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Certain comments made in this presentation may be characterized as forward looking under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the Company's current assumptions regarding future business and financial performance. Those statements by their nature address matters that are uncertain to different degrees. Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the Company's filings with the SEC. Copies are available from the SEC, from the IBM web site, or from IBM Investor Relations. Any forward-looking statement made during this presentation speaks only as of the date on which it is made. The Company assumes no obligation to update or revise any forward-looking statements. These charts and the associated remarks and comments are integrally related, and they are intended to be presented and understood together. Information regarding the Company's financial roadmap including interim periods, which was previously communicated to investors, is being presented for purposes of historical information and is not being updated during this presentation. In an effort to provide additional and useful information regarding the Companys financial results and other financial information as determined by generally accepted accounting principles (GAAP), these materials contain certain non-GAAP information including "operating earnings" and other "operating" financial measures. The rationale for managements use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information are included as Attachment II (Non-GAAP Supplemental Materials) to the Companys Form 8-K dated May 9, 2012, Form 8-K dated July 18, 2012, and in the information entitled Non-GAAP Supplemental Materials that is posted on the Companys investor relations web site at http://www.ibm.com/investor/events/pmurphy0612/.
Agenda
% Growth
5% 0% '98 -5% -10% '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
Major Markets ~ 2%
'13 '14 '15
IBM has been moving to higher value areas, with more of our revenue and profit in annuity businesses
% of Segment Profit* Annuity vs Transactional Revenue
44%
48% 52%
41%
16%
2011
Services Software
40%
60%
Transactional
* Sum of external segment pre-tax income not equal to IBM pre-tax income ** Stock-based compensation expense was not recorded at the segment level and excludes Enterprise Investments *** Certain expenses allocated
Annuity
We have become a globally integrated enterprise, capitalizing on markets with high growth potential
Growth Markets % of IBM Geographic Revenue*
22%
21% 19% 18% 17%
16% 11%
4
2006 2000
* Revenue mix percentages exclude divestitures (PCD, Printers)
Our shift to higher value, global integration and productivity has driven superior financial results
Operating Pre-tax Income Margin and Free Cash Flow $B
16.6
20.2%
Share Repurchase
6.7
10.1%
Dividends Acquisitions
Capital
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
Agenda
Shares
Enterprise Productivity
Margin Mix
~$2.80
Operating Leverage
$11.67
~$2.50
Revenue Growth
~$3.05
* Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related expense Assumes current tax policy and Non-GAAP tax rate of 25%
Smarter Planet
Contributes ~$7B of growth over roadmap 2011: ~50% yr/yr
Revenue Growth
~$3.05
Growth Markets
Approaches 30% of IBMs geographic revenue by 2015 2011: 16% yr/yr (11% @CC)
Business Analytics
Contributes ~$6B of growth over roadmap 2011: 16% yr/yr
$11.67
Cloud
Contributes ~$7B of revenue, of which ~$3B is incremental growth 2011: 2.8x growth
2015 Operating EPS
~$17B
~$7B
~$2B
~$6B
~$2B
~$3B
~$0.2B
~$50B
Revenue Growth
~$3.05
~$3B
+$6B
~$30B
i
$11.67
Growth Markets
Smarter Planet
Business Analytics
Incremental Cloud
Operating Leverage
Revenue Yr/Yr%
30%
30%
20%
15%
Revenue Growth
~$3.05
10%
10%
10%
Scalable intellectual property Key to solutions offerings Drive synergies through global distribution
0%
Yr1
Yr2
Yr3
Yr4
Yr5
$11.67
30% 20%
PTI Margin
27%
10% 0% -10%
2%
2%
-20%
-20%
Yr1 Yr2 Yr3 Yr4 Yr5
PTI Margin
10
Revenue Growth
~$3.05
Cloud
GTS Service Delivery
Smarter Cities
$11.67
GBS Offerings
11
Operating Leverage
~$2.50
~50%
Revenue Growth
~$3.05
44% = $10B
$11.67
27% = $2.6B 38% 35% 16% 41%
~36%
~13%
2000**
H ardware/Financing
2015 Operating EPS
2011
Services
2015e
Software
* Sum of operating segment pre-tax income not equal to IBM operating pre-tax income ** Stock-based compensation expense was not recorded at the segment level and excludes Enterprise Investments
12
Operating Leverage
~$2.50
Revenue Growth
~$3.05
~$6B
Continuous improvement leveraging analytics Locate work to where it best can be performed Focus integrated operations on high value advisory activities 2011: $1.9B gross savings
$11.67
Shared Services
2006-2010
2011-2015
We are leveraging our strong cash generation to invest in the business and return value to shareholders
Share Repurchase
~$2.80
Operating Leverage
~$2.50
2015 Roadmap
16.6
Revenue Growth
~$3.05
~$10B
$11.67
Approaches $100B
Free Cash Flow
6.7
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12e'13e'14e'15e
2015 Operating EPS
$20
Operating EPS* Revenue
Double-digit performance across growth initiatives Growth Markets +11% Yr/Yr @CC Smarter Planet nearly 50% Yr/Yr Business Analytics +16% Yr/Yr Cloud 2.8x growth Strong performance of 22 acquisitions closed through 2011 2010-15 11% CAGR
15% Yr/Yr
$13.44 $11.67
Operating Leverage
Margin performance in line with model Delivered $1.9 billion of Enterprise Productivity savings
Generated $16.6 billion in free cash flow Returned over 100% to shareholders through share repurchase and dividends
2015
* Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related expense
15
At Least $20
2015 Objectives
Software contributes about half of our segment profit Growth initiatives deliver $20B in revenue growth Growth markets revenue approaches 30% of IBMs geographic total Enterprise productivity delivers $8B in gross savings
$3.32 $1.81
Hardware / Financing
Services
Software
* Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related charges 2000 & 2001 segments not restated for stock based compensation Sum of external segment pre-tax income not equal to IBM pre-tax income
16
17
Agenda
Strategy and Historical Performance 2015 Roadmap
18
Over the 2015 Roadmap our growth initiatives deliver ~$20B of revenue growth
Become the premier Globally Integrated Enterprise Focus on open technologies and high-value solutions Deliver integration and innovation to clients
Smarter Planet
Contributes ~$7B of growth over roadmap
Growth Markets
Approaches 30% of IBMs geographic revenue by 2015
Business Analytics
Contributes ~$6B of growth over roadmap
Cloud
Grows to ~$7B business by 2015, of which ~$3B is incremental 19
Growth Markets
Economic Rebalancing
hic ap gr t mo hif De S
The worlds 10 fastest growing economies are all from the growth markets countries
ati o
Growth markets citizens are more mobile than ever - 90% of phones in Africa are cell phones and ~2.4 billion mobile phone users are in BRIC countries
Over the next 5 years, China and India will each spend $1 trillion on infrastructure
Ur ba
niz
By 2030, 93% of the worlds middle class will be from emerging markets
20
Growth Markets
Revenue Growth @ CC
10% 11% 11%
+8 pts
2%
1%
+10 pts
1%
+10 pts
2%
~$47B
Growth Markets
Major Markets
+8 pts
-6% 2008 2009 2010 2011
2010
2011
Growth Markets
Major Markets
* Sum of geographic gross profit not equal to IBM gross profit
21
Smarter Planet
Instrumented
1 Trillion
connected devices
In 5 years,
5.6 Billion
personal devices sold
Unstructured data growing
Interconnected
90%
of the worlds data was created in the past 2 years By 2020, business transactions over the internet =
800%
in the next 5 years
Intelligent
10,000
messages/second from 100 million active users per source
22
IBMs Smarter Planet is a collection of markets were making by driving new value for clients
Focus Industries
Expanded from 9 18 industries 52 industry solutions areas 2,400 Smarter Cities engagements 8 key portfolio areas
Smarter Planet
Buy Service
Market Sell
~50%
revenue growth
90%
growth in software content
8,000
engagements
VP of Customer Loyalty
Business Analytics
$234 billion
32% more
Return on Invested Capital
in total IT opportunity by 2015
$76 billion
in software opportunity by 2015
11.9% 9.0%
Source: IBM Global Business Services, The Global CFO Study 2010, 1H12 IBM Market Insights
24
Business Analytics
20,000
Unmatched experience gained from 20,000 client engagements
9,000
Supported by nearly 9,000 consultants, 10,000 technical professionals and 500+ patents
27,000
Working with 27,000 partners and 5,000 universities to develop skills
An enterprise-class big data platform that supports an end-to-end information management foundation
Integrated decision management capabilities that embed predictive analytics directly into organizational processes
Cloud Computing
2001
New server spending Power and cooling costs
2011
Server management & administration costs
Source: IDC Directions 2011: Game Changing Virtual Technology: Major Shifts and Innovations that will Forever Change your IT Business, March, 2011
* IBM Market Insights analysis, using GMV1H12, Jan 2012
26
Cloud Computing
Both born on the cloud and traditional IT to cloud transformations Driving infrastructure and labor savings with standardization and automation of delivery, combined with a deep collection of value add offerings
~4,000
successful cloud engagements in FY 2011
4.5M
daily client transactions through IBMs public cloud
2.8X
$100B
in commerce transactions analyzed per year in the cloud
1M
enterprise application users working on the IBM cloud
Foundation
Services
Solutions
27