Financial Model Mark Loughridge Senior Vice President and Chief - PowerPoint PPT Presentation

Financial Model Mark Loughridge Senior Vice President and Chief Financial Officer

Agenda � 2010 Roadmap � Operating / Non-Operating Reporting � 2015 Roadmap

2010 Long-Term EPS Roadmap (May 2007) 14% 16% 10% CGR CGR CGR ~ $11 ~ $10 ~ $0.90 10% -12% CGR EPS Model ~ $9 ~ $1.10 ~ $1.20 ~ $1.00 ~ $0.75 $6.05 5% +1 to 2 pts Revenue Revenue Growth Growth 2006 EPS Historical Margin Share Estimated Growth Future 2010 EPS Retirement 2010 EPS Expansion Repurchases Initiatives Acquisitions Objective Revenue 2010 EPS w/o Related (Base) Growth Retirement Yr/Yr of 3% Related Yr/Yr Costs Note: 2006 EPS reflects the adoption of amendments to ASC 260, “ Earnings Per Share”

2010 Long-Term EPS Roadmap (May 2007) Operating Range “At Least” 14% 16% 10% CGR CGR CGR ~ $11 ~ $10 ~ $9 $6.05 2006 EPS Historical Margin Share Estimated Growth Future 2010 EPS Retirement 2010 EPS Expansion Repurchases Initiatives Acquisitions Objective Revenue 2010 EPS w/o Related (Base) Growth Retirement Yr/Yr of 3% Related Yr/Yr Costs Note: 2006 EPS reflects the adoption of amendments to ASC 260, “ Earnings Per Share”

2010 EPS Roadmap Progress Well ahead of pace for 2010 Roadmap At Least $11.20 $10.01 12% $8.89 $10 Yr/Yr 13% Yr/Yr $7.15 24% $6.05 Yr/Yr 18% Yr/Yr 2006 2007 2008 2009 2010 Note: 2006-2008 EPS reflects the adoption of amendments to ASC 260, “ Earnings Per Share”

2010 EPS Roadmap $10 -$11 Historical Revenue Growth of 3% Retirement-Related Since 2006… Costs 6% 5.0% Share � Shifting to a higher growth portfolio Repurchases – Key Branded Middleware 2.8% 3.0% 3.4% Growth Initiatives 3% – Business Transformation Outsourcing & Acquisitions 2.7% – Systems Integration Margin Expansion Historical Revenue 0% � Shift to Growth Markets Growth – Grows from 16% of geographic 2006 revenue to 19% in 2009 EPS – Grew ~8 points faster than major $6.05 markets at local currency -5.3% � Expanded IBM’s reach and offerings -6% 2004 2005 2006 2007 2008 2009 – Established Growth Markets Unit – Leader in “Smarter” Solutions Note: Growth rates at Constant Currency and – Created Business Analytics and excludes PCs & Printer Divestitures 2010 Optimization offering EPS Objective The IBM portfolio is positioned for growth in 2010

2010 EPS Roadmap $10 -$11 Margin Expansion Retirement-Related Software Costs 33.6% 28.5% Share 26.9% 26.8% Repurchases Since 2006… +7pts Growth Initiatives & Acquisitions � Margin expansion across all brands Margin – 7 pts of Software margin expansion Expansion – 4 pts of Services margin expansion 2006 2007 2008 2009 Historical Revenue Growth – 1 pt of Hardware margin expansion Services 2006 14.1% 11.9% EPS 9.9% � Delivered over $5B of cost and 9.7% +4pts $6.05 expense savings – Productivity savings of ~$1B per year 2006 2007 2008 2009 – $2B workforce rebalancing in 2009 Hardware 9.6% 8.3% 7.5% 7.7% +1pt 2010 2006 2007 2008 2009 EPS Objective +4 points PTI margin expansion over Roadmap

2010 EPS Roadmap $10 -$11 Margin Expansion Retirement-Related Pre-tax Income Margin Costs Share 50% Repurchases 40% Growth Initiatives I BM 2009 & Acquisitions 30% 18.9% Margin Expansion 20% Historical Revenue Growth 10% 2006 0% EPS -10% I BM $6.05 25% of companies 2006 in Tech Universe 14.6% -20% have PTI margins in excess of 20% Tech Universe -30% S&P 500 ( March 15, 2010 ) -40% Tech Universe includes 470 worldwide Information Technology companies with market cap > $1B (Revenue and PTI Margins based on latest fiscal year reported) -50% S&P 500 2010 Source: Capital IQ EPS Objective IBM is a higher performing enterprise today with room for margin expansion

2010 EPS Roadmap $10 -$11 Growth Initiatives Retirement-Related Costs Shift to Higher Value Since 2006… Share Segment Profit* Repurchases 19.3B � Continuing mix shift towards Growth Initiatives & Acquisitions our most profitable segment Margin Expansion 8.1B 42% 13.7B � Almost $6B profit growth in Historical Revenue 11.2B Growth software and services 5.5B 40% 2.8B 25% 2006 8.1B 42% EPS 4.5B 5.0B � Software, Services and Financing 40% 37% $6.05 comprise over 90% of profit in 3.9B 3.2B 3.1B 2009 35% 23% 16% 2000** 2006 2009 Software Services Hardware / Financing 2010 IBM transformation has contributed significant profit growth EPS Objective * Sum of 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

2010 EPS Roadmap Research & Development $10 -$11 Investing for Value 9% $18B Retirement-Related Costs From 2007 to 2009… Share 53% Repurchases 36% � Invested $18B in research and Growth Initiatives development, generating over & Acquisitions 12,000 patents Margin Capital Expenditures Expansion � Invested $13B in capital Historical Revenue $13B 34% Growth expenditures 2006 EPS 25% � Acquired 33 companies for 11% $6.05 $9B, with investments 17% 13% concentrated in Business Analytics Acquisitions $9B Investing to expand IBM’s 91% 7% 2010 breadth and scale EPS Objective Software Services Hardware IGF Research Other

2010 EPS Roadmap $10 -$11 Acquisitions 45% Estimated Revenue Growth Retirement-Related Costs Revenue Yr/Yr% 29% 30% � Covers 70 companies Share Repurchases acquired for ~$14B since 17% 13% 12% Growth Initiatives 15% 2002* 9% & Acquisitions Margin – Aggregate compound 0% Expansion revenue growth of 16% Yr1 Yr2 Yr3 Yr4 Yr5 Historical Revenue Growth – Accretive in year 2 on Estimated PTI Margin 30% both a GAAP and Non- 2006 23% 20% GAAP basis EPS 20% 15% $6.05 18% 10% PTI Margin 10% 14% 8% 0% -2% 1% -10% * Includes 2002-2005 acquisitions less than $500M, and all material -13% 2006-2008 acquisitions -20% Yr1 Yr2 Yr3 Yr4 Yr5 Actual Margin excl. amortization of intangibles and 2010 acquisition-related charges (Non-GAAP) Projected EPS Objective Disciplined execution of acquisition strategy

2010 EPS Roadmap $10 -$11 Acquisitions Retirement-Related Costs Share Repurchases Growth Initiatives � Acquired January 2008 � Acquired January 2008 � Acquired December 2007 � Acquired December 2007 � Acquired December 2008 � Acquired December 2008 & Acquisitions � Purchase Price $5B � Purchase Price $5B � 40 resources � 40 resources � Purchase Price $295M � Purchase Price $295M Margin Expansion � 4,100 resources � 4,100 resources � 835 resources � 835 resources Historical Revenue Technology to help IBM Technology to help IBM Software enabling IBM ’ s clients Software enabling IBM ’ s clients Business intelligence and Business intelligence and Growth address emerging storage address emerging storage to deliver critical information to deliver critical information optimization software to optimization software to opportunities like Web 2.0 opportunities like Web 2.0 in real-time, allowing them to in real-time, allowing them to 2006 accelerate IBM ’ s Information accelerate IBM ’ s Information applications, digital archives applications, digital archives make better business make better business on Demand strategy on Demand strategy EPS and digital media and digital media decisions faster decisions faster $6.05 Acquisition Highlights Acquisition Highlights Acquisition Highlights Acquisition Highlights Acquisition Highlights Acquisition Highlights � Cornerstone of BAO offerings � Cornerstone of BAO offerings � Integral part of advanced � Integral part of advanced � Key component of Smarter � Key component of Smarter storage solutions storage solutions Planet proposition Planet proposition � Double Digit revenue growth � Double Digit revenue growth last 4 quarters* last 4 quarters* � 2009 Revenue YTY% ~400% � 2009 Revenue YTY% ~400% � 2009 Revenue YTY% > 35%* � 2009 Revenue YTY% > 35%* � In 2009 signed 40 deals > $1M � In 2009 signed 40 deals > $1M � Over 480 new customers � Over 480 new customers � In 2009 signed 18 deals > $1M � In 2009 signed 18 deals > $1M since acquisition since acquisition * @ Constant Currency Acquisitions have contributed significantly to IBM’s 2010 growth in key strategic areas EPS Objective