Analyst Conference Summary

conference date: October 16, 2007 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2007 (3rd quarter)

Forward-looking statements

Overview: Continues slow but steady growth; a little weaker than Q2 in year-over-year growth rate.

Basic data:

Revenues were $24.1 billion, up 1% sequentially from $23.8 billion and up 7% over the prior year.

Net income was $2.4 billion, up 4% sequentially from $2.3 billion and up 6% from $2.2 billion year-earlier.

Earnings per share (EPS) were $1.68, up 8% sequentially from $1.55 and up 16% from $1.45 year-earlier.

Guidance:

Current analyst expectations of 15% annual growth is reasonable.

Conference Highlights:

Did well despite uncertainty.

Adjusted for currency fluctuations, revenues were up only 3% from year-earlier.

Public sector sales did well; weakness in financial vertical, especially in U.S.

Some expected deals did not close by end of quarter, expect to see that revenue in Q4.

Geographic: Americas $10.2 billion, up 4%; Europe/Middle East/Africa $8.1 billion, up 11%; Asia $4.9 billion, up 9% over year-earlier. Japan revenue was flat. Emerging economies grew fastest, China, Russia, and India in particular.

OEM revenues were $890 million, down 12% from year-earlier.

Global Services revenues grew 14% over all. Global Business Services revenues increased 16% to $4.6 billion. Global Technology Services revenues increased 13% to $9.1 billion. Estimated services backlog is now $116 billion, up $7 billion from year-earlier. Best growth was in Business Transformation Outsourcing was up 27% y/y.

Systems and Technology revenues sank 10% to $4.9 billion. 4% of decrease was due to divestiture of of the Printing Division. System z server product revenues decreased 31%, but System p servers increased 6% from year-earlier. System i decreased 21%. Storage increased 1%. System x up 6%, but hurt by waiting for quad core processors from Intel and AMD. Microelectronics decreased 15%.

Software revenue was $4.7 billion, up 7%. Websphere did best with 10% growth. Rational and OSs were weak with minimal growth year-over-year. Lotus grew 9%. Expect significant improvement in Q4.

Global Financing revenues increased 6% to $623.

Gross profit margin was 41.3% (was 42.0% year-earlier.

Total expenses decreased 6% to $6.7 billion, with a period of merger expense and outsourcing now behind. Effective tax rate was 28.0%. There was an increase in retirement expense.

Free cash flow was $5.2 billion. Share repurchases were on hold this quarter. $13.8 billion in cash and equivalents at end of quarter.

Share count average was 1.41 billion, down from 1.53 billion year-earlier. At end of quarter 1.38 billion shares were outstanding.

Debt totaled $35.3 billion, up from $22.7 billion year-earlier. Good, cheap access to commercial paper because of quality.

Q&A:

Software deferral color? Do expect the deals we are talking about to close in Q4. These were larger deals mostly in financial sector. We will also see more renewal-based deals in Q4. Would expect double-digit revenue growth due to these factors.

Are we seeing a weak economic environment start to affect technology segment? Only in financial services sector in the U.S. z Series was the main line affected in financial segment. Outside of that we were fairly constant.

Linearity in quarter? Nothing except financial slow down.

Hardware visibility? Expect flat in Q4 on year-to-year basis on revenue. But z-series migration should help in Q4. x-series will also go to quad-core in Q4. We were disappointed in our hardware performance in Q3.

2008 guidance? Will give that in January, but see nothing currently to change views.

Disk storage weakness? Tape was good, disk not as good due to slowness in mid-range. High end disk did well on volume basis.

Signings weakness? Expect that was only a short term impact that will snap back in Q4.

OpenIcon Analyst Conference Summaries Main Page

IBM Investor Relations page

Search

More Analyst Conference Pages: