ARMONK, N.Y.--Oct. 15, 2003-- IBM today announced third-quarter 2003 diluted earnings per common share of $1.02 from continuing operations compared with diluted earnings per common share of $.99 in the prior-year period, an increase of 3 percent. Income from continuing operations for the third-quarter 2003 was $1.8 billion compared with $1.7 billion in the third quarter of 2002, an increase of 5 percent. Revenues from continuing operations for the third quarter were $21.5 billion, up 9 percent (4 percent at constant currency) compared with revenues of $19.8 billion for the year-ago period.
Samuel J. Palmisano, IBM chairman and chief executive officer, said: "We delivered another good quarter despite the challenging economy and continued to gain share across our strategic businesses.
"We are beginning to see signs that the economy has stabilized. As we look to 2004, more customers are expected to increase their investments in information technology. While demand is not yet across the board, it is strongest in the areas where we have positioned the company and strengthened our capabilities. Next year, in fact, we see the need for approximately 10,000 new positions in key skill areas, including high-value services, middleware technologies, Linux and open standards-based hardware and software. And we are committing $200 million of our $700 million in training and learning to equip more than 100,000 existing employees with the skills that are highest in demand.
"Although it is too early to say that a rebound is at hand, we are confident that we will benefit from both a pick up in IT spending and an economic recovery."
In the Americas, third-quarter revenues from continuing operations were $9.4 billion, an increase of 4 percent (3 percent at constant currency) from the same 2002 period. Revenues from Europe/Middle East/Africa were $6.8 billion, up 19 percent (7 percent at constant currency). Asia-Pacific revenues improved 11 percent (7 percent at constant currency) to $4.8 billion. OEM revenues across all geographies decreased 26 percent (26 percent at constant currency) to $643 million compared with the third quarter of 2002.
Revenues from Global Services, including maintenance, increased 17 percent (11 percent at constant currency) in the third quarter to $10.4 billion aided by the addition of the former PwC Consulting business. Global Services revenues, excluding maintenance, increased 18 percent (13 percent at constant currency). IBM signed more than $15 billion in services contracts in the third quarter and the estimated backlog was $115 billion at the end of the third quarter.
Total hardware revenues from continuing operations decreased 1 percent (5 percent at constant currency) to $6.7 billion from the 2002 third quarter. Systems Group revenues, which include IBM eServers and storage systems products, were $3.2 billion, up 6 percent (flat at constant currency). IBM eServers' revenues increased for xSeries Intel processor-based servers, pSeries UNIX-based servers and iSeries midrange servers. Revenues from zSeries mainframes increased slightly (down at constant currency), and MIPS (millions of instructions per second) -- a measure of total delivery of mainframe computing power -- increased 30 percent versus the year-ago period. Storage Systems revenues increased as a result of growth in tape and DASD FAStT products.
Personal Systems Group revenues grew 2 percent (down 2 percent at constant currency) to $2.8 billion primarily from higher revenues for personal computers (down at constant currency) as increased volumes more than offset reductions in prices. Technology Group revenues were $695 million, down 33 percent (33 percent at constant currency), partially attributable to actions in 2002 including the divestiture of multiple non-core businesses.
Revenues from Software increased 11 percent (5 percent at constant currency) to $3.5 billion compared with the prior year's third quarter. Middleware brands, which include WebSphere and DB2 product families as well as Rational, Tivoli and Lotus products, experienced revenue growth of 14 percent (8 percent at constant currency) to $2.7 billion in the third quarter of 2003. Operating systems revenues increased 6 percent (flat at constant currency) to $610 million compared with the year-ago period.
WebSphere, IBM's family of e-business on demand middleware products, increased revenues 12 percent (6 percent at constant currency) from a year ago. IBM's leading database management software, DB2, increased revenues 14 percent (8 percent at constant currency). Revenues from Tivoli software also increased 25 percent (18 percent at constant currency) and Lotus software revenues increased 9 percent (1 percent at constant currency). Revenues from Rational which was acquired during the first quarter of 2003 accounted for approximately 37 percent of the third-quarter 2003 middleware revenue growth.
Global Financing revenues decreased 10 percent (14 percent at constant currency) in the third quarter to $715 million. Revenues from the Enterprise Investments/Other area, which includes industry-specific IT solutions such as product life-cycle management software, increased 3 percent (down 3 percent at constant currency) compared to the third quarter of 2002 to $266 million.
The company's total gross profit margin from continuing operations was 36.3 percent in the 2003 third quarter, compared to 36.9 percent from the same period in 2002.
Total expense and other income from continuing operations, in the third quarter of 2003, was $5.3 billion, up 7 percent from the year-ago period. Selling, general and administrative expense was $4.3 billion, up 8 percent year over year. Research, development and engineering expense increased 8 percent to $1.3 billion compared with the same period of 2002. Intellectual property and custom development income increased. Other (income) and expense had a negative impact versus the same period last year primarily from higher foreign exchange losses on hedging contracts.
IBM's effective tax rate from continuing operations in the third- quarter 2003 was 30.0 percent compared with 29.5 percent in the third quarter of 2002.
For total operations, net income for the third-quarter 2003, including discontinued operations, was $1.8 billion, or $1.02 per diluted common share, compared with third-quarter 2002 net income of $1.3 billion, or $.76 per diluted share.
IBM spent approximately $1.2 billion on share repurchases in the third quarter. As of September 30, 2003, there were 1.72 billion basic common shares outstanding. The weighted average number of diluted common shares outstanding in the quarter was 1.76 billion compared with 1.71 billion shares in the same period of 2002.
Debt, including Global Financing, totaled $23.0 billion, a decline of $3.0 billion from year-end 2002. From a management segment view, the non-global financing debt-to-capitalization ratio was 1.2 percent at September 30, 2003, and Global Financing debt declined $1.1 billion from year-end 2002 to a total of $22.7 billion, resulting in a debt-to- equity ratio of 6.7 to 1.
Year-to-Date 2003 Results
Income from continuing operations for the nine months ended September 30, 2003 was $4.9 billion compared with $3.4 billion for the same period of 2002 which included charges of $1.1 billion after tax associated with 2002 actions. Diluted earnings per common share from continuing operations was $2.78 compared with $1.97 after the 2002 charges of $.64 per diluted share. Revenues from continuing operations for the nine months ended September 30, 2003 totaled $63.2 billion, up 10 percent (4 percent at constant currency) compared with $57.5 billion for the nine months of 2002.
For total operations, net income for the nine months of 2003, including discontinued operations, was $4.9 billion, or $2.77 per diluted common share, compared with the nine months of 2002 net income of $2.6 billion which included $1.5 billion in charges after tax associated with 2002 actions, or $1.47 per diluted share after $.87 per diluted share for the charges.
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