well over or just over 1/3 of their business is in Japan and public sector. So when you look at the GBS performance, I think it’s fair to look at how do they perform outside of those 2 areas of business. And if you extract Japan and public sector from GBS performance, you’d see that the revenue in the third quarter was up 13% for the balance of the business.

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1 Response to Macro Notes from the IBM Earnings Call

  1. Pingback: Tuesday 7atSeven: elusive liquidity | Abnormal Returns

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