IBM's Q4 Results

IBM’s fourth-quarter 1999 diluted earnings per common share of $1.12 compared with diluted earnings per common share of $1.24 in the fourth quarter of 1998. Fourth-quarter 1999 net income was $2.1 billion, compared with 1998’s fourth-quarter net income of $2.3 billion. Revenues totaled $24.2 billion, a decline of 4 percent (2 percent at constant currency) compared with the fourth quarter of 1998.

Louis V. Gerstner, Jr., IBM’s Chairman and CEO, says, "As we had anticipated, the Y2K issue hit us hard in the fourth quarter. Many of our large customers ... had locked down their computer systems as they prepared for the Y2K transition ... However, the Y2K issue should not overshadow the fact that 1999 was a good year for IBM ... Our e-business services revenues ... were up 60 percent from the previous year ... In addition, we generated strong cash flows, completed 17 acquisitions and spent $6 billion on capital expenditures."

In the Americas, fourth-quarter revenues were $10.4 billion, down 4 percent (2 percent at constant currency) from the 1998 period. Revenues from Europe/Middle East/Africa were $7.2 billion, down 15 percent (6 percent at constant currency). Asia-Pacific revenues increased 12 percent (2 percent at constant currency) to $4.4 billion. OEM revenues grew 12 percent (12 percent at constant currency) to $2.2 billion.

Hardware revenues declined 11 percent (10 percent at constant currency) to $10.2 billion from 1998’s fourth quarter. Y2K-related declines in customer demand were a significant factor behind fourth-quarter revenue decreases in System/390, AS/400, RS/6000 and personal computers. However, within IBM’s server family, Netfinity PC revenues increased significantly, as did revenues from RS/6000 midrange servers, including the advanced RS/6000 Model S80. Microelectronics revenues increased substantially, principally due to growth in custom logic shipments. Shipments of IBM’s new "Shark" disk storage product were strong in the quarter, although overall storage revenues declined largely as a result of ongoing price pressures in hard disk drives. The overall hardware gross profit margin declined to 26.6 percent from 34.2 percent.

Revenues from IBM Global Services, after normalizing for the 1999 sale of the IBM Global Network to AT&T, increased 7 percent in the quarter (excluding maintenance). On an as-reported basis, revenues for Global Services -- including maintenance and without normalizing for the Global Network sale -- grew 2 percent (4 percent at constant currency) to $8.7 billion. IBM signed $10.3 billion in services contracts in the quarter and concluded the year with a total services contract backlog of approximately $60 billion.

Software revenues totaled $3.6 billion, up 2 percent (6 percent in constant currency) over the prior year’s final quarter. Middleware grew 8 percent (13 percent at constant currency), with record fourth-quarter shipments of Lotus Notes and Domino groupware products and strong performance in database, transaction processing, and Tivoli system management software. The software gross profit margin improved 1.1 points year over year to 83.4 percent.

Global Financing revenues increased 19 percent (22 percent at constant currency) in the fourth quarter to $915 million.

Revenues from the Enterprise Investments/Other area, which comprises custom applications and other products designed to meet specialized customer requirements, declined 13 percent (10 percent at constant currency) year over year to $687 million. The revenue decline resulted from IBM’s strategy to exit certain non-strategic businesses.

The company’s total gross profit margin was 36.7 percent in 1999’s fourth quarter, compared with 39.0 percent in the 1998 fourth quarter. Total fourth-quarter expenses declined 9 percent, and the company improved its expense-to-revenue ratio by 1.5 points year over year to 24.4 percent.

IBM spent approximately $2.1 billion on common share repurchases in the fourth quarter. The average number of basic common shares outstanding in the quarter was 1.79 billion, compared with 1.84 billion in the same period of 1998.

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