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Mark Loughridge
Senior Vice President and Chief Financial Officer, Finance and Enterprise Transformation
2015 Roadmap
Base revenue growth ~2% excluding divestitures Shift to faster growing business mix provides ~1% revenue growth ~$20B of acquisition spend provides ~2% revenue growth Enterprise Productivity yields margin expansion Shift to a higher value portfolio continues to provide leverage ~$50B returned through share repurchase
Shares Enterprise Productivity Acquisitions Base Revenue Growth $11.67 Revenue Mix Margin Mix
~$2.80
Operating Leverage
~$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%
2011 Results
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 in 2011 Strong performance of 22 acquisitions closed through 2011
At Least
$20
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
2010
2011
* Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related expense
2015
Growth Initiatives
$13.44
15% Yr/Yr
Share Repurchase Operating Leverage
$0.82
Revenue Growth
$11.67
Growth Markets
Approaches 30% of IBMs geographic revenue by 2015
Business Analytics
Contributes ~$6B of growth over Roadmap
Cloud
2011 Operating EPS
2012 International Business Machines Corporation
Growth Initiatives
$13.44
15% Yr/Yr
Share Repurchase Operating Leverage
Growth Markets
16%
(11% @CC)
$0.82
Revenue Growth
$11.67
Smarter Planet
~50%
Business Analytics
16%
Cloud
2.8x
Growth Initiatives
$13.44
15% Yr/Yr
Share Repurchase Operating Leverage
Growth Markets
16%
(11% @CC)
$0.82
Revenue Growth
$11.67
Smarter Planet
Services 51%
Business Analytics
16%
Software 20%
Cloud
2.8x
Growth Initiatives
$13.44
15% Yr/Yr
Share Repurchase Operating Leverage
Growth Markets
16%
(11% @CC)
$0.82
Revenue Growth
$11.67
Smarter Planet
~50%
Services ~40%
Major Markets
~25%
Business Analytics
Software ~55%
Growth Markets ~35%
16%
Hardware ~5%
Cloud
2.8x
~$17B
~$7B
~$6B
~$3B
~$50B
~$2B
~$2B
~$0.2B
$0.82
Revenue Growth
~$3B
2011 +$6B
$11.67
~$30B
Growth Markets
Smarter Planet
Business Analytics
Incremental Cloud
Acquisitions
$13.44
15% Yr/Yr
Share Repurchase Operating Leverage
Spent $14B in R&D and closed/announced ~$11B for 30 acquisitions since 2010
Servers, Networking & Storage Optimization
$0.82
Revenue Growth
Cloud
GTS Service Delivery
$11.67
Smarter Planet
Smarter Commerce
Smarter Cities
GBS Offerings
Acquisitions
$13.44
15% Yr/Yr
Share Repurchase Operating Leverage
Acquisitions have contributed significantly to IBMs growth in key strategic areas Smarter Commerce Acquired Security Expert Integrated
$0.82
Revenue Growth
$11.67
Organic
GBS Offerings
Leadership in B2B integration, Commerce solutions, and Enterprise Marketing Mgmt Comprehensive portfolio across Buy, Market, Sell, and Service
$13.44
15% Yr/Yr
Revenue Yr/Yr%
45%
Acquisitions Focus acquisition investments of ~$20B on key growth areas that leverage IBMs global reach and scale
Forward Looking Revenue Growth Estimates
30% 20%
15%
30%
$0.82
Revenue Growth
10%
10%
10%
$11.67
0%
Yr1
Yr2
Yr3
Yr4
Yr5
23%
18% 11%
2% 2%
PTI Margin
27%
20%
10% 0% -10%
15% 10%
-20%
-20%
Yr1 Yr2 Yr3
$13.44
15% Yr/Yr
Share Repurchase Operating Leverage
Acquisitions Closed acquisitions through 2011 position us on pace against the 2015 Roadmap objectives
Roadmap Model
~$11B
$0.82
Revenue Growth
$11.67
2010 2011 2012 2013 2014 2015
Roadmap Model
~$0.90
2010
2011
2012
2013
2014
2015
Growth Markets IBMs business mix continues to shift towards the Growth Markets
$13.44
15% Yr/Yr
Share Repurchase Operating Leverage
Revenue Growth @ CC
11% 11%
$0.82
10%
Revenue Growth
30%
22% 21%
19%
18%
17% 16% 11%
+8 pts
+10 pts
1%
+10 pts
$11.67
2%
1%
2%
+8 pts
-6% 2008 2009 Major Markets 2010 Growth Markets 2011
2008
2007 2006
2000
2015 Roadmap
~$17B
Revenue Growth from Growth Markets
Market Expansion
~2X
$0.82
Revenue Growth
$11.67
~40%
Branch offices grew about twice the growth rate of the overall Growth Markets in 2011
Market expansion enabled by globally integrated enterprise Investment focused on client-facing resources Back office delivered through global shared services model
Operating Leverage
$13.44
15% Yr/Yr
Share Repurchase
Growth Markets delivered over 45% of IBMs Geographic Gross Profit growth in 2011
Geographic Gross Profit Bridge*
$2.2B $1.9B ~$47B
Growth Markets Major Markets
Revenue Growth
~$51B
Growth Markets
$0.18 $0.82
Operating Leverage
Revenue Growth
45%
55%
Major Markets
$11.67
Growth Markets
47%
53%
Major Markets
2010
2011
$0.18 $0.82
Operating Leverage
Revenue Growth
$30B
~$35B
$11.67
2,821 2,559 2,483 2,311 2,286 1,533 1,514 1,465 1,308
1,244
980
918
IB M
So ny
Hitachi
HP
Intel
Cisco
Oracle
A pple
EM C A ccenture
Top 10
Source: IFI CLAIMS Patent Services
Other IT Companies
Operating Leverage
$13.44
15% Yr/Yr
Share Repurchase
IBM expands margins in 2015 Roadmap through a continuation of our shift to higher value
% of Operating Segments Profit*
$0.18 $0.82
Operating Leverage
Revenue Growth
~50%
$11.67
40%
27% = $2.6B 38% 35%
44% = $10B
~36% 41% 16%
2011
Services
37% 23%
2006
Hardware/Financing
~13%
2015e
Software
2000**
* 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
Operating Leverage
$13.44
15% Yr/Yr
Share Repurchase
$0.18 $0.82
Operating Leverage
Continuous improvement leveraging analytics Locate work to where it best can be performed
Revenue Growth
$11.67
0.5
2006
2007
2008
Shared Services
Integrated Operations
Operating Leverage
$13.44
15% Yr/Yr
Share Repurchase
Enterprise Productivity provides flexibility and leverage across the business model
Enterprise Productivity Savings ($B)
$0.18 $0.82
Operating Leverage
Revenue Growth
$8B
Integrated Operations
$8B
Software
$8B
Revenue Productivity
$11.67
Services
Cost & Expense Reduction
Shared Services
Hardware / Financing
$0.18 $0.82
Operating Leverage
40%
Software $10B
Revenue Growth
PTI Margin
30%
$11.67
20%
2011 IBM Operating PTI % $13.44 2011 EPS GBS $3B STG $2B GTS $6B
10%
0% $0B $25B
$100B
$125B
IGF
$0.18 $0.82
Operating Leverage
40%
Software PTI Margin
Revenue Growth
30%
Share Repurchase ~$2.05 2011 IBM Operating PTI % $13.44 2011 EPS GBS GTS
$11.67
20%
10%
STG
0% $0B $25B
$100B
$125B
$0.18 $0.82
Operating Leverage
40%
Software PTI Margin
Revenue Growth
30%
2015 IBM Operating PTI % 2011 IBM Operating PTI % Share Repurchase ~$2.05
$11.67
20%
+3pts
$13.44 2011 EPS GTS
GBS
10%
STG
0% $0B $25B
$100B
$125B
IGF
$0.18 $0.82
Operating Leverage
40%
Software PTI Margin
Revenue Growth
30%
2015 IBM Operating PTI % Share Repurchase ~$2.05
$11.67
20%
+4pts
$13.44 2011 EPS
GBS
GTS
10%
STG
0% $0B $25B
$100B
$125B
IGF
At Least $20
Enterprise Prod ~$1.20 Software Growth ~$3.30
$0.18 $0.82
Operating Leverage
Revenue Growth
PTI Margin
30%
2015 IBM Operating PTI % 2011 IBM Operating PTI %
$11.67
20%
GBS
GTS
10%
STG
$105B
$120B
$135B
About $150 billion of free cash flow generated over past fifteen years
+$6.1B +$1.2B/Yr
16.3 16.6 15.1
Revenue Growth
14.3 12.4
~$10B
$11.67
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
* Excluding GF Receivables
$B $25
Revenue Growth
$11.67
2006 - 2010
$B
Share Repurchase
Share Repurchase
$60
Capital
~$50
Capital Dividends
$22
~$25
Acquisitions
~$20
* Excluding GF Receivables
$18
~$20
2015 Roadmap
Base revenue growth ~2% excluding divestitures Shift to faster growing business mix provides ~1% revenue growth ~$20B of acquisition spend provides ~2% revenue growth Enterprise Productivity yields margin expansion Shift to a higher value portfolio continues to provide leverage ~$50B returned through share repurchase
At Least $20
Shares Enterprise Productivity
$0.77
Margin Mix
Revenue Mix
Acquisitions
$13.44
$0.18
~$2.80
$11.67
~$2.50
~$3.05
2010 Operating EPS*
2012 International Business Machines Corporation
2015 Roadmap
At Least $20
2015 Objectives
Software contributes about half of our segment profit
$3.32
$1.81
'00
'01
'02
Hardware / Financing
2012 International Business Machines Corporation
Services
Software
Sum of external segment pre-tax income not equal to IBM pre-tax income 2000 & 2001 segments not restated for stock based compensation
Certain comments made in the presentation may be characterized as forward looking under the Private Securities Litigation Reform Act of 1995. 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 event or in these presentation materials 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. 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), certain materials presented during this event include non-GAAP information. The rationale for managements use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information is included in supplemental materials entitled Non-GAAP Supplemental Materials that are posted on the Companys investor relations web site at http://www.ibm.com/investor/events/investor0512. The NonGAAP Supplemental Materials are also included as Attachment II to the Companys Form 8-K dated May 9, 2012.