ARMONK, N.Y.--April 15, 2004-- IBM today announced first-quarter 2004 diluted earnings per common share of $.93 from continuing operations compared with diluted earnings of $.79 per share in the same period of 2003, an increase of 18 percent. First-quarter income from continuing operations was $1.6 billion compared with $1.4 billion a year ago, an increase of 16 percent. Revenues from continuing operations for the first quarter were $22.2 billion, up 11 percent compared with the first quarter of 2003 revenues of $20.1 billion.
Samuel J. Palmisano, IBM chairman and chief executive officer, said: "The IBM team entered the first quarter with good momentum and delivered a solid first quarter. Behind the results, clients are increasingly turning to IBM to help them become on demand businesses. This is creating demand for integrated services and high-performance IT infrastructure based on open industry standards -- areas where we have chosen to lead.
"IBM continued to out-perform the industry in our selected segments and gained share. We continued our industry-leading work in services with more than $10 billion in signings after a very strong fourth quarter of signings, and we grew our software and systems businesses, with significant progress in zSeries servers and WebSphere middleware. We delivered double-digit growth in emerging markets such as China, Eastern Europe, India and Brazil. Our balance sheet remains strong, with $8.5 billion of cash on hand.
"Despite the strengthening economic recovery, many of our competitors continue to struggle with the fundamental, changing dynamics of the IT industry. Because we anticipated these changes -- in computing and in how enterprises apply technology -- we made significant investments and repositioned IBM during the downturn. Those strategic moves are beginning to pay off for our clients and shareholders. We remain enthusiastic about our prospects for 2004."
First-quarter revenue growth of 11 percent (3 percent, adjusting for currency) was driven by growth across all geographies. In the Americas, first-quarter revenues from continuing operations were $9.1 billion, up 6 percent (4 percent, adjusting for currency) from the 2003 period. Revenues from Europe/Middle East/Africa were $7.3 billion, an increase of 15 percent (1 percent, adjusting for currency). Asia-Pacific revenues grew 16 percent (6 percent, adjusting for currency) to $5.2 billion. OEM revenues decreased 3 percent to $671 million compared with the first quarter of 2003.
Revenues grew at double digits in three of IBM's five industry sectors in the first quarter, as well as sales to Small and Medium businesses, which led the growth with 15 percent year over year.
Revenues from Global Services, including maintenance, increased 9 percent (1 percent, adjusting for currency) to $11.1 billion in the first quarter. Global Services revenues, excluding maintenance, increased 9 percent as well (1 percent, adjusting for currency). IBM signed services contracts totaling more than $10 billion and ended the quarter with an estimated services backlog, including Strategic Outsourcing, Business Consulting Services, Integrated Technology Services and Maintenance, of $120 billion.
Hardware revenues from continuing operations increased 16 percent (10 percent, adjusting for currency) to $6.7 billion in the first quarter versus the year-ago period. In the quarter, revenues from the new Systems and Technology Group increased. As a result of a "one team" approach to collaboration between Systems Group and Technology Group, the two segments were combined into one reporting segment in the first quarter of 2004.
First-quarter revenues for this group totaled $3.8 billion, up 14 percent due in large part to significant eServer revenue increases for xSeries Intel-based servers, pSeries UNIX servers and zSeries servers. The total delivery of zSeries computing power as measured in MIPS (millions of instructions per second) increased nearly 100 percent in the quarter compared with the first quarter of 2003. Revenues for the eServer iSeries midrange servers declined as did Microelectronics revenues. Storage Systems revenues increased due to strength in midrange disk and tape products. Personal Systems Group revenues increased 18 percent to $2.8 billion. Revenues from mobile personal computers increased significantly due to strong demand.
Revenues from Software were $3.5 billion, an increase of 11 percent (3 percent, adjusting for currency) compared with the first quarter of 2003. Revenues from IBM's middleware brands, which include WebSphere, DB2, Rational, Tivoli and Lotus products, increased 13 percent to $2.7 billion in the first quarter of 2004. Operating systems revenues increased 6 percent to $604 million compared with the first quarter of 2003.
WebSphere revenues in the first quarter increased 24 percent. WebSphere software facilitates customers' ability to manage a wide variety of business processes using open standards to interconnect applications, data and operating systems. Revenues for Data Management increased 10 percent including revenues for DB2 database software, which increased 14 percent. Revenues from Tivoli software (infrastructure software that enables customers to centrally manage networks and storage) increased 18 percent, and revenues for Lotus software, which enables customers to communicate, collaborate and learn effectively, increased 15 percent. Revenues from Rational (comprehensive software development tools) increased 88 percent, benefiting from the comparison to a partial first quarter in 2003 when the business was acquired.
Global Financing revenues declined 6 percent (12 percent, adjusting for currency) in the first quarter to $662 million. Revenues from the Enterprise Investments/Other area, which includes industry-specific IT solutions such as product life-cycle management software, increased 13 percent (6 percent, adjusting for currency) to $288 million compared with the first quarter of 2003.
The company's total gross profit margin from continuing operations was 36.0 percent in the 2004 first quarter, the same as the first quarter of 2003.
In the first quarter of 2004, total expense and other income from continuing operations of $5.7 billion increased 9 percent over the year-earlier period. The company's selling, general and administrative expense-to-revenue ratio improved to 20.2 percent in the quarter compared with 21.0 percent in the first-quarter 2003, while SG&A expense increased 6 percent to $4.5 billion. Research, development and engineering expense increased 14 percent to $1.4 billion. Intellectual property and custom development income declined 36 percent. Other (income) and expense was $13 million of net expense in the first quarter of 2004 versus $84 million of net expense in the same period last year.
IBM's effective tax rate from continuing operations in the first- quarter 2004 was 30.0 percent, the same as the first quarter of 2003.
For total operations, net income for the first quarter of 2004, including a loss from discontinued operations of $1 million, was $1.6 billion, or $.93 per diluted common share. Net income for the first quarter of 2003, including a loss from discontinued operations of $3 million, was $1.4 billion, or $.79 per diluted share.
Share repurchases totaled approximately $1.8 billion in the first quarter. The weighted-average number of diluted common shares outstanding in the quarter was 1.73 billion compared with 1.76 billion shares in the same period of 2003. As of March 31, 2004, there were 1.69 billion basic shares outstanding.
Debt, including Global Financing, totaled $23.7 billion, essentially the same at year-end 2003. From a management segment view, the non-global financing debt-to-capitalization ratio was 2.8 percent at the end of March 31, 2004, and Global Financing debt declined $300 million from year-end 2003 to a total of $23.0 billion, resulting in a debt-to-equity ratio of 6.7 to 1.
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