IBM Announces 1Q Results, Gained or Held Share in Major Segments
Thursday, April 18, 2002
ARMONK, N.Y.--April 17, 2002--IBM today announced first-quarter 2002 diluted earnings per common share of $.68, a 31 percent decrease compared with diluted earnings per common share of $.98 in the first quarter of 2001. First-quarter 2002 net income was $1.19 billion, a 32 percent decrease from $1.75 billion in the year-earlier period. IBM's first-quarter 2002 revenues totaled $18.6 billion, a decrease of 12 percent (9 percent at constant currency) compared with the first quarter of 2001. Samuel J. Palmisano, IBM president and chief executive officer, said: "Our first-quarter results, while disappointing, were largely the result of the continued weak global business environment. As we indicated in our announcement last week, customers in every part of the world deferred technology purchases in the first quarter, and these widespread deferrals hurt us across every one of our major business segments. "However, even within this tough climate, we generated $1.7 billion in pre-tax income, we had very strong services signings of more than $15 billion, and we believe we gained or held share in high-priority segments of services, software, servers and advanced storage products. We're pleased that, despite the difficult business conditions, IBM continued to outpace the competition, and we're committed to maintaining our leadership. "While no one can predict the timing of a recovery, we remain optimistic that business conditions will improve later this year," Mr. Palmisano said. "Our customers are telling us that information technology remains critical to the success of their businesses -- and that they will continue to embrace IBM's e-business strategies, our products and our services. We remain confident about the fundamental strength of our business and about our prospects for the future." In the Americas, first-quarter revenues were $8.1 billion, a decrease of 9 percent (8 percent at constant currency) from the 2001 period. Revenues from Europe/Middle East/Africa were $5.1 billion, down 8 percent (4 percent at constant currency). Asia-Pacific revenues declined 9 percent (3 percent at constant currency) to $3.9 billion. OEM revenues decreased 37 percent (37 percent at constant currency) to $1.3 billion compared with the first quarter of 2001. Revenues from Global Services, including maintenance, declined 3 percent (up 1 percent at constant currency) in the first quarter to $8.2 billion. Global Services revenues, excluding maintenance, declined 3 percent (up 1 percent at constant currency). IBM signed more than $15 billion in services contracts, up 50 percent year over year and a record for a first quarter. The gross profit margin in services improved by half a point to 26.0 percent year over year. Hardware revenues decreased 25 percent (23 percent at constant currency) to $6.4 billion compared with the first quarter of 2001. Revenues from IBM's zSeries mainframes declined as a result of deferred purchase decisions and a difficult year-over-year comparison. Revenues from IBM's pSeries, iSeries and storage products also declined as a result of price pressures, product transitions and deferred purchases. However, IBM believes that the company gained or held share in these product platforms. Personal computer revenues fell in the first quarter, reflecting continued weak industry demand. Technology revenues, which include hard disk drives and microelectronics, decreased substantially from the prior year's quarter, reflecting ongoing weakness in both product areas. Software revenues decreased 1 percent (up 3 percent at constant currency) to $2.9 billion. Middleware products -- which comprise 80 percent of IBM's software revenues -- grew 6 percent at constant currency. IBM's leading e-business middleware product, WebSphere, grew 53 percent year over year, for the 12th consecutive quarter of double-digit growth. DB2, IBM's leading database management software, grew 12 percent, and Tivoli revenues rebounded. Operating system revenues declined. The overall software gross profit margin improved by nearly one point year over year to 81.1 percent. Global Financing revenues decreased 6 percent (3 percent at constant currency) in the first quarter to $783 million. Revenues from the Enterprise Investments/Other area, which includes industry-specific IT solutions, declined 14 percent (10 percent at constant currency) to $237 million compared with the first quarter of 2001. The company's total gross profit margin declined to 34.7 percent in the first quarter of 2002 from 36.1 percent in the year-ago quarter. A nearly nine-point reduction in the hardware margin offset improvements in all other revenue segments. In the first quarter, total expense and other income improved 7 percent to $4.7 billion. Selling, general and administrative expenses declined 2 percent and research and development expenses decreased 6 percent, both reflecting a continued reduction in discretionary spending. SG&A results also include the absorption of higher expenses for workforce-balancing initiatives and provision for bad debt expense, and the elimination of the amortization of goodwill. In addition, the company benefited from a favorable year-to-year impact of writedowns of equity investments, the sale of personal computer desktop manufacturing operations to Sanmina-SCI, higher intellectual property income and lower interest expense. IBM's tax rate in the first quarter was 29.5 percent compared with 29.7 percent in the first quarter of 2001. IBM spent approximately $1.8 billion on share repurchases in the first quarter. The average number of basic common shares outstanding in the quarter was 1.72 billion compared with 1.74 billion shares in the same period of 2001. There were 1.71 billion basic common shares outstanding at March 31, 2002. The company's debt in support of operations, excluding global financing, decreased $1.1 billion from year-end 2001 to $531 million, resulting in a debt-to-capitalization ratio of 3 percent at the end of the first-quarter 2002. Global financing debt declined $1.2 billion from year-end 2001 to a total of $24.4 billion, resulting in a debt-to-equity ratio of 6.6 to 1.