IBM Business Perspective UBS Best of Americas 2011 Patricia Murphy Vice President, Investor Relations
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 are intended to be presented and understood together. Information regarding the Company's financial roadmap, 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 Company’s 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 management’s use of this non-GAAP information, the reconciliation of that information to GAAP, and other related information are included as Attachment II (“Non-GAAP Supplementary Materials”) to the Company’s Form 8-Ks dated January 18, 2011, March 8, 2011, and July 18, 2011. 2
Revenue by Geography Who we are: 2010 Snapshot Leading Provider of High Value IT Solutions to the Enterprise Revenue: $99.9B, up 4% yr/yr Revenue by Industry Net Income (operating): $15.0B, up 12% yr/yr Free Cash Flow: $16.3B, up $1.2B yr/yr Excl GF Receivables Shareholder Return Dividends Paid: $3.2B (1.8% Yield) Share Repurchase: $15.4B Pre-Tax (Operating) Profit by Segment Employees: 427K Countries: > 170 3
IBM’s strategy addresses shifts in the IT industry Changes in world markets: We are at the forefront of global integration Changes in IT: We are shifting to higher value segments Changes in client needs: We are focused on integration and innovation 4
IT industry positioning is changing over time High Value Consumer/ Large SMB Enterprise Low Cost 5
In May 2007, we introduced the 2010 EPS Roadmap to deliver $10 to $11 of earnings per share 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 Revenue Expansion Repurchases 2010 EPS Initiatives Acquisitions w/o Related Objective Growth (Base) Retirement Yr/Yr of 3% Related Yr/Yr Costs Note: 2006 EPS reflects the adoption of amendments to ASC 260, “ Earnings Per Share” 6
We achieved the low end of the roadmap one year ahead of schedule, and beat the high end by ~ 50 cents $11.52 $10.01 $8.89 15% $10 Yr/Yr 13% $7.15 Yr/Yr $6.05 24% Yr/Yr 18% Yr/Yr +17% CAGR 2006 2007 2008 2009 2010 Note: 2006-2008 EPS reflects the adoption of amendments to ASC 260, “ Earnings Per Share” 7
The success of our business model rewarded shareholders 3Q 10 4Q’10 4Q 06 1Q 07 2Q 07 3Q 07 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 2.00 +17% IBM EPS Indexed with S&P 500 CAGR 1.75 1.50 1.25 IBM EPS $6.05 ~0% 1.00 CAGR S&P 500 EPS ~$85 0.75 0.50 0.25 Cum. Total Return Created $58B of Shareholder Value $47B Market Capitalization + $11B Dividends Paid 72% (1%) IBM S&P 500 Source: Bloomberg/Capital IQ Total Return as of 1/19/2011 8
2015 Roadmap 9
IBM’s 2015 Roadmap: at least $20 of Operating EPS Base revenue Shift to faster Enterprise Shift to a higher ~$20B of ~$50B returned growth ~2% growing business Productivity value portfolio acquisition spend through share excluding mix provides ~1% yields margin continues to provides ~2% repurchase divestitures revenue growth expansion provide leverage revenue growth 11% Shares CAGR At Least $20 Margin Mix Enterprise Productivity ~$ 2.80 ~$0.75 Acquisitions Revenue Mix Base Revenue ~$1.75 Growth ~$0.90 ~$0.70 ~$1.45 $11.67 Operating Leverage ~$2.50 Revenue Growth ~$3.05 2010 Operating 2015 Operating * Non-GAAP: Excludes acquisition-related charges and non-operating retirement-related expense EPS* EPS* Assumes current tax policy and Non-GAAP tax rate of 25% 10
Key initiatives support the revenue and profit objectives Smarter Planet Share Repurchase Grows to ~$10B business by 2015 Approximately 400 recent client Operating engagements illustrate reach Leverage Growth Markets Business Analytics Revenue Growth • Approaches 30% of • Grows to ~$16B ~$3.05 IBM’s geographic business by 2015 revenue by 2015 • Contributes ~20% of $11.67 • Contributes ~50% of IBM’s growth over the IBM’s growth over Roadmap the Roadmap Cloud Grows to ~$7B business by 2015, of which ~$3B is incremental 2015 Operating EPS 11
We are investing to expand IBM’s global reach and scale Revenue Growth @CC 14% 13% 13% 11% 10% 8% 9% 6% 4% 5% 5% 4% 2% 1% 1% 1%-1% -1% -1% -2% -4% -6% -7% -8% 8 8 8 8 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 2 3 4 1 2 3 4 1 2 3 4 Q Q Q Q Q Q Q Q Q Q Q Q Major Markets Growth Markets Major Markets Growth Markets 2000 2003 2006 2007 2008 2009 2010 2015 Percentage of IBM 11% 12% Approach 16% 17% 18% 19% 21% Geographic Revenue* 30% * Revenue mix percentages exclude divestitures (PCD, Printers) 12
We have allocated $20B for future acquisitions Forward Looking Revenue Growth Estimates Share 45% Repurchase Revenue Yr/Yr% 30% 30% Operating 20% Leverage � Scalable 15% 10% 10% 10% intellectual Revenue Growth property 0% ~$3.05 Yr1 Yr2 Yr3 Yr4 Yr5 Forward Looking PTI Margin Estimates � Key to solutions 30% $11.67 27% offerings 23% 20% 18% 20% PTI Margin 11% 15% 10% 10% � Drive synergies 2% 2% 0% through global -10% distribution -20% -20% Yr1 Yr2 Yr3 Yr4 Yr5 2015 PTI Margin Margin excl. amortization of intangibles and acquisition-related charges Operating EPS 13
IBM expands margins through a shift to higher value…. Share Repurchase % of Operating Segments Profit* Operating Leverage ~$ 2.50 ~50% Revenue Growth ~$3.05 45% $11.67 ~36% 27% 38% 38% ~13% 16% 35% 2000** 2010 2015 Hardware/Financing Services Software * Sum of operating segment pre-tax income not equal to IBM operating pre-tax income 2015 ** Stock-based compensation expense was not recorded at the segment level and excludes Enterprise Investments Operating EPS 14
… and enterprise productivity savings of $8B Cumulative Enterprise Productivity Savings ($B) Share Next Five Years Repurchase ~$8B savings Operating Leverage ~$2.50 Revenue Growth ~$3.05 Last Five Years ~40% of gross ~$6B savings savings taken to bottom-line $11.67 2006 2007 2008 2009 2010 2011e 2012e 2013e 2014e 2015e Shared Services End-to-End Process Transformation Integrated Operations 2015 Operating EPS 15
IBM cash generation enables reinvestment and returns Free Cash Flow* ~$100B Share $B Repurchase $25 $69B ~$ 2.80 $20 Operating Leverage $15 ~$2.50 $10 Revenue Growth $5 ~$3.05 $0 2006 2007 2008 2009 2010 2011e 2012e 2013e 2014e 2015e $11.67 Primary Uses of Cash Next 5 Years Last 5 Years $B $B Share Repurchase ~$50 Share Repurchase $60 Capital ~$25 Capital $22 Dividends Dividends $12 ~$20 Acquisitions 2015 Acquisitions $18 ~$20 Operating EPS * Excluding GF Receivables 16
IBM’s model supports the roadmap base and provides opportunity for upside At Least $20 ~2.80 Share +1 to 2% Repurchase � Full execution on Additional business unit objectives ~2.50 Operating Revenue Growth Leverage ~3.05 Revenue � Full benefit of $8B in Growth +$5B enterprise productivity savings Profit $11.67 to the bottom line � Cash generation and +$40B capital structure Financial Flexibility 2015 Operating EPS 17
The IBM transformation continues in the 2015 Roadmap At Least Operating PTI / EPS * 2015 Roadmap $20 � Growth initiatives deliver $20B Segment Operating PTI in revenue growth Operating EPS At Least $13.25 � Allocate $20B for future acquisitions � Software contributes about half of our segment profit � Enterprise productivity delivers $8B in gross savings, $3B net � IBM generates $100B in free cash flow, returning 70% to shareholders '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11e '12e '13e '14e '15e Hardware / Financing Software Services * 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 18
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