www.ibm.com   Industry:  Diversified Computer Systems Established:  1910 Headquarters:  Armonk, New York COB, Pres. & CEO:  Samuel J. Palmisano Employees:  410,097 Ownership:  Publicly traded on NYSE (IBM) Annual Dividend:  $2.20   Institutional Shareholders 1488 institutions hold 60.7% of 1.341 billion common shares outstanding, lower than average institutional ownership of Computer Hardware Industry (70.1%) and S&P 500 (70.3%)   Products Global Technology Services: ·   strategic outsourcing ·   integrated technology ·   business transformation outsourcing &  maintenance Global Business Services: ·   professional services ·   application management ·   application outsourcing services in consulting and systems integration Systems and Technology: ·   computing and storage solutions (servers, disk & tape storage systems) ·   software ·   semiconductor technology and products packaging solutions ·   engineering and technology services ·   retail store solutions Software: ·   middleware ·   operating systems software comprising WebSphere software for Web-enabled applications ·   information management software for database, content management, information integration and business intelligence ·   Tivoli software for infrastructure management, including security and storage management ·   Lotus software for collaboration, messaging, and social networking ·   rational software, process automation tool Global Financing: ·   commercial financing to dealers/remarketers of IT products ·   lease and loan financing to external/internal clients ·   sale/lease of used equipment   In the Field  Â·  Announced $3 billion in financing for smart infrastructure initiatives in economic stimulus projects - Europe and Asia-Pacific, following $2 billion announced April 30 to jump start US economic stimulus – May 2009 ·   Collaborating with Salerno, Italy collaborating in design for sustainable city, following similar initiatives with two other Italian cities, Parma and Reggio Emilia – May 2009 ·   Simulation project to match intermittent wind power with charging electric vehicles in Denmark – February 2009 ·   Undertaking a $89.9 million, 5-yr project to "design and deliver a nationwide smart utility implementation" to Mediterranean island nation of Malta – February 2009 ·   Collaborating with French utility EDF to research automation for the smart grid – November 2008 ·   IBM in smart grid pilot projects with  CenterPoint ( Texas), American Electric Power ( Ohio), and Consumers Energy ( Michigan)   Read more IBM Press Release - May 27, 2009: IBM to Make up to US$5 Billion Available to Accelerate Smart Infrastructure Initiatives Around the World   Times-Herald Record – March 9, 2009: IBM Thinking Smart on Stimulus Money   IBM:  A Smarter Planet

In Brief: International Business Machines

IBM is a global information technology company with over $100 billion in sales of products and services in software, hardware, fundamental research and financing.  The company's major operations include its Global Technology Services segment (GTS), Global Business Services segment (GBS), Software segment, Systems and Technology segment, and Global Financing segment.  IBM has evolved from its original computer hardware emphasis to a systems, services and software company.

IBM's strategy is to focus on the high-growth, high-value segments of the IT industry.  It has been a key leader in long-term, in-depth grid-related research, working with energy firms and utilities on Smart Grid technology for five years.  As a result, the company appears well positioned to take advantage of current stimulus spending both in the U.S. and abroad. 

Strengths

IBM leads the industry with 4,186 new U.S. patents in 2008 stemming from both in-house research and through collaboration with corporations and universities. Its hefty R&D budget of $6.3 billion in 2008 and all-star research team drives innovations for the company.

Acquisitions are strategically chosen in high-growth areas where IBM has a limited presence.  The company is emphasizing services and software directions for growth through acquisition. Recent acquisitions, including Cognos, Platform Solutions, ILOG, and Exeros are expected to boost growth in software sales.  

Services were strong in the first quarter due to increases in long-term service contract signings.

IBM continues to develop stronger partnerships overseas, making sure that locals run the show in places like India and Brazil.  The plan is to expand its presence in high-growth emerging markets such as Vietnam and Dubai. Strong revenue growth in emerging markets has an added bonus of lower effective tax rates overseas.

Share repurchases have been announced - $3.7 billion authorized the end of March; another $3 billion on April 28.  This will add to per share profitability.

Challenges

First quarter results, revenues decreased 11% to $21.71 billion, and net income was down 1% to $2.3 billion.  The net income was aided by the expansion in margins derived from significant cost cutting, and shifts in sales mix away from hardware toward software and services where margins are wider.

The company’s goal for further margin expansion in a recession could be difficult. Likewise, maintaining a constant mix of business may be difficult to orchestrate in the current economic climate.

Late cycle pressure on the services division could negatively impact the bottom line in coming quarters.  Global expansion of services brings with it pricing pressures. 

Systems and Technology sales are expected to be weak in spite of customer acceptance of new hardware products. 

Our View

IBM clearly ranks ahead of its competition with the most comprehensive set of technologies and best global exposure for solution- and service-centric business models in the IT world.

As an early member and leader of several key trade and utility alliances, it has had a powerful influence in the evolution of the Smart Grid.  It has a consulting group devoted to the utility industry. It has a systems integrator operation. And of course it sells its servers and software as underlying components.

We expect IBM to continue to be a Smart Grid leader for years. And, with its Smart Planet initiative, it is already getting ahead of the pack in the next big wave – Smart Infrastructure, the process of applying communications and digital control to all essential services, including power, water, gas, telecommunications, security, transportation and more.