IBM 2009 Annual Report Download - page 50

Another key element of the company’s transformation is the
significant investments it has made for growth—investments
enabled by the strong margins, profitability and cash base. The
company continues to invest to capture the opportunity in the
emerging markets. In 2009, the revenue growth in the growth
markets remained 8 points greater than the major markets.
The company is also investing in capabilities that differentiate
IBM and accelerate the development of new market oppor-
tunities—areas like business analytics, cloud computing and
smarter planet. The company remains committed to technology
leadership, and in 2009, the company invested approximately
$6 billion in research and development. The company’s organic
investments have been complemented with acquisitions, with a
key focus on business analytics which provide a solid platform
for the Smarter Planet initiatives. Since 2005, the company has
invested approximately $8.5 billion in net cash for 14 strategic
acquisitions to build its business analytics capabilities.
The last decade has seen a significant transformation of IBM.
The company will continue to shift to higher value areas, improve
the efficiency of the business and invest where management
sees the best long-term opportunities. This transformation and
the focus going forward positions the company for growth mov-
ing into 2010.
In May 2007, the company met with investors and analysts
and discussed a road map to deliver earnings per share in 2010
in the range of $10 to $11 per share, or 14 to 16 percent com-
pound growth rate from 2006. The company’s 2010 road map
is comprised of two key components. First, the 2010 road map
includes generating earnings per share in the range of $9 to
$10 per share, or 10 to 14 percent growth from 2006 through a
combination of operational elements including revenue growth,
margin improvement, growth initiatives, acquisitions and effective
capital deployment to fund growth and provide returns to share-
holders through dividends and common stock repurchases.
In addition to these operational elements, the company’s road
map to the $10 to $11 per share range includes the projected
benefit of retire ment-related costs based on December 31, 2006
assumptions. Actual retirement-related costs will depend on
several factors including financial market performance, the inter-
est rate environment and actuarial assumptions. In March 2008
and May 2009, the company met with investors and analysts
and discussed the progress the company is making on its 2010
road map.
The company’s performance in 2009 highlighted the benefits
of its global reach and the strength of its business model. The
financial results reflected solid progress on major elements of the
long-term goals. Despite a challenging economy, with diluted
earnings per share of $10.01 in 2009, the company achieved its
road map objective one year early.
In January 2010, the company disclosed that it is expecting
earnings of at least $11.00 per diluted share for the full year 2010,
with consistent earnings per share growth throughout the year.
Also in January 2010, the company disclosed that, for the first
quarter of 2010, the company expects a 4
– 5 point improvement
in its year-to-year revenue growth rate compared to the fourth
quarter of 2009, at both actual currency rates and at constant
currency. This would represent a mid-single-digit revenue
growth at actual rates compared to the 0.8 percent growth in
the fourth quarter of 2009. The company is confident in its ability
to continue to leverage its business model to expand margins,
grow profit, generate cash, return value to shareholders and
return to revenue growth in 2010.
The continued investments in Software have led to this seg-
ment’s emergence as a strong source of revenue and the largest
contributor to the company’s pre-tax profit. The Software busi-
ness is differentiated in the industry by both the strength of its
individual products and the breadth of the software offerings.
Clients continue to rely on the extensive middleware portfolio to
help them transform their business, streamline costs and seek
new business opportunities. The key to continued Software
growth stems from the ability to maintain and grow this industry-
leading software business. Investments will be aligned to advance
the company’s growth strategy through new client acquisition,
with specific focus on key industries and local businesses. The
company will also continue to focus on expanding its software
capabilities through a combination of internal development and
strategic acquisitions. In January 2010, the company disclosed
that it expects Software to deliver a double-digit revenue growth
rate, at actual rates, in the first quarter of 2010.
Within the Global Services business, profit margins improved
and the company continues to yield significant results from the
targeted actions and investments it has made in the last few years.
The business has been transformed into one that is more flexible
and more focused on higher-value segments of the market. The
two services segments are well-positioned heading into 2010
driven by: an 11 percent growth (at constant currency) in out-
sourcing signings in 2009; a backlog of $137 billion at December
31, 2009; improving trends in Global Business Services; and,
a global delivery structure that has enabled the company to
perform well in a tough environment. In addition, the portfolio
is strong with a complement of offerings and capabilities that
deliver both high value and productivity to clients. Going for-
ward the Global Services business will look to build upon its
momentum by continuing to deliver value and by focusing on
further enhancements to its offerings/integrated solutions port-
folio and continuing to improve both the skills and structure of
the business.
In the Systems and Technology business, the company will
continue to focus its investments on differentiating technologies
with leadership and high-growth potential including POWER,
high-performance computing, virtualization, nanotechnology and
energy efficiency. In this market, the value has shifted to the high
end to address clients’ needs to consolidate and virtualize their
environments. The company will focus on providing clients with a
clear path to a fully dynamic infrastructure that not only reduces
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