IBM 1999 Annual Report Download - page 60

Download and view the complete annual report

Please find page 60 of the 1999 IBM annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 100

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100

management discussion
International Business Machines Corporation
and Subsidiary Companies
Hardware revenue declined 10.7 percent (10 percent in constant
currency) to $10.2 billion from the 1998 fourth quarter. Y2K-
related declines in customer demand were a significant factor
behind fourth-quarter revenue decreases in S/ 390, AS/ 400,
RS/ 6000 and personal computers. However, within the
company’s
server family, Netfinity
PC
revenues increased significantly, as did
revenues from
RS
/ 6000 mid-range servers, including the advanced
RS
/ 6000 Model S80. Microelectronics
revenues increased sub-
stantially, principally due to growth in custom logic shipments.
Shipments of the company’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 HDDs.
The overall hardware gross profit margin declined to 26.6 percent
from 34.2 percent.
Global Services revenue grew 2.0 percent (4 percent in constant
currency) versus the fourth quarter of 1998. Strategic Outsourc-
ing showed good growth versus the fourth quarter of 1998.
Networking Services declined year to year due to the sale of the
Global Network to AT&Tduring 1999, while revenue from the
other categories of services was flat or declined as a result of
the Y2K-related slowdown. The company’s services unit signed
more than $10 billion in services contracts in the quarter.
Revenue from maintenance offerings was essentially flat when
compared with the fourth quarter of 1998.
Software revenue totaled $3.6 billion, up 1.7 percent (6 percent
in constant currency) over the prior year’s final quarter.
Middleware—which is critical for e-business—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 revenue increased 19.3 percent (22 percent
in constant currency) versus the same period of 1998, and
Enterprise Investments/ Other declined 13.3 percent (10 percent
in constant currency) compared with 1998’s fourth quarter. The
revenue decline in Enterprise Investments/ Other resulted from
the company’s strategy to withdraw from certain businesses,
such as ATMs.
The company’s overall gross profit margin in the fourth quarter
was 36.7 percent, compared with 39.0 percent in the year-earlier
period. The decrease was primarily due to a drop in the hard-
ware margin of 7.6 points from the fourth quarter 1998 across
S/ 390 and AS/ 400 servers, storage and personal computer
products. This decrease was partially offset by improved margins
for services and software in the fourth quarter of 1999 versus
the same period in 1998.
Total fourth-quarter 1999 expense declined 9.3 percent when
compared with the fourth quarter of 1998. The decline reflects
lower revenue-related expenses due to the slowdown that is
included in the fourth quarter results. The quarter also reflected
expenses associated with infrastructure reductions in areas
such as Sales and Distribution,
Personal Systems and Server
Group, which offset a gain associated with the sale to Cisco
Systems, Inc. of certain IBM intellectual property. The expense-
to-revenue ratio in the fourth quarter of
19
99 was
24.4 percent,
compared with 25.9 percent in the year-earlier period.
The company’s tax rate was 30.0 percent in the fourth quarter,
compared with 28.9 percent in the fourth quarter of 1998.
The company spent approximately $2.1 billion on common share
repurchases in the fourth quarter. The average number of shares
outstanding in the fourth quarter of 1999 was 1,793.0 million,
compared with 1,839.5 million in the year-earlier period. The aver-
age number of shares outstanding for purposes of calculating
diluted earnings per share was 1,847.8 million in the fourth quar-
ter of 1999 versus 1,894.3 million in the fourth quarter of 1998.
Financial Condition
During 1999, the company continued to make significant
investments to fund future growth and increase shareholder
value, spending $5,806 million for research, development and
engineering; $4,346 million for plant and other property, including
machines used in strategic outsourcing contracts; $1,613 million
for machines on operating leases with customers; $1,542 million
for strategic acquisitions; and $7,280 million for the repurchase
of the company’s common shares. The company had $5,831 mil-
lion in cash and cash equivalents and marketable securities at
December 31, 1999.
The company has access to global funding sources. During
1999, the company issued debt in a variety of geographies to a
diverse set of investors, including significant funding in the
United States, Japan and Europe. The funding has a wide range
of maturities from short-term commercial paper to long-term
debt. More information about company debt is provided in
note J, “Debt,” on page 74.
58