Highlights from IBM's Q4 Earnings Conference Call
The following bullets are some highlights from IBM's (NYSE: IBM) Q4 2013 earnings conference call:
- projects $20 of operating EPS in 2015
- IBM expects revenue of $27.7 billion and operating EPS of $6.13, which is up 14% year to year.
- IBM expects at least $18 of operating EPS in 2014. That's up 10.5% from $16.28 in 2013
- Good quarter in Software constant currency growth in all brands
- IBM strengthened several of the areas they've been targeting like analytics, cloud, and security. Software revenue was up 4% at constant currency and profit was up 6%.
- Hardware continued to impact overall performance. Hardware segment profit was down over $750 million in the quarter and $1.7 billion for the year, challenges in there hardware business models are specific to power, storage, and x86.
- In 2013, IBM delivered $99.8 billion in revenue, expanded gross and net margins, and increased there operating EPS 7% to $16.28. Software, Services, and Financing all expanded margins and grew profit
- IBM's revenue was down 5%, or growth in Software, Services, and Financing, which was more than offset by a decline in Systems and Technology. The currency impact of revenue was 2 points, and currency also impacted profit performance operating gross margin expanded by 30 basis points, driven by Services and an improving mix. Pre-tax income of $7.4 billion was down 8% and pre-tax margin down 80 basis points, with the declines driven entirely by our Hardware business
- Looking at the cash metrics, IBM generated free cash flow of $8.4 billion in the quarter and returned substantial value to shareholders. For the year, IBM generated $15 billion in free cash flow, which was down over $3 billion year to year.
- IBM ended the year with a cash balance of over $11 billion, consistent with year-end 2012.
- Americas revenue was down 2% year to year
- Asia Pacific, revenue was down 6%
- Japan, where revenue was up 4%
- Growth in Canada
- Good performance in Latin America, led by Brazil.
- China was down 23%
Services segments generated $15 billion in revenue, which was down 2% as reported and up 1% at constant currency. Pre-tax profit was up 2%, and pre-tax margin expanded by 0.9 points. Total backlog was $143 billion, up 2% at spot rates and up 5% at constant currency. Backlog grew in both the transnational and the outsourcing businesses.
Turning to the two segments, Global Technology Services revenue was $9.9 billion, down 4% or down 1% at constant currency, in line with the last quarter's year to year performance. Major markets returned to growth at constant currency for the first time since the first half of 2012, led by Europe, while growth markets' performance lagged.
Global Business Services, revenue was $4.7 billion, up 1% as reported and up 4% at constant currency
2014 with a Services backlog of $143 billion. 70% of revenue in any year is driven by the opening backlog. Looking to 2014, the projected revenue from the backlog is up 1%. The divestiture of IBM's customer care business is expected to close in the first quarter. That will reduce there backlog and impact revenue growth from the backlog by about three points. So overall, they expect revenue from backlog to be down 2%. Software revenue of $8.1 billion was up 3%
Information Management software grew 5%
In 2013, software revenue grew 3% at constant currency, with key branded middleware up 6% year to year. Our software pre-tax income of over $11 billion was up 3%, and we expanded pre-tax margins. Systems and Technology revenue of $4.3 billion was down 26% year to year. System z was down 37% against a very strong quarter a year ago, when revenue was up 56%. This quarter, IBM entered the back end of the mainframe cycle. And as expected, They delivered a higher gross margin on a lower base of revenue. MIPS declined 26% following the largest MIPS shipment in mainframe history a year ago.
Storage hardware revenue was down 12%
Profit in the Systems and Technology segment was down over $750 million in the quarter and over $1.7 billion for the year.
Total debt was $39.7 billion, of which $27.5 billion was in support of IBM's Financing business, which is leveraged at roughly seven to one. IBM's non-financing debt was $12.2 billion, and there non-financing debt to cap was 39%.
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