tbr 1q11 ibm global services report

TBR

TECHNOLOGY BUSINESS RESEARCH, INC.

Technology Business ResearchAccelerating Customer Success Through Business Research

TBR


IBM Global Services

PROFESSIONAL SERVICES BUSINESS QUARTERLYSM

Publish Date: May 6, 2011Author: Elitsa Bakalova ([email protected]), PSBQ AnalystContent Editor: Alison Crawford, PSBQ Senior Analyst

First Calendar Quarter 2011First Fiscal Quarter 2011 Ended March 31, 2011

TBR OUTLOOK – POSITIVE TBR SCORE (0-10 SCALE)

6.28

mailto:[email protected]

TBR

IGS 1Q11 | Professional Services Business Quarterly ©2011 Technology Business Research, Inc.3

Company Analysis3 TBR Position4 Executive Summary 7 Strategy Overview 9 Corporate SWOT Analysis13 Financial Model Strategy16 Go to Market & Services Strategies

21 Alliance & Acquisition Strategies23 Geographic Analysis24 Resource Management Strategy26 Appendix

Company Data Models26 Income Statements28 Balance Sheet29 Service Line Model30 Geographic Model31 Vertical Revenue Model32 Operating Expenses33 Headcount Model34 Financial Strategy Graphs36 Go-to-Market Graphs37 Resource Management Graphs39 Acquisitions Tables42 Portfolio of Services43 Recent Service Announcements44 Vertical Offerings45 Quarterly Signings Tables50 Strategic Alliance Tables52 Organization Chart53 Worldwide Locations Table55 About TBR

Contents

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www.surveymonkey.com/s/TBR-IBM_GS

http://www.surveymonkey.com/s/TBR-IBM_GS

TBR


IBM will continue to successfully meet demand and build services growth momentum through 2011TBR Assessment Corporate Strategic ObjectivesIBM Global Services (IGS) remains a formidable competitor in the IT services industry. IGS’ broad portfolio of high-value and high-growth offerings, geographic diversification and strong service delivery model will help propel top- and bottom-line growth through 2010. IGS is gradually rebuilding its growth momentum, investing in areas with high demand and successfully finding new pockets of opportunity (e.g., analytics, cloud computing, emerging markets). IGS will reach its margin growth aspirations as a result of its global integration and focus on higher-value offerings and efficiency and productivity initiatives.

Grow services business at/above market and expand pre-tax income by 8% to 10% CAGR through 2015

IBM has significantly improved its services business model and offerings, which will help the company expand its client base and gain market share. IBM’s multi-lever approach to margin progression will help services profitability reach target levels.

Continue to expand in higher-value, rapid growth areas (Smarter Planet, business analytics and optimization and cloud computing)

IBM’s key differentiator is its ability to adjust offerings to demand and provide cross-IBM solutions (services, software, hardware and research) that create value for clients. While IBM has already gained footholds with clients in the three strategic offerings areas, rising global demand will help the company increase business with existing clients and score new client wins.

Invest in skills and capabilities in emerging markets to diversify revenue and service delivery network

While the major markets will remain IBM’s leading service revenue contributor, the company will continue to have success in the emerging markets (18% of services revenue in 2010). In addition to revenue possibilities in emerging markets, IBM has established a successful lower-cost service delivery model that drives benefits on the profitability side.

(in $ millions) Consensus Guidance Range ActualIBM Revenue $24,020 $23,410 - $24,470 $24,607IBM Services Revenue (external) N/A $14,000 - $15,000 $14,573IBM Services Operating Income N/A N/A $1,878IBM Non-GAAP EPS $2.30 $2.19- $2.37 $2.34

(in $ millions) TBR Estimate Consensus Guidance RangeIBM Revenue $25,200 $25,110 $24,640 - $26,130IBM Services Revenue (external) $14,266 N/A $14,000 - $15,000IBM Services Operating Income $2,139.85 N/A N/AIBM Non-GAAP EPS N/A $3.00 $2.93-$3.09

IBM AND IGS 2Q11 GUIDANCE AND EXPECTATIONS

IBM AND IGS 1Q11 PERFORMANCE VS. EXPECTATIONS

TBR Position

TBR


IGS’ large revenue base, growing backlog and stable profitability remain key pillars that allow the organization to outperform its peers

IBM’s large services revenue base, strong backlog, stable profitability and high utilization allowed the company to report above-average scores against its competitors. TBR expects IGS to accelerate its growth through 2011. TBR also expects IGS’ focus on strengthening its geographic footprint, offshore service delivery and productivity to drive profitability benefits.

Executive Summary

Key Represents an area where IGS is currently challenged versus peersRepresents an area where IGS is outperforming its peersRepresents an area where IGS is neither significantly outperforming nor underperforming its peers

1Q10 2Q10 3Q10 4Q10 1Q11

Financial Model Strategy: 6.14 6.25 6.22 6.32 6.23 Go-to-Market & Services Strategies: 7.35 7.15 7.00 6.98 6.92 Resource Management Strategy: 5.47 5.66 5.70 5.75 5.69 TOTAL AVERAGE TBR SCORE: 6.32 6.36 6.31 6.35 6.28

TBR SCORING SUMMARY:CALENDAR QUARTER RESULTS

FINANCIAL METRICSTBR

ScoreCompany

FigureAverage in Class

Standard Deviation

Operating Margin 5.47 12.5% 9.4% 5.8%Current Ratio 3.91 1.18 1.77 49.7%Debt-to-Asset Ratio 3.17 0.80 0.57 12.4%Return on Assets (TTM) 6.39 13.9% 8.1% 3.7%Return on Equity (TTM) 9.23 67.6% 17.8% 12.9%

TOTAL AVERAGE TBR SCORE

GO-TO-MARKET & SERVICES METRICSTBR

ScoreCompany


Standard Deviation

Revenue (in $ Mill ions) 10.00 $14,266 $2,400 $1,324Revenue Growth YTY 4.53 6.2% 14.3% 7.8%Backlog/Revenue 6.40 2.41 1.96 0.35 Day Sales Outstanding 7.05 41.30 65.69 9.75

TOTAL AVERAGE TBR SCORE

RESOURCE MANAGEMENT METRICSTBR

ScoreCompany


Standard Deviation

Gross Margin 5.12 31.7% 31.0% 5.9%Operating Expenses as a % of Revenue 5.24 18.8% 20.0% 4.2%Revenue per Employee (TTM) 5.79 $235,482 $178,720 $65,064Operating Income per Employee (TTM) 5.76 $35,375 $18,405 $22,232Utilization Rate 8.17 86.2% 77.2% 2.9%Turnover 4.94 15.2% 15.0% 1.8%

TOTAL AVERAGE TBR SCORE 5.69

6.23

6.92

TBR


TBR assessment of IBM Global Services’ two-year strategic outlookKey TakeawaysFinancial: Recovery in the IT services market, coupled with IGS’ concerted efforts to grow profitably, will allow the organization to achieve the financial goals on its 2015 Roadmap. Go to market: TBR expects IBM to focus on maintaining growth in consulting & SI, as demand is improving and IBM is strengthening its portfolio.Resource: IGS will continue to strengthen its globally integrated service delivery capabilities, especially in lower-cost locations. Adoption of common delivery methods and automation will remain a key driver of margin improvement.

Strategic Outlook• While outsourcing was the lead revenue and growth

contributor in 1Q11 (46.8% of total services revenue) and will be in 2Q11, improving demand in consulting & SI also positively impacted IGS’ growth in 1Q11.

• There may be pockets of uncertainty in some service areas (e.g., transactional signings declined 1% year-to-year due to public sector challenges, indicating there may be temporary growth slowdown in transactional business areas such as consulting & SI, as transactional signings trends are similar to revenue trends); however, this slowdown will not have a major negative effect on IGS’ overall revenue performance. TBR expects the positive demand trend in consulting & SI to remain in the near term. Investments in portfolio expansion in this service area will help IGS gain traction with clients.

• Success in the growth markets and high-growth service areas such as business analytics and cloud computing will complement IGS’ core business expansion.

• Overall, IGS will continue to see its revenue and profit expand during the rest of 2011.

A stronger portfolio and delivery model will help IGS expand client reachExecutive Summary

$13.7 $13.7 $14.1 $14.9 $14.6 $14.3

$55.0 $56.4 $58.9 $61.8

$1.4 $2.1 $2.2 $2.4 $1.9 $2.1$8.1 $8.1 $8.8 $9.7

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1Q10 2Q10 3Q10 4Q10 1Q11 2Q11Est.

CY09 CY10 CY11Est.

CY12Est.

In $

Bill

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IGS' EXTERNAL REVENUE, GROWTH AND PROFITABILITY

IGS' External Revenue Pre-tax IncomeRevenue Growth Year-to-Year Operating Margin

SOURCE: TBR AND IBM

TBR

TBR


Segment Performance and Strategies

IBM Global Services

Increasing outsourcing backlog will contribute to outsourcing revenue growth in 2011. Challenges in the public sector may cause a temporary growth slowdown for the transactional business (largely for GBS consulting and SI).

IBM Software Group

IBM SW will continue to drive partner growth to expand its cloud and analytics ecosystem, as it strives to reach $7 billion in corporate cloud revenue by 2015.

Systems & Technology Group

IBM STG will lean on demand for analytics, cloud and workload-optimized systems to drive revenue and profit growth across its solution set in 2011.

Global Financing

IBM will leverage its financing arm as a key bargaining chip in solutions sales by wrapping hardware and software together with financing.

$201

$(1,887)

$13,716 $15,080

$5,018 $6,138

$3,385 $4,263 $537

$1,013

-$5,000

$0

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IBM SEGMENT REVENUE

Financing

STG

Software

Services

Investments/Eliminations

TBR

SOURCE: TBR AND IBM

Executive Summary

IBM’s delivery of integrated solutions will open doors to growth across its business units in 2011

TBR


Profitable growth at or above market levels is a top priority for IGS Strategy Overview

Function Key Strategies TBR Assessment

OverallBuild a resilient, global business model that generates revenue and profit improvement opportunities.

► IGS’ business mix transformation (focusing on higher-

value services), growth investments and margin improvement activities continued to support the organization’s financial performance in 1Q11.

FinancialGrow services business at/above market and expand pre-tax income by 8% to 10% CAGR through 2015.

►

TBR expects IBM will achieve its services growth and profitability targets as it works on its 2015 Roadmap. The company has already gained solid ground in its four growth areas and will continue to see near-term traction with clients.

Go to Market

• Gain traction in outsourcing; benefit from improving consulting & SI demand.

• Grow in line with IBM’s four growth areas (business analytics, Smarter Planet, cloud computing and growth markets).

►

►

We expect IGS to see revenue growth at mid-single digits in 2011, which will be in line with overall IT services market growth. Outsourcing is seeing a stable backlog; IBM expects revenue from the outsourcing backlog to account for ~85% of outsourcing revenue in 2011 and will grow 3% year-to-year. Consulting & SI demand is improving, which will positively affect IGS’ near-term revenue performance.

Following IBM’s overall growth agenda will help IGS develop its offerings portfolio, provide cross-IBM solutions (software, hardware and research), and gain clients through IBM’s marketing and business development activities in the four areas.

Key: Working: Short-term impact expected on bottom / top line Not working: No major impact or differentiation expected

TBR


IBM is leveraging alliances, acquisitions and integrated global service delivery to support growth

Strategy Overview

Function Key Strategies TBR Assessment

Alliances & Acquisitions

• Partner with IT companies, as well as educational and government institutions.

• Support investments with inorganic growth to expand capabilities.

►

►

IBM will continue to successfully enter strategic alliances to provide a full range of services and strengthen its Smarter Planet, analytics and cloud computing offerings.

IBM will continue to successfully acquire companies with intellectual property, high growth and margin opportunities to help shift its overall business mix and position the company for growth. TBR expects IBM to continue to invest its profit dollars in software and services acquisitions to support its business analytics and Smarter Planet offerings.

Resource & Investments

• Leverage integrated global delivery capabilities for service delivery, improve productivity and efficiency.

• Invest in skills and capabilities in emerging markets to diversify revenue and service delivery network.

►

An integrated global service delivery, coupled with a high grade of standardization, use of assets/tools that aid/automate service delivery, will continue to benefit IGS’ bottom line. TBR believes IBM leads its competition in integration, standardization and automation of its delivery model.

Well-developed resources and capabilities for service delivery from lower-cost regions around the globe remain key strengths for IBM. IGS’ nearshore/offshore headcount reached ~135,000 FTEs (54.2% of total in TBR estimates) in 1Q11.

►

Key: Working: Short-term impact expected on bottom / top line Not working: No major impact or differentiation expected

TBR


1

1

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Corporate SWOT Analysis

Strengths• Able to successfully integrate acquisitions• Strong relationships with alliance partners• Strong IBM brand associated with reliability; backing

from IBM as a whole• IBM’s Smarter Planet concept is a strong competitive

differentiator; strong industry expertise• Integrated global delivery network and presence in

low-cost locations• Ability to adjust its offerings to demand and create

value for the client

Opportunities• Demand for analytics brings investments in IBM’s

business analytics and optimization• Growth potential of cloud computing can help IBM

gain traction• European markets are now more open to outsourcing

functions to outside vendors• Gain traction in emerging markets due to demand and

IBM’s growth investments• Stabilizing consulting/SI demand can help IBM Global

Business Services grow in the long run

Weaknesses• Partnership network is difficult to manage• Perceived as biased toward “Big Blue” solutions• IBM/IGS’ size can sometimes slow decision-making

and implementation processes• Disjointed go-to-market approach in smaller

geographies may decrease win rate

Threats• Uneven economic recovery in Europe may challenge

IGS’ near-term performance• Indian vendors are becoming more active in business

consulting and remote management ITO• Competition from other MNCs (e.g., Accenture, HP,

etc.) and European and Indian firms for top clients • Attrition and intensifying competition in the labor

market (especially in lower-cost locations and in service areas with increased demand)

Corporate SWOT Analysis

IBM’s strength in services lies in its well-developed resources, industryand research expertise and ability to adjust its offerings to demand

TBR


Scenario Discussion: IBM is developing its consulting capabilities to capitalize on improving demandScenario SWOT AssessmentStrength: Well-developed high-end consulting capabilities (transformational, high-value)Weakness: Large matrix-managed organization and red tape can slow processesOpportunity: Improving consulting & SI demand will help GBS grow in the near-termThreat: Other IT service providers investing in consulting capabilities to address demand

• In anticipation of an uptick in the consulting industry, IBM is investing in its consulting business (part of IBM Global Business Services, or GBS).

• IBM is aiming to capture growth due to the gradual return of discretionary spending, which was limited during the recession.

• Since the beginning of 2011, IBM GBS launched two new consulting services: a global consulting practice for business process management (to help clients improve core business processes) and a Smarter Commerce consulting practice (to help clients adapt to customer demands). TBR believes IBM is making a smart move and will gain clients’ attention.

• Client demand for transformation on the operational side and overall business growth is improving. Since the two demand trends are addressed by the new consulting practices, we expect IBM to see client wins in the near term.

• We believe GBS is intensifying its hiring efforts in consulting to address demand. While GBS will attract professionals due to its strong IBM brand recognition, the organization will see competitive pressure as other IT service providers are also hiring in consulting.

• GBS’ high focus on utilization in the past several quarters, aimed at improving its profitability, may lead to employee burnout. In addition, some consulting employees say bonuses and salary increases have contracted, which may lead to low motivation levels or losses of potential candidates to competitors.

Scenario Discussion

IBM is set for gains in consulting with additions to its offerings portfolio

$3.48

$3.54

$3.59

$3.71$3.69

$3.64

24.4%

24.6%

24.8%

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25.2%

25.4%

25.6%

25.8%

26.0%

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$3.8

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% o

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IGS' CONSULTING & SI REVENUE

GBS Consulting & SI % of IGS External Revenue

SOURCE: TBR ESTIMATES AND IBM

TBR

TBR


Scenario Discussion: Investment in business analytics and optimization will support revenue growthScenario SWOT AssessmentStrength: Ability to grow through a combination of services, software and hardwareWeakness: May not be perceived as an agnostic analytics services vendorOpportunity: Strong demand in an emerging and fast-growth market segmentThreat: Increasing competition for market share and talent from other MNCs, European and Indian vendors

• With a strong heritage in business intelligence, IBM has invested significantly in recent years to develop its business analytics and optimization (BAO) business and position it as a key pillar for the company’s growth through 2015.

• The BAO consulting business started with 4,000 employees in 2009 and reached nearly 8,000 at the end of 2010. IBM’s analytics consulting capabilities allow the company to lead with services, then pull through its strong analytics software offerings (expanded through acquisitions) and run the solution on hardware. The combination of the three building blocks is a key differentiator for IBM that is hard for the majority of competitors to match.

• IBM leads the market by using its research capabilities to identify key trends and insert innovation into BAO solutions.

• An emphasis on industry-based solutions coupled with global service delivery capabilities allows IBM to provide BAO services catering to the needs of specific verticals. BAO services are also closely tied with IBM’s Smarter Planet, cloud computing and growth markets initiatives, allowing a multi-level expansion for the service area.

• IBM’s ability to match demand with integrated, cross-functional solutions will help its BAO business achieve its revenue goals. The BAO business will reach $16 billion in total cross-IBM in 2015, up from $11 billion in 2010 (TBR estimates ~$4 billion was attributed to services).

Scenario Discussion

Investments in developing its analytics portfolio and capabilities will help IBM lead the market and create growth through 2015

Industry Solutions (go-to-market by industry)Analytic Domains and Offerings

• Information management foundation• Customer, sales and marketing analytics• Finance/risk/fraud analytics

Globally Integrated Capabilities• BAO strategy• Business intelligence & performance management• Advanced analytics and optimization• Enterprise information management• Enterprise content management

Analytics Solutions TeamBAO Center of Competence and Global Delivery

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TBR


Scenario Discussion: Asset offerings drive revenue and margins for IBM and value for the clientScenario SWOT AssessmentStrength: Assets bring service distinction and speed to value for both IBM and the clientWeakness: Instilling an asset-based culture across the GBS population may be challengingOpportunity: Client demand for differentiation and speed to valueThreat: Intense competition from other MNCs

• IBM GBS is placing a strong emphasis on developing a portfolio of software assets (IP code assets and tools) that are sold alone or as part of a larger offering/solution.

• Such software assets allow both GBS and its clients to gain access to value and differentiation. The software assets allow GBS to stand out from its competition as its leads in breadth of offerings (both industry-specific and cross-industry) and internal development capabilities.

• To build software assets, GBS leverages client engagements, IBM Research, IBM Software, GBS’ own software lab and acquisitions, allowing GBS to create a solution that best fits client needs.

• The benefits for GBS come both at the top- and bottom-line levels. Revenue generation is aided by a high degree of repeatability, but the main benefit is on the margins. Profitability is positively affected by pre-built capabilities, asset re-use, and the ability to enhance productivity and focus on higher value-added activities. Solutions enabled with assets are predicted to expand GBS’ operating margin by 200 basis point through 2015.

• GBS’ business model shift to higher asset use comes hand-in-hand with a cultural transformation initiative. A fairly new tool called Asset Hub gives GBS practitioners access to assets associated with solution offerings. While GBS provides education and incentives for selling assets, cultural transformations typically take time, which may create challenges for GBS as it builds out its business model.

Scenario Discussion

Asset-based services will be key to IBM’s differentiation and growth

SOURCE: IBM AND TBR

GBS Software Assets

Differentiating Assets

Bring distinction to GBS’ services and competitive differentiation. Examples:• IBM M&A Accelerator• IBM Fraud & Abuse

Management System

Speed to Value Assets

Assets that enhance productivity and/or reduce labor. Examples:• Application development

and implementation toolkit• Productivity accelerators

supporting SAP

TBR


Revenue growth will continue for IGS through 2011, in line with overall IT services market performance

Revenue Performance and Strategies1Q11 Revenue: $14.57 billion, 6.2% YTY (as reported)

• IGS’ external revenue growth was led by outsourcing, largely driven by backlog and expansion in existing accounts.

• The transactional business (consulting & SI and ITS) was positively influenced by improved signings during the past several quarters.

• IGS is seeing strong performance in growth initiatives (expansion in emerging markets, business analytics and cloud).

Revenue and Growth Outlook

• Increasing outsourcing backlog will contribute to outsourcing revenue growth in 2011.

• Public sector challenges may cause a temporary growth slowdown for the transactional business (largely for GBS consulting & SI).

• Overall, TBR believes IGS’ external revenue will continue to grow through 2011, at levels in line with overall IT services market performance.

• IGS will look to increase its business in growth markets around the world. Outsourcing will continue to see increased traction (outsourcing signings in the growth markets grew 250% year-to-year in 4Q10 and 100% year-to-year in 1Q11).

Financial Model Strategy: Revenue

$57.46 $55.69 $54.70$55.00$55.57 $55.84 $56.13$56.42 $57.28$57.83

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IGS' TWO-YEAR TRAILING 12-MONTH REVENUE

SOURCE: TBR AND IBM.

TBR

CY09 CY10

13.7 13.7 14.1 14.9 14.6 14.3

56.4 58.9 61.8

4.3%2.0% 2.1% 2.0%

6.2%4.0% 2.6% 4.3% 5.0%

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IGS' EXTERNAL REVENUE, GROWTH AND PROJECTIONS

IGS' External Revenue Revenue Growth Year-to-year

NOTE: Annual revenue and projections are for calendar 2010, 2011 and 2012, respectively.SOURCE: TBR AND IBM

TBR

TBR


Service Line Performance and Strategies

GTS Outsourcing$5.8 billion, up 6.2% year-to-year

Outsourcing revenue was driven primarily by growing backlog (~85% of revenue) and revenue growth from base/existing accounts (add-on business). Emerging/growth markets and stable outsourcing backlog will contribute to 2011 growth.

Integrated Technology Services (ITS)$2.2 billion, up 7.0% year-to-year

Demand in the emerging/growth markets (up 11% on a constant currency basis for ITS) and improved signings performance will support ITS’ improving growth trend in 2011.

Maintenance$1.9 billion, up 4.0% year-to-year

Maintenance, a strong cash generator, will retain its steady performance and support GTS’ growth.

Global Business Services$4.7 billion, up 6.8% year-to-year

GBS’ revenue was driven by growth in consulting and SI (80% of GBS’ revenue and up 6.0% year-to-year) and in application outsourcing (AO, up 10% year-to-year, driven by growing outsourcing backlog). Business analytics revenue grew 30% year-to-year, as IBM continued to invest in expansion.

Financial Model Strategy

$5,454 $5,364 $5,532 $5,887 $5,795 $5,635

$2,073 $2,098 $2,162 $2,381 $2,218 $2,154

$1,779 $1,772 $1,802 $1,897 $1,850 $1,840

$3,480 $3,537 $3,587 $3,713 $3,690 $3,643

$930 $946 $985 $1,045 $1,020 $993

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IGS' SERVICE LINE REVENUE (IN $ BILLIONS)

GBS Outsourcing (AO) GBS Consulting & SIGTS Maintenance GTS ITSGTS OutsourcingSOURCE: TBR AND IBM

TBR

Growing outsourcing backlog will help IGS retain positive momentumin its outsourcing business (both in GTS and GBS)

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IGS' SERVICE LINE REVENUE AND PROFITABLITY

GTS Pre-tax Margin* GBS Pre-tax Margin*

SOURCE: TBR AND IBM* GTS Pre-tax Income as a % of total GTS and GBS Pre-tax Income as a % of total GBS

TBR

TBR


Expense Performance and Strategies1Q11 Operating Expenses: $2.75 billion

Cost of Services, Gross Profit

While IGS’ cost of services as a percentage of revenue rose 20 basis points year-to-year to 68.3%, higher leverage of lower-cost resources and focus on efficient delivery will help improve cost structure.

OpexOperating Margin and Outlook

• GTS’ operating margin was dragged down by workforce rebalancing charges in both 1Q11 and 1Q10; however, the metric was positively influenced by the operational improvement levers being implemented across the GTS business.

• GBS’ operating margin was positively affected by improved utilization and spending management and focus on delivery excellence.

• Key instruments that will support profit expansion include a focus on delivery excellence, leverage of the Global Delivery Framework (deployed to 60% of the delivery population at Global Technology Services, created 12% productivity improvement in one year) and globally optimized delivery at GBS (increased utilization by 100 basis points).

Financial Model Strategy: Expenses

IGS’ higher-value offerings, productivity initiatives and focus on delivery excellence will continue to generate operating margin expansion

31.9% 32.1% 33.2% 32.7% 31.7% 32.5% 32.5% 33.4% 34.6%

9.8%

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IGS' GROSS AND OPERATING PROFITAND PROJECTIONS

Gross MarginPre-tax Margin (Operating Margin)

NOTE: Annual gross and operating profit and projections are for calendar 2010, 2011 and 2012, respectively. Profit calculated as a percentage of IGS' external revenue. SOURCE: TBR AND IBM

TBR

15.3% 16.2% 14.3% 14.8% 14.0% 14.5% 14.5%

2.9%5.5%

2.4% 2.6% 2.6% 4.3% 4.3%

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IGS' OPERATING EXPENSES AS A PERCENTAGE OF EXTERNAL REVENUE

G&A Expense Sales and Marketing Expense

SOURCE: IBM AND TBR ESTIMATES

TBR

TBR


IBM utilizes a three-tiered direct sales approach to manage its accounts and generate new businessSales Strategy & Customer Segmentation

TBR AssessmentIBM’s three-tiered sales structure is very efficient, as it allows the company to approach a wide range of clients through multiple sales channels, regardless of the client’s business size and industry focus.

Tier 1: Integrated Accounts; Top 100 Accounts• IBM’s largest accounts, where it ensures a highly

integrated experience with dedicated IBM resources.• Vertical-specific global sales team works with Managing

Account Director; Brand Category Leader assists Managing Account Director with proposals.

• Includes the top +/-100 multinational accounts (more than $20 million in IBM revenue).

Tier 2: Industry-Aligned Accounts • Industry-specific and likely to have shared IBM resources. • Includes the next +/-1,400 accounts, clustering together

1 to 10 clients from the same industry.Tier 3: Medium Accounts; Territory Specific• Territory-specific accounts that leverage business partners

and regional ISVs.• Large regional players with annual revenue up to

$200 million.• Includes 15,000 (growth) focus accounts, 25,000 prospects

and 120,000+ SMB targets; served by partners.• Web-enabled sales orders and support play a key role

when assisting clients in this category.

Go-to-Market & Services Strategies: Sales Strategy

Tier 1Top ~100Accounts

Tier 2~1,400 Accounts

Aligned by Industry

Tier 340k Direct + 120k+ IndirectAligned by Geo/Territory


TBR


IGS’ Service Line Deep Dive

TBR Assessment: • While outsourcing dominates in revenue contribution

for IGS (~60% in 1Q11), IGS overall has a well-balanced business mix. Service offerings that combine vertical expertise with high-value transformational offerings, implementation and cost-optimization capabilities are augmented by IBM’s software and hardware capabilities.

Service Lines Deep Dive Strategies:• C&SI: Shift to higher-value offerings and grow asset-

based offerings to complement portfolio and support growth. Gain traction in high-growth areas such as cloud C&SI and analytics consulting.

• ITO: Extend asset-based offerings to complement portfolio and support growth. Benefit from new models such as cloud computing.

• BPO: Grow Global Process Services business (i.e., BPO) faster than the market through horizontal offerings, industry-specific offerings and platforms, coupled with forward-looking insights generated through analytics.

• AO: Integrate AO services with C&SI, GTS (outsourcing and maintenance) and with IBM software. Provide industry-specific offerings and emphasize innovation of solutions and delivery through use of IBM assets.

Go-to-Market & Services Strategies: Service Line Deep Dive

SERVICE LINE DEEP DIVE

With its business mix, IGS is able to target a wide range of clients and achieve account growth along the services continuum

IGS REPORTED 1Q11


AO, 7.0%

C&SI, 25.3%

BPO, 4.1%

Maintenance, 12.7%

ITO, 50.9%

GBS Revenue, 32.3%

GTS Revenue, 67.7%

TBR


Go-to-Market & Product Strategies

Services Contract Signings• While demand in the IT services market is

stabilizing as previously challenged areas such as consulting and SI rebound, IBM could not repeat the record total signings level achieved in 4Q10. The largest shift was in outsourcing, which did not get as many large deals as in 4Q10.

• Outsourcing/long-term signings (GTS outsourcing, GBS app. outsourcing) are uneven in nature and are not a direct indicator of revenue performance. As such, IBM is using backlog to predict outsourcing revenue. Backlog comprises ~85% of outsourcing revenue versus base account growth and new signings, which make up the balance of 15%. Outsourcing backlog rose 4.4% year-to-year in 1Q11 and will likely grow in a similar fashion in the near term, positively affecting outsourcing revenue.

• Transactional signings/short-term signings (GTS ITS, GBS consulting and SI) fell 1% year-to-year, spurred by challenges in the public sector. Transactional signings have a strong correlation with near-term revenue performance. The 1Q11 decline leads us to believe there will be a temporary growth slowdown in transactional service (e.g., consulting and SI), but it will not majorly influence total services revenue (e.g., consulting and SI accounted for 25% of revenue in 1Q11).

IBM’s growing backlog will support outsourcing revenue growth, while decline in transactional signings may slow consulting and SI growth

Key 1Q11 Customer WinsCompany TBR Assessment

CaparoIndia10 years

Provide SAP ERP implementation and datacenter infrastructure outsourcing, including managed services. This deal showcases IBM’s ability to attract clients in growth markets, which will help it further diversify revenue.

Hartford Financial Services U.S.5 years

Transform the client’s IT infrastructure through transitioning to IBM’s Smart Business Desktop Cloud. Cloud computing is one of the four growth pillars for IBM through 2015 and such deals will become more common.

$5.8 $5.8 $5.4 $8.0 $5.8

$6.5 $6.5 $5.6

$14.1

$4.7

$0

$5

$10

$15

$20

$25

1Q10 2Q10 3Q10 4Q10 1Q11

(In $

Bill

ions

)

IGS' CONTRACT SIGNINGS

Outsourcing/Long-term (GTS outsourcing, GBS outsourcing (AO))Transactional/Short-term (GTS ITS, GBS Consulting & SI)

SOURCE: TBR AND IBM

TBR

TBR


Pricing Environment & Strategies

• IGS’ market and pricing environment remains competitive. TBR believes prices are now more stable across a broader share of IGS’ business and geographies, allowing the organization to sustain its growth trajectory.

• As the economic environment stabilizes across the globe, TBR believes IGS is seeing pricing stability in the Americas, APAC and some countries in Europe (e.g., Germany, the Nordics). In such regions, we believe IGS is also able to test and push slight price increases with clients that are broadening their IT investments.

• At the same time, TBR believes pricing pressures still exist in regions of Europe that lag in economic recovery and have tight public sector spending (e.g., the Netherlands, the U.K., Spain).

• TBR expects IGS to experience moderate pricing traction through 2011, albeit at an uneven pace among its primary markets.

Go-to-Market & Services Strategies: Pricing

LABOR CATEGORY 10/09 - 09/10 10/10 - 09/11 % GROWTH

Project Executive $338 $348 3.0%Functional Specialist/Subject Matter Expert $292 $301 3.1%

Director $239 $246 2.9%

Senior Manager $193 $199 3.1%

Manager $159 $164 3.1%

Program Support $156 $161 3.2%

Consultant III $126 $130 3.2%

Consultant II $102 $105 2.9%

Consultant I $79 $81 2.5%

Project Assistant $71 $73 2.8%

Administrative Support $53 $55 3.8%

Interviewer $37 $38 2.7%

NOTE: RATES INCLUDE INDUSTRIAL FUNDING FEE (IFF)

SOURCE: TBR AND GENERAL SERVICES ADMINISTRATION

U.S. GOVERNMENT HOURLY RATES TBR

TBR

The table above provides hourly pricing rates for IGS from a Mission Oriented Business Integrated Services contract with the U.S. government’s General Services Administration. The contract period is from October 1997 through September 2017 and covers such services as consulting, facilitation, survey and privatization support and documentation.

Pricing is stabilizing and slowly improving, allowing IGS to expand its revenue in the long term

TBR


While the public sector may experience pockets of uncertainty, IGS will see positive trends in most of its verticals as demand improvesVertical Performance and Strategies

Financial Services

We believe IGS is seeing expansion in financial services as demand grows in both outsourcing and transactional service areas with specific strength in the major markets (e.g., North America, Europe).

Public Sector & Healthcare

• Pockets of uncertainty in the public sector may cause a temporary slowdown in growth in the vertical on the transactional side of the business (ITS, consulting & SI).

• Healthcare will continue to see traction as clients around the globe invest in IT modernization projects. IBM is able to provide a complete stack of services, software and hardware, which in many cases attracts healthcare clients investing in infrastructure changes.

Communications,Distribution, General business (SMB)

The three verticals supported revenue growth for IGS as global demand stabilized.

Go-to-Market & Services Strategies: Verticals

$4.02 $4.05 $4.22 $4.52 $4.53 $4.49

$2.33 $2.35 $2.42 $2.58 $2.55 $2.45$2.13 $2.19 $2.22 $2.34 $2.17 $2.18$2.08 $2.12 $1.97 $2.09 $2.06 $2.04$1.40 $1.44 $1.55 $1.63 $1.44 $1.46$1.36 $1.37 $1.41 $1.51 $1.46 $1.44$0.40 $0.20 $0.28 $0.25 $0.36 $0.20

$0.0$2.0$4.0$6.0$8.0

$10.0$12.0$14.0$16.0

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.

Exte

rnal

Rev

enue

in $

Tho

usan

ds

IGS' VERTICAL REVENUE

Other CommunicationsDistribution IndustrialPublic Sector General Business (SMB)

SOURCE: TBR ESTIMATES.

TBR

TBR


Acquisition AssessmentWith $6.5 billion spent on 17 acquisitions during 2010, IBM has proven its strong ability to successfully integrate companies that help it expand its higher-value offerings and capabilities and differentiate from its competitors. Though many of the acquisitions are in software (e.g., the majority of acquisitions in analytics in 2010), they present new service opportunities that benefit IGS.

IBM/IGS Acquisition Strategy• IBM looks for companies possessing intellectual

property and high-growth/margin opportunities to support the company’s focus on shifting its business and top- and bottom-line growth.

• IBM plans to spend $20 billion on acquisitions through 2015, or $4 billion per year, focusing on the software and services segment.

• A key driving force behind each of the company’s acquisitions is to help improve EPS in the long run; IBM’s goal is to nearly double EPS in the next four years from $11.67 in 2010 to at least $20 in 2015.

Recent AcquisitionsTririga Inc.IBM acquired Tririga Inc., a privately held real estate and facilities management software company. The acquisition will help IBM speed up its Smarter Buildings initiative. Tririga will also help IBM gain traction with hospitals, public sector and life sciences organizations, and insurance providers, and help them improve real estate performance and cost.

Alliance & Acquisition Strategies

IBM will continue to purchase companies with intellectual property to help drive growth across its key business segments (services, software and hardware)

TBR


Alliance Assessment• IBM/IGS leverages alliances to offer customers a full

complement of services, software and hardware and to strengthen its competitive position in the market.

• IGS has a well-established network of alliance partners that allows it to provide customers with a complete portfolio of services and solutions, while also allowing IBM to be technology-agnostic if a client so desires. Alliances provide IGS with new sales channels, incremental revenue streams and access to emerging technology.

IGS Alliance Strategy• IBM’s leverages alliances in hardware, software and

services to offer a full spectrum of solutions for clients and to enhance the company’s market competitiveness.

• IBM also works with leading research institutes, university programs and international governments to develop innovative solutions and industry and functional thought leadership. Research and thought leadership initiatives help the company develop and shape its go-to-market strategies according to market trends and client demand.

Recent AlliancesCalifornia Department of Transportation (Caltrans) and California Center for Innovative Transportation (CCIT) at the University of California, Berkley

IBM will collaborate with Caltrans and CCIT to develop a transportation solution which will allow commuters to avoid congestion and enable local transportation authorities to understand, predict and handle traffic. This alliance showcases IBM’s strong analytics capabilities and ability to embed analytics into its Smarter Planet initiative and create innovative high-value solutions.

Nuance Communications, Inc.IBM and Nuance Communications will explore, develop and commercialize the advanced analytic capabilities of the Watson computing system. This will allow IBM to extend its value proposition to healthcare clients.

Cable & Wireless Worldwide (C&W Worldwide)IBM will collaborate with C&W Worldwide on a cloud-based data and communications solutions to support smart energy meter rollout in the U.K. The alliance will help IBM expand its Smarter Energy initiative in the U.K.

Alliance & Acquisition Strategies

IGS continues to utilize strategic alliances to provide customers with a complete portfolio of services and solutions

TBR


While experiencing growth in emerging markets, IGS capitalized on stabilizing economic conditions in its major markets

Geographic Revenue Strategies

Major Markets

• North America is seeing a stable market environment with GBS growing 6% year-to-year on a constant currency basis. We believe the stable market environment and the return of discretionary spending will drive consulting & SI growth in the region.

• In Europe, slow, uneven economic recovery and tight public spending remain, but some local economies are growing (e.g., Germany, the Nordics, France) and clients are investing in IT projects.

• Japan may face challenges due to the natural disasters, but the impact on total services revenue will be relatively small. While the bulk of IBM’s business in Japan (11% of IBM revenue) is services-related, the business is largely annuity-based, which will not have near-term revenue impact.

Growth Markets

We expect the Growth Markets to continue to see expansion in outsourcing, especially in Strategic Outsourcing (i.e., infrastructure outsourcing). In the Growth Markets, outsourcing services grew 12% year-to-year in 1Q11, driven by 250% year-to-year signings growth in the prior quarter.

Geographic Analysis

-20.0%

-10.0%

0.0%

10.0%

20.0%

$0.0$2.0$4.0$6.0$8.0

$10.0$12.0$14.0$16.0

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11

Reve

nue

Gro

wth

Yea

r-to

-Yea

r

Exte

rnal

Rev

enue

in $

Bill

ions

IGS' REVENUE AND YtY GROWTH BY GEOGRAPHY

Asia Pacific EMEAAmericas Americas YtY GrowthEMEA YtY Growth APAC YtY Growth


TBR

-10%

-5%

0%

5%

10%

2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11Est.

Exte

rnal

Rev

enue

Gr

owth

Seq

uenti

ally

IGS' SEQUENTIAL GROWTH BY GEOGRAPHY

Americas EMEA APAC

SOURCE: TBR ESTIMATES

TBR

TBR


IGS continues to focus on expanding its global presence and reach, making investments in emerging markets

Headcount Strategies & InvestmentsIBM Headcount Geo Distribution • IBM/IGS remains a globally integrated enterprise

(operations and functions can be located anywhere in the world) with a strong emphasis on use of lower-cost locations for service delivery to support profitability.

• IBM GTS is implementing a Global Delivery Framework and standardizing and automating delivery processes to improve efficiency and productivity.

• IBM GBS uses a globally optimized service delivery and assets to drive productivity and operational excellence, positively affecting utilization and margins.

• IBM emphasizes training, professional and career development to attract and retain talent.

• As part of its emerging markets growth initiative, IBM opened its thirtieth branch office in China and opened an Innovation Center in Mexico focused on banking, communications, healthcare, retail and government.

Resource Management Strategy: Headcount

~38% of people are in North

America

~43% of people are in APAC

~12% of people are in EMEA

~7% of people are in South America

Total headcount 249,000 in 1Q11


TBR


IGS will encounter competitors as it hires employees to address increasing demand for IT services

Efficiency Performance• IBM GBS has been working on improving its utilization

during the past several quarters as a tool to improve its operating margin. TBR believes this had a positive effect on IGS’ total utilization levels, which we estimate at 86.2% in 1Q11.

• Attrition levels in the IT services industry are rising due to the active hiring efforts of vendors that are adding talent to address growing demand for IT services. TBR believes IGS’ attrition levels increased in 1Q11, largely driven by lower-cost locations.

• Operating income per employee increased on a year-to year basis due to increased use of lower-cost resources for service delivery, focus on productivity and efficiency.

Resource Management Changes• According to TBR estimates, IBM’s services headcount

increased 6.0% year-to-year to 249,000 in 1Q11. TBR believes the company is gradually hiring across key regions and lower-cost locations as demand improves.

• While IBM is driving productivity initiatives to support profitability improvements in the next four years, TBR believes the company will limit hiring onshore and in some cases decrease headcount (the company took workforce rebalancing charges, largely in Europe, during 1Q11). In 1Q11, IBM reportedly cut ~200 services people (in TBR estimates) in North America, mostly in the U.S.

Resource Management Strategy: Efficiency & Org. Changes

1Q10 1Q11

Revenue per Employee 236,951$ 235,482$ ↓Operating Income per Employee 33,549$ 35,375$ ↑Utilization 84.0% 86.2% ↑Turnover 13.5% 15.2% ↑

IGS' Efficiency Metrics (In $) TBR

115,000 135,000

120,000114,000

0

50,000

100,000

150,000

200,000

250,000

1Q10 1Q11

Tota

l Hea

dcou

nt

Calendar Quarter

IGS' SERVICES HEADCOUNT

Onshore

Offshore

Total headcount: 249000 (+6.0% YTY)

TBR


TBR


Income Statement

CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.

Global Technology Services Internal Revenue 320$ 332$ 362$ 299$ 307$ 315$

Global Technology Services External Revenue 9,306$ 9,234$ 9,496$ 10,165$ 9,863$ 9,629$

Global Business Services Internal Revenue 203$ 197$ 199$ 199$ 200$ 199$

Global Business Services External Revenue 4,410$ 4,483$ 4,572$ 4,758$ 4,710$ 4,636$

Total IGS Internal Revenue 523$ 529$ 561$ 498$ 507$ 514$

Total IGS External Revenue 13,716$ 13,717$ 14,068$ 14,923$ 14,573$ 14,266$ Total IGS Revenue (Internal + External) 14,239$ 14,246$ 14,629$ 15,421$ 15,080$ 14,780$

Cost of Services 9,334$ 9,317$ 9,397$ 10,049$ 9,949$ 9,629$ Gross Profit 4,382$ 4,400$ 4,671$ 4,874$ 4,624$ 4,636$

Global Technology Services 3,183$ 3,176$ 3,349$ 3,527$ 3,334$ 3,322$

Global Business Services 1,200$ 1,224$ 1,322$ 1,347$ 1,291$ 1,314$

Operating Expenses 2,980$ 2,295$ 2,452$ 2,471$ 2,746$ 2,496$ Total IGS Operating Income (Pre-tax Income) 1,402$ 2,105$ 2,219$ 2,403$ 1,878$ 2,140$

Global Technology Services Pre-tax Income 957$ 1,422$ 1,524$ 1,657$ 1,238$ 1,355$

Global Business Services Pre-tax Income 445$ 683$ 695$ 746$ 640$ 785$ AS A PERCENTAGE OF TOTAL EXTERNAL IGS REVENUEGlobal Technology Services External Revenue 67.8% 67.3% 67.5% 68.1% 67.7% 67.5%

Global Business Services External Revenue 32.2% 32.7% 32.5% 31.9% 32.3% 32.5%

Total IGS External Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Cost of Sales 68.1% 67.9% 66.8% 67.3% 68.3% 67.5%

Gross Margin 31.9% 32.1% 33.2% 32.7% 31.7% 32.5%

Global Technology Services 34.2% 34.4% 35.3% 34.7% 33.8% 34.5%

Global Business Services 27.2% 27.3% 28.9% 28.3% 27.4% 28.3%

Operating Expenses 21.7% 16.7% 17.4% 16.6% 18.8% 17.5%

Total IGS Operating Income (as % of IGS External Revenue) 10.2% 15.3% 15.8% 16.1% 12.9% 15.0%

Global Technology Services Pre-tax Income 7.0% 10.4% 10.8% 11.1% 8.5% 9.5%

Global Business Services Pre-tax Income 3.2% 5.0% 4.9% 5.0% 4.4% 5.5%Total IGS Operating Income (as % of IGS Revenue (Internal + External) 9.8% 14.8% 15.2% 15.6% 12.5% 14.5%

GTS Pre-tax Income as a % of total GTS* 9.9% 14.9% 15.5% 15.8% 12.2% 13.6%

GBS Pre-tax Income as a % of total GBS* 9.7% 14.6% 14.6% 15.0% 13.0% 16.2%YEAR-TO-YEAR CHANGEGlobal Technology Services External Revenue 6.3% 1.4% 0.7% 1.1% 6.0% 4.3%


Total IGS External Revenue 4.3% 2.0% 2.1% 2.0% 6.2% 4.0%

Cost of Services 3.5% 2.4% 2.4% 4.2% 6.6% 3.4%

Gross Profit 6.0% 1.3% 1.7% -2.3% 5.5% 5.4%

Global Technology Services 7.2% 0.3% 0.0% -2.0% 4.7% 4.6%

Global Business Services 2.9% 3.9% 6.2% -3.0% 7.6% 7.4%

Operating Expenses 18.8% -1.6% -0.5% -7.3% -7.8% 8.8%

Total IGS Operating Income (Pre-tax Income) -13.7% 4.6% 4.2% 3.5% 33.9% 1.7%

Global Technology Services Pre-tax Income -13.3% 1.2% 3.6% 6.5% 29.4% -4.7%

Global Business Services Pre-tax Income -14.6% 12.3% 5.5% -2.6% 43.8% 14.9%* GTS and GBS pre-tax margins are calculated based on their respective internal and external revenue as reported by IBM.SOURCE: IBM AND TBR

IGS' PRO FORMA INCOME STATEMENT (IN $ MILLIONS) TBR

TBR


Income StatementIBM CORP.Consolidated Statement of Income(in Thousands Except per Share Data)

March '10 June'10 Sept. '10 Dec. '10 March '11 June '11 FISCAL/CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.Net Sales 22,857,000$ 23,724,000$ 24,271,000$ 29,019,000$ 24,607,000$ 25,200,000$

Cost of Sales 12,881,000 12,915,000 13,270,000 14,792,000 13,749,000 13,608,000 Gross Profit 9,976,000 10,809,000 11,001,000 14,227,000 10,858,000 11,592,000

SG&A 5,677,000 5,061,000 5,149,000 5,951,000 5,826,000 5,897,000

R&D 1,509,000 1,475,000 1,464,000 1,578,000 1,587,000 1,600,000

IP and Custom Development Income (261,000) (297,000) (278,000) (318,000) (262,000) (289,000) Operating Income 3,051,000 4,570,000 4,666,000 7,016,000 3,707,000 4,384,000

Other (Income) and Expenses (545,000) (95,000) (106,000) (42,000) (202,000) (111,000)

Interest Expense 82,000 90,000 95,000 102,000 93,000 95,000 EBITD 3,514,000 4,575,000 4,677,000 6,956,000 3,816,000 4,400,000

Income Taxes 914,000 1,190,000 1,088,000 1,698,000 954,000 1,095,000 Net Income 2,600,000$ 3,385,000$ 3,589,000$ 5,258,000$ 2,862,000$ 3,305,000$

Net Income Per Share of Common Stock 2.00$ 2.61$ 2.82$ 4.18$ 2.34$ N/A

Common Shares Outstanding 1,301,200,000 1,296,700,000 1,272,800,000 1,258,400,000 1,222,200,000 N/AAS A PERCENTAGE OF REVENUENet Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Cost of Sales 56.4% 54.4% 54.7% 51.0% 55.9% 54.0%

Gross Margin 43.6% 45.6% 45.3% 49.0% 44.1% 46.0%

SG&A 24.8% 21.3% 21.2% 20.5% 23.7% 23.4%

R&D 6.6% 6.2% 6.0% 5.4% 6.4% 6.3%

Operating Margin 13.3% 19.3% 19.2% 24.2% 15.1% 17.4%

Other, Net -2.4% -0.4% -0.4% -0.1% -0.8% -0.4%

EBITD 15.4% 19.3% 19.3% 24.0% 15.5% 17.5%

Income Taxes 4.0% 5.0% 4.5% 5.9% 3.9% 4.3%

Net Margin 11.4% 14.3% 14.8% 18.1% 11.6% 13.1%YEAR-TO-YEAR CHANGENet Sales 5.3% 2.0% 3.0% 6.6% 7.7% 6.2%

Cost of Sales 4.9% 1.9% 2.6% 5.0% 6.7% 5.4%

Gross Profit 5.8% 2.2% 3.5% 8.2% 8.8% 7.2%

SG&A 7.8% -1.1% 2.7% 7.0% 2.6% 16.5%

R&D 2.0% 2.9% 1.2% 8.0% 5.2% 8.5%

Operating Income 3.2% 5.4% 4.6% 9.0% 21.5% -4.1%

Other, Net -177.2% -106.8% -112.4% 5.3% 76.5% -220.0%

EBITD 12.6% 7.4% 7.0% 9.0% 8.6% -3.8%

Income Taxes 10.5% 2.7% -6.1% 8.3% 4.4% -8.0%

Net Income 13.3% 9.1% 11.7% 9.3% 10.1% -2.4%

SOURCE: IBM

TBR

TBR


Balance SheetIBM CORP.Consolidated Balance Sheets(in $ Thousands)

March '10 June'10 Sept. '10 Dec. '10 March '11FISCAL/CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11ASSETSCurrent Assets

Cash & Equivalents 12,472,000$ 10,325,000$ 9,859,000$ 10,661,000$ 12,763,000$

Marketable Securities 1,505,000 1,916,000 1,227,000 990,000 482,000

Accounts Receivable 10,428,000 10,191,000 10,904,000 11,968,000 11,293,000

Inventory 2,524,000 2,595,000 2,629,000 2,450,000 2,549,000

Short-term Financing Receivables 13,083,000 13,301,000 13,592,000 16,257,000 14,365,000

Deferred Taxes 1,565,000 1,444,000 1,596,000 1,564,000 1,695,000

Prepaid Expenses and Other 4,121,000 5,124,000 4,661,000 4,226,000 4,376,000

Total Current Assets 45,698,000 44,896,000 44,468,000 48,116,000 47,523,000

Property, Plant, Equip. (Net of Dep.) 13,841,000 13,534,000 14,009,000 14,096,000 14,208,000

Long-term Financing Receivables 9,542,000 9,185,000 9,448,000 10,548,000 10,254,000

Prepaid Pension Assets 3,289,000 3,575,000 4,379,000 3,068,000 3,788,000

Intangible Assets 2,618,000 2,526,000 3,048,000 3,488,000 3,324,000

Goodwill 20,889,000 20,544,000 22,703,000 25,136,000 25,408,000

Other, Net 9,331,000 9,160,000 9,119,000 8,998,000 8,456,000

Total Assets 105,208,000$ 103,420,000$ 107,174,000$ 113,450,000$ 112,961,000$

LIABILITIES & EQUITYCurrent Liabilities

Accounts Payable 26,787,000$ 26,465,000$ 26,979,000$ 29,568,000$ 29,349,000$

Short-term Debt 5,014,000 5,633,000 5,556,000 6,778,000 8,508,000

Income Taxes Payable 2,775,000 2,895,000 2,908,000 4,216,000 2,531,000

Total Current Liabilities 34,576,000 34,993,000 35,443,000 40,562,000 40,388,000

LT Debt, Net of Current 21,305,000 21,017,000 21,899,000 21,846,000 21,749,000

Retirement Obligations 15,216,000 14,598,000 15,145,000 15,978,000 15,995,000

Other Non-current Liabilities 11,962,000 11,636,000 12,329,000 11,892,000 12,054,000

Total Liabilities 83,059,000$ 82,244,000$ 84,816,000$ 90,278,000$ 90,186,000$

Common Stock & PIC 42,665,000 43,522,000 44,328,000 45,418,000 46,278,000

Retained Earnings 82,783,000 85,323,000 88,095,000 92,532,000 94,590,000

Translation and Other Adj. (103,299,000) (107,669,000) (110,065,000) (114,778,000) (118,093,000) Total Stockholders' Equity 22,149,000 21,176,000 22,358,000 23,172,000 22,775,000

Total Liabilities & Equity 105,208,000$ 103,420,000$ 107,174,000$ 113,450,000$ 112,961,000$

FINANCIAL RATIOSDays Sales Outstanding 41.06 38.66 40.43 37.12 41.30

Turns on Inventory 36.44 37.08 37.17 45.71 39.38

Days Inventory Outstanding 10.02 9.84 9.82 7.99 9.27

Fixed Asset Turnover 6.92 7.11 7.12 7.11 7.18

Days Cash Outstanding 97.66 85.30 75.19 70.89 86.70

Total Asset Turnover 0.85 0.91 0.92 1.05 0.87

Debt/Asset Ratio 0.79 0.80 0.79 0.80 0.80

Current Ratio 1.32 1.28 1.25 1.19 1.18

Return on Assets 13.1% 13.3% 13.6% 13.8% 13.9%

Return on Equity 74.2% 70.0% 67.3% 66.4% 67.6%

Revenue/Employee ($ Thousands) 243,657$ 243,776$ 244,242$ 246,923$ 248,470$

Number of Employees 399,400 402,000 405,500 410,950 417,500

SOURCE: IBM

TBR

TBR


Appendix – Financial Models

CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.Global Technology Services External Revenue 9,306$ 9,234$ 9,496$ 10,165$ 9,863$ 9,629$

Outsourcing 5,454$ 5,364$ 5,532$ 5,887$ 5,795$ 5,635$

Integrated Technology Services 2,073$ 2,098$ 2,162$ 2,381$ 2,218$ 2,154$

Maintenance 1,779$ 1,772$ 1,802$ 1,897$ 1,850$ 1,840$ Global Business Services External Revenue 4,410$ 4,483$ 4,572$ 4,758$ 4,710$ 4,636$

Outsourcing (app. outsourcing) 930$ 946$ 985$ 1,045$ 1,020$ 993$

Consulting & SI 3,480$ 3,537$ 3,587$ 3,713$ 3,690$ 3,643$

Total IGS External Revenue 13,716$ 13,717$ 14,068$ 14,923$ 14,573$ 14,266$ AS A PERCENTAGE OF EXTERNAL IGS REVENUEGlobal Technology Services External Revenue 67.8% 67.3% 67.5% 68.1% 67.7% 67.5%

Outsourcing 39.8% 39.1% 39.3% 39.5% 39.8% 39.5%

Integrated Technology Services 15.1% 15.3% 15.4% 16.0% 15.2% 15.1%

Maintenance 13.0% 12.9% 12.8% 12.7% 12.7% 12.9%


Outsourcing (app. outsourcing) 6.8% 6.9% 7.0% 7.0% 7.0% 7.0%

Consulting & SI 25.4% 25.8% 25.5% 24.9% 25.3% 25.5%YEAR-TO-YEAR CHANGEGlobal Technology Services External Revenue 6.3% 1.4% 0.7% 1.1% 6.0% 4.3%

Outsourcing 7.7% 1.6% 1.2% 1.2% 6.2% 5.1%

Integrated Technology Services 1.9% -1.8% -1.9% -0.6% 7.0% 2.7%

Maintenance 7.4% 4.6% 2.1% 3.0% 4.0% 3.9%


Outsourcing (app. outsourcing) N/A N/A N/A N/A 9.7% 4.9%

Consulting & SI N/A N/A N/A N/A 6.0% 3.0%

IGS External Revenue 4.3% 2.0% 2.1% 2.0% 6.2% 4.0%


IGS' REVENUE BREAKDOWN BY BUSINESS UNIT (IN $ MILLIONS) TBR

TBR



CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.FISCAL QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.Total Revenue 13,716$ 13,717$ 14,068$ 14,923$ 14,573$ 14,266$ AMERICASRevenue 6,059$ 6,216$ 6,241$ 6,710$ 6,543$ 6,491$

% of Total Revenue 44.2% 45.3% 44.4% 45.0% 44.9% 45.5%EMEARevenue 4,710$ 4,384$ 4,519$ 4,967$ 4,809$ 4,465$

% of Total Revenue 34.3% 32.0% 32.1% 33.3% 33.0% 31.3%ASIA PACIFICRevenue 2,947$ 3,117$ 3,308$ 3,246$ 3,221$ 3,310$

% of Total Revenue 21.5% 22.7% 23.5% 21.8% 22.1% 23.2%YEAR-TO-YEAR CHANGEAmericas 1.8% 3.5% 3.0% 4.2% 8.0% 4.4%

EMEA 4.9% -5.0% -6.0% -3.0% 2.1% 1.9%

Asia Pacific 8.9% 10.3% 13.9% 5.6% 9.3% 6.2%SEQUENTIAL CHANGEAmericas -5.9% 2.6% 0.4% 7.5% -2.5% -0.8%

EMEA -8.0% -6.9% 3.1% 9.9% -3.2% -7.2%

Asia Pacific -4.1% 5.8% 6.1% -1.9% -0.8% 2.8%


IGS GEO REVENUE BREAKDOWN - IN $ MILLIONS TBR

TBR



CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.Financial Services $ 4.02 $ 4.05 $ 4.22 $ 4.52 $ 4.53 $ 4.49

Public Sector $ 2.13 $ 2.19 $ 2.22 $ 2.34 $ 2.17 $ 2.18

Industrial $ 2.08 $ 2.12 $ 1.97 $ 2.09 $ 2.06 $ 2.04

Distribution $ 1.40 $ 1.44 $ 1.55 $ 1.63 $ 1.44 $ 1.46

Communications $ 1.36 $ 1.37 $ 1.41 $ 1.51 $ 1.46 $ 1.44

General Business (SMB) $ 2.33 $ 2.35 $ 2.42 $ 2.58 $ 2.55 $ 2.45

Other $ 0.40 $ 0.20 $ 0.28 $ 0.25 $ 0.36 $ 0.20

All Sectors $ 13.72 $ 13.72 $ 14.07 $ 14.92 $ 14.57 $ 14.27

AS A PERCENTAGE OF REVENUEFinancial Services 29.3% 29.5% 30.0% 30.3% 31.1% 31.5%

Public Sector 15.5% 16.0% 15.8% 15.7% 14.9% 15.3%

Industrial 15.2% 15.4% 14.0% 14.0% 14.2% 14.3%

Distribution 10.2% 10.5% 11.0% 10.9% 9.9% 10.2%

Communications 9.9% 10.0% 10.0% 10.1% 10.0% 10.1%

General Business (SMB) 17.0% 17.1% 17.2% 17.3% 17.5% 17.2%

Other 2.9% 1.5% 2.0% 1.7% 2.5% 1.4%

YEAR-TO-YEAR GROWTHFinancial Services 1.9% 0.3% 5.7% 5.8% 12.8% 11.1%

Public Sector 14.7% 14.9% 7.6% 6.8% 2.1% -0.6%

Industrial 32.1% 31.1% 7.5% 2.0% -1.1% -3.6%

Distribution 3.3% 2.0% 6.0% 7.9% 3.1% 1.0%

Communications 2.2% 0.0% -0.8% 2.0% 7.3% 5.0%

General Business (SMB) -9.5% -10.7% -8.5% -11.3% 9.4% 4.6%

Other -22.4% -57.6% -21.4% 15.6% -10.2% -1.6%

All Sectors 4.3% 2.0% 2.1% 2.0% 6.2% 4.0%


IGS REVENUE BREAKDOWN - BY INDUSTRY (IN $ BILLIONS) TBR

TBR



CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.FISCAL QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 Est.IGS External Revenue 13,716,000$ 13,717,000$ 14,068,000$ 14,923,000$ 14,573,000$ 14,265,680$

Operating Expenses 2,980,018$ 2,295,355$ 2,452,000$ 2,470,769$ 2,746,234$ 2,496,494$

Sales & Marketing 2,221,992$ 1,961,531$ 2,082,064$ 2,089,220$ 2,113,085$ 2,025,727$

General & Administrative 758,026$ 333,824$ 369,936$ 381,549$ 633,149$ 470,767$

SALES & MARKETING EXPENSE BREAKOUT Sales Expense 1,755,374$ 1,553,533$ 1,644,831$ 1,650,484$ 1,671,450$ 1,602,350$

Marketing Spending 466,618$ 407,998$ 437,233$ 438,736$ 441,635$ 423,377$

Advertising 150,000$ 157,920$ 168,500$ 185,500$ 188,700$ 191,250$

Total Sales & Marketing Expense 2,221,992$ 1,961,531$ 2,082,064$ 2,089,220$ 2,113,085$ 2,025,727$

SPENDING AS A PERCENTAGE OF REVENUE Operating Expenses 21.7% 16.7% 17.4% 16.6% 18.8% 17.5%

Sales & Marketing 16.2% 14.3% 14.8% 14.0% 14.5% 14.2%

Sales Expense 12.8% 11.3% 11.7% 11.1% 11.5% 11.2%

Marketing Spending 3.4% 3.0% 3.1% 2.9% 3.0% 3.0%

Advertising 1.1% 1.2% 1.2% 1.2% 1.3% 1.3%

General & Administrative 5.5% 2.4% 2.6% 2.6% 4.3% 3.3%

SOURCE: TBR ESTIMATES AND IBM

IBM GLOBAL SERVICES OPERATING EXPENSE MODEL (IN $ THOUSANDS) TBR

TBR



CALENDAR QUARTER 1Q10 2Q10 3Q10 4Q10 1Q11EMPLOYEESIndia 72,700 75,000 80,000 83,000 85,000

Total Near/Offshore Headcount

115,000 120,000 125,000 130,000 135,000

Total Headcount 235,000 237,000 242,000 245,000 249,000

Total Headcount YtY Growth

-1.7% 0.9% 3.4% 4.7% 6.0%


IBM GLOBAL SERVICES OFFSHORE HEADCOUNT TBR

TBR


Financial Strategy GraphsAppendix – Graphs

0.79 0.80 0.79 0.80 0.80

0.00

0.20

0.40

0.60

0.80

1.00

1Q10 2Q10 3Q10 4Q10 1Q11

IBM DEBT/ASSET RATIO

IBM PSBQ AVERAGE

SOURCE: TBR AND IBM

TBR

1.32 1.28 1.25 1.19 1.18

0.00

0.50

1.00

1.50

2.00

1Q10 2Q10 3Q10 4Q10 1Q11

IBM CURRENT RATIO

IBM PSBQ AVERAGE

SOURCE: TBR AND IBM

TBR

TBR

9.8%

14.8% 15.2% 15.6%

12.5%

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%

1Q10 2Q10 3Q10 4Q10 1Q11

IGS OPERATING MARGIN

IGS PSBQ AVERAGE

SOURCE: TBR AND IBM

TBR

TBR


Financial Strategy GraphsAppendix – Graphs

13.1% 13.3% 13.6% 13.8% 13.9%

0.0%

4.0%

8.0%

12.0%

16.0%

1Q10 2Q10 3Q10 4Q10 1Q11

IBM RETURN ON ASSETS

IBM PSBQ AVERAGE

SOURCE: TBR AND IBM

TBR

74.2%70.0% 67.3% 66.4% 67.6%

0.0%

25.0%

50.0%

75.0%

100.0%

1Q10 2Q10 3Q10 4Q10 1Q11

IBM RETURN ON EQUITY

IBM PSBQ AVERAGE

SOURCE: TBR AND IBM

TBR

TBR


Go-to-Market GraphsAppendix – Graphs

$13.7 $13.7 $14.1 $14.9 $14.6

$0.0

$5.0

$10.0

$15.0

$20.0

1Q10 2Q10 3Q10 4Q10 1Q11

IGS REVENUE (IN $ BILLIONS)

IGS PSBQ AVERAGE

SOURCE: TBR AND IBM

TBR

4.3%

2.0% 2.1% 2.0%

6.2%

0.0%

4.0%

8.0%

12.0%

1Q10 2Q10 3Q10 4Q10 1Q11

IGS REVENUE GROWTH

IGS PSBQ AVERAGE

SOURCE: TBR AND IBM

TBR

2.41 2.31 2.39 2.52 2.48

0.00

0.50

1.00

1.50

2.00

2.50

3.00

1Q10 2Q10 3Q10 4Q10 1Q11

BACKLOG/REVENUE RATIO

IGS PSBQ AVERAGE

SOURCE: TBR AND IBM

TBR

41.06 38.66 40.43 37.1241.30

0.00

20.00

40.00

60.00

80.00

1Q10 2Q10 3Q10 4Q10 1Q11

Num

ber o

f Day

s

IBM DAYS SALES OUTSTANDING

IBM PSBQ AVERAGE

SOURCE: TBR AND IBM

TBR

TBR


Resource Management GraphsAppendix – Graphs

21.7%

16.7%

17.4%

16.6%

18.8%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1Q10 2Q10 3Q10 4Q10 1Q11

IGS OPERATING EXPENSES AS A PERCENTAGE OF REVENUE

IGS PSBQ AVERAGE

SOURCE: TBR AND IBM

TBR

TBR

$237.0 $237.6 $236.8 $235.3 $235.5

$100.0

$160.0

$220.0

$280.0

1Q10 2Q10 3Q10 4Q10 1Q11

IGS REVENUE PER EMPLOYEE(IN $ THOUSANDS AND TTM)

IGS PSBQ AVERAGE

SOURCE: TBR AND IBM

TBR

31.9% 32.1% 33.2% 32.7% 31.7%

0.0%

10.0%

20.0%

30.0%

40.0%

1Q10 2Q10 3Q10 4Q10 1Q11

GROSS MARGIN

IGS PSBQ AVERAGE

SOURCE: TBR AND IBM

TBR

TBR


Resource Management GraphsAppendix – Graphs

84.0% 85.0% 86.0% 86.0% 86.2%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

1Q10 2Q10 3Q10 4Q10 1Q11

IGS UTILIZATION RATE

IGS PSBQ AVERAGE

SOURCE: TBR AND IBM

TBR

13.5% 14.6% 15.0% 15.4% 15.2%

0.0%

5.0%

10.0%

15.0%

20.0%

1Q10 2Q10 3Q10 4Q10 1Q11

IGS TURNOVER RATE

IGS PSBQ AVERAGE

SOURCE: TBR AND IBM

TBR

$33.5 $33.9 $34.0 $33.9 $35.4

$0.0

$10.0

$20.0

$30.0

$40.0

1Q10 2Q10 3Q10 4Q10 1Q11

IGS OPERATING INCOME PER EMPLOYEE (IN $ THOUSANDS AND TTM)

IGS PSBQ AVERAGE

SOURCE: TBR AND IBM

TBR

TBR


IBM/IGS’ Recent Acquisitions

COMPANYACQUISITION

DATE ACQUISITION SYNERGIES ESTIMATED

NO. OF EMPLOYEES

Tririga, Inc. April 2011Enhances IBM’s ability to bring intelligence into the smarter buildings market. Tririga is a leader in providing facility and real estate management software solutions.

N/A

BLADE Network Technologies

October 2010

Software and devices that route data and transactions to and from servers, helping IBM better integrate networks with its systems.

N/A

OpenPages October 2010

Extends IBM’s business analytics capabilities through OpenPages software that helps identify and manage risk and compliance. 140

Clarity Systems October 2010

Extends IBM’s business analytics initiatives through Clarity Systems’ financial governance software that helps organizations automate processes for financial statement management.

N/A

PSS Systems October 2010

PSS Systems provides software for analyzing, automation and implementation of information governance policies. The acquisition expands IBM’s Information Lifecycle Governance solutions, IBM’s storage management and Smart Archive strategy.

100

Netezza Corporation

September 2010

Extends IBM’s business analytics initiatives through Netezza’s analytics and data warehousing appliance. 500

Storwize August 2010Storwize’s data compression technology reduces storage requirements and augments IBM’s storage and analytics capabilities.

N/A

Appendix – Tables

TBR



COMPANY

ACQUISITION DATE ACQUISITION SYNERGIES

ESTIMATED NO. OF

EMPLOYEES

Datacap August 2010Strengthens IBM’s capabilities to digitize, manage and automate information assets in paper intensive verticals (e.g., healthcare, insurance, public sector and finance).

40

Sterling Commerce August 2010 Software for cross-channel commerce and integration of

customers, partners and suppliers across a range of industries. 2,500

Unica Corporation August 2010(announced)

The acquisition of Unica allows IBM to increase its ability to aid organizations when predicting and analyzing customer tendencies.

500

Storwize July 2010 (announced)

Data compression technology that improves storage efficiency and data analytic capabilities. N/A

BigFix July 2010 Security and compliance management and automation for desktops across the enterprise. N/A

Cast Iron Systems May 2010Strengthens IBM’s cloud computing capabilities (cloud integration software, appliances and services), business process and integration software portfolio.

75

Wilshire Credit Corporation March 2010

By acquiring the core operating assets of Wilshire Credit Corporation, including the Wilshire mortgage servicing platform, IBM strengthens its mortgage BPO capabilities.

900

Appendix – Tables

TBR



COMPANY

ACQUISITION DATE ACQUISITION SYNERGIES

ESTIMATED NO. OF

EMPLOYEES

Intelliden February 2010 Provider of intelligent network automation software, extending IBM’s network management offerings. N/A

Initiate Systems January 2010 Data integrity software for information sharing among healthcare and government organizations. 120

National Interest Security

CompanyJanuary 2010 Advanced analytics and IT solutions for the public sector. 1,000

Lombardi January 2010Lombardi provides BPM software and services, complements IBM's enterprise-wide process management software, and adds integrated solutions that automate human tasks and workflows.

180

Appendix – Tables

TBR


IGS’ Portfolio of Services

BUSINESS CONSULTING: IT SERVICES:

Service Lines• Business Analytics and Optimization• Customer Relationship Management• Financial Management• Human Capital Management• Strategy and Change• Supply Chain Management• Industry Expertise• Midmarket Expertise• Thought Leadership

Service Lines• Business Continuity and Resiliency Services• End-user Services• Integrated Communications Services• Security Services• IT Strategy and Architecture Services• Maintenance and Technical Support Services• Middleware Services• Outsourcing Services• Server Services• Site and Facilities Services• Storage and Data Services

Appendix – Tables

TBR


IBM/IGS’ Recent Services AnnouncementsSERVICE/ SOLUTION DATE DESCRIPTION

2Q11

Consulting Services for Business Process

ManagementApril 2011

The new global consulting practice will help companies improve their business processes in marketing, human resources, finance and other industry-specific processes. Services will be provided from the U.S. and other locations around the world.

IBM Smart Cloud Platform for Business April 2011

The new, secure cloud will meet the demands of businesses. The Smart Cloud are enterprise technologies and services for private, public and hybrid clouds based on IBM hardware, software and services. IBM will offer SAP managed application services on the IBM Smart Cloud.

1Q11

IBM Smarter Commerce Consulting Services and

SoftwareMarch 2011

This new service will further IBM’s leadership and investments in business analytics and optimization. The new offerings will address a multitude enterprise commerce activities, improving IBM’s position in the market.

City Forward March 2011

A free website by IBM that will improve the quality of life in cities around the world by showing policy makers how their city is doing as compared to others. It also provides information on how to improve the qualities in which the city may be lacking.

Communication Service Provider Network

Infrastructure ServicesFebruary

2011

IBM provides professional services which enable companies to develop new revenue generating services while controlling costs as they build advanced networks. IBM services include solutions planning, migration, architecture, design, project planning, deployment and end-to-end multi-vendor infrastructures.

Appendix – Tables

TBR


IBM/IGS’ Vertical Industries

Communications Solutions

Telecommunication• Service Provider

Strategic Transformation (SPST)

Media & Entertainment

• Production and distribution transformation

• Customer sales and service transformation

Energy & Utilities• Utilities network

revitalization• Customer

operations transformation

Distribution Solutions

Retail• Merchandising• Consumer Driven

Supply Chain• On Demand

Workplace for Retail

Consumer Products• Integrated Market

Management• Consumer Driven

Supply Chain• CP Core Financials

& HR-SAP (Japan)• On Demand

Workplace for CP (Japan)

Travel & Transport• On Demand

Workplace for T&T• Customer Driven

Supply Chain for T&T

Financial Services Solutions

Banking• Back-office

operations• Front-office

optimization• Risk and

compliance

Financial Markets• Risk and

compliance• Trade process

transformation• FM Data

Management

Insurance• Core insurance• Insurance Front

Office• Ins. Life

Transformation

Industrial Solutions

Automotive• IBM auto mktg. sales

and service• IBM auto

manufacturing productivity

• PLM• Auto common

environment• Embedded Systems

lifecycle management

Electronics• Electronics Value

Chain Mgmt.• IBM Production

Solutions• Electronics sales &

service• PLM• Embedded Systems• Lifecycle mgmt.

Aerospace & Defense• Supply Chain

Aftermarket• PLM• SAP Full Economy

Chemical & Petroleum• Upstream Petroleum• SAP Full Economy

Public Solutions

Government• Social services &

social security• Customs, ports &

border mgmt.• Enterprise

Integration ERP/CRM

• Defense/national security

• Road Charging

Health & Life Sciences

• Life sciences transformation/pharma integration

• New compliance agenda

• Healthcare provider/aligned clinical environment

Education• Enhanced

campus communication

• IBM Learning Alignment BI/ODW

• IBM Learning Alignment SIS

Appendix – Tables

TBR


IBM/IGS’ Quarterly Services Signings

CLIENT DATE DESCRIPTION YEARS CONTRACT VALUE

Hartford Financial Services

United StatesApril 2011

Transform the client’s IT infrastructure through transitioning to IBM’s Smart Business Desktop Cloud. 5 N/A

National Broadband Network (NBN)

AustraliaMarch 2011

IBM will provide consulting services, integration, application support and software solutions related to NBN’s core business and operational support systems.

3 Multimillion- Dollar

Cathay Pacific Airways

Hong KongMarch 2011

Contract for application development, support and maintenance. N/A N/A

Caparo IndiaIndia

March 2011

SAP ERP implementation, and datacenter infrastructure outsourcing including managed services. 10 N/A

National E-Health Transition Authority

(NEHTA) AustraliaMarch 2011

Implement a secure messaging platform for the federal government’s personally controlled EHR initiative; provide the infrastructure and consultation needed to implement the system.

15 months $25 million

Government National Business Funding Agency

Peru

February 2011 Develop and manage a private cloud-computing technology

infrastructure to cover 10 government-owned companies 5 N/A

City of New York January 2011

IBM will consolidate and update outdated and incompatible IT to improve the technology platform for CITIServ. N/A N/A

Appendix – Tables

TBR




Air India January 2011

Provide IT infrastructure and application support services while implementing SAP enterprise software to automate numerous processes at Air India.

7 $50 million

Bharti AirtelIndia

December 2010

Deploy and manage IT infrastructure and applications in 16 African countries; consolidate and transform IT environments into an integrated IT system, oversee management of all applications, datacenter operations, servers, storage and desktop services; applications support (CRM, billing, self-service).

10 N/A

Federal Health Department

AustraliaDecember

2010Contract extension to provide communications and technology support services, as well as oversee the health department’s technology renovation.

4 $110 million

Allied Command Transformation

NATODecember

2010

Implement a new cloud computing model to consolidate and integrate technology capabilities for Command and Control programs; IBM will develop the computing environment to share a common operating environment.

N/A N/A

American WellUnited States

December 2010

Embed security into online care system to safeguard patient information; integrate security services and skills into application development processes.

N/A N/A

Appendix – Tables

TBR


IBM/IGS’ Quarterly Services SigningsCLIENT DATE DESCRIPTION YEARS CONTRACT

VALUE

Barnstable County, Mass.United States

December 2010

As part of the Smarter Cape Cod initiative, IBM will deploy technology for more efficient management of physical infrastructure, protection of natural resources, and opportunities for economic growth. Phase 1 will design a Strategic Information Office and a Center of Excellence for Water Resources.

Spring 2011

(Phase 1)

N/A

Government of Puerto Rico

November 2010

Smarter Healthcare initiative throughout the country; IBM, ActiveHealth Management and Medens Corporation will deliver cloud services to help physicians share and exchange health information.

N/A N/A

FinnairFinland

November 2010

Working with Finnair to deliver personalized customer service and analyze passenger expertise; IBM is providing consulting expertise, methodology and software to capture, mine and analyze information.

N/A N/A

Samlink Finland

November 2010

IBM will manage the IT operations for over 400 bank branches and develop a desktop cloud offering. 5 $37 million

Cabinet Office United Kingdom

November 2010

IBM signed a Memorandum of Understanding to provide efficiency strategies. N/A N/A

Westpac Australia

November 2010

IBM will manage Westpac’s main infrastructure services in addition to providing critical risk mitigation services. 5 N/A

StarBevCzech Republic

November 2010

IT infrastructure services (datacenter, help desk, end-user support) and overall service management. 5 Multimillion

€

Appendix – Tables

TBR


IBM/IGS’ Quarterly Services SigningsCLIENT DATE DESCRIPTION YEARS CONTRACT

VALUE

Bank of Ireland Ireland

November 2010

Manage the Bank’s IT infrastructure (desktop, servers, mainframes, local area networks and service desk). 5 N/A

Central Norway Regional Health

Authority Norway

November 2010

Create Smarter Healthcare infrastructure; provide IT support to all of the hospitals in Norway to improve coordination and reporting of health information; develop an SAP-based solution to be used for upgrading finance and logistic systems throughout Norway.

4 $120 million

Nevada Clark County Family

ServicesUnited States

October 2010

IBM has been signed to integrate its business analytics software into the department’s process for efficient delivery of social services.

N/A N/A

PyroIndia

October 2010

IBM will develop, test and manage Pyro’s products and solutions. 5 $19 million

ABN AMRONetherlands

October 2010

ABN AMRO extended its services agreement with IBM whereby IBM will build and provide an integrated IT infrastructure platform.

N/A N/A

PetromRomania

October 2010

IBM will take over the operation of Petrom’s datacenter services, including cloud computing, hosting, installation, business continuity, on-site backup and disaster recovery.

10 N/A

Danish DefenseDenmark

October 2010

IBM will provide management services and technology infrastructure to the Ministry’s resource management system. 7 N/A

Appendix – Tables

TBR




Air New Zealand

New ZealandOctober

2010IBM will provide business and technology services through mainframe and virtual hosting services. 5 N/A

Jet AirwaysIndia

September 2010

Business transformation and IT services (infrastructure and application support). 10 $62 million

Bharti Airtel Limited

IndiaSeptember

2010IT infrastructure and application services to support client’s mobile communications network in 16 African countries; deal will be finalized in 4Q10.

N/A N/A

SunocoUnited States

August 2010

IBM will provide managed business process services along with application support services to Sunoco. N/A N/A

OrbitzUnited States

August 2010

Orbitz will utilize IBM's Global Expense Reporting Solution to provide corporate travel customers more options and flexibility in its management and documentation of travel expenses.

N/A N/A

Appendix – Tables

TBR


IBM/IGS’ Application Vendors Partnership Highlights

COMPANY SCOPE OF PARTNERSHIP

SAP

IBM and SAP have helped customers build end-to-end CRM solutions, including mySAP CRM, IBM DB2, WebSphere MQ, IBM eServer iSeries and IBM eServer xSeries. The two also have joint solutions for business intelligence, ERP, PLM and SCM. The latest development of the IBM/SAP relationship is the expansion of the partnership through the introduction of an optimized DB2 Database that improves performance and availability of SAP solutions running on DB2.

Oracle

IGS was one of Oracle’s first global strategic alliance partners and is recognized as an Oracle Global Certified Advantage Partner, a title reserved for partners that have consistently demonstrated the highest level of competency and commitment to Oracle. IBM BCS has teamed with Oracle for more than 16 years. IBM delivers industry and process expertise, along with implementation methods, tools and accelerators.

Siebel Systems (part of Oracle)

Since 1999, IBM and Siebel Systems have worked together to deliver a broad range of open, scalable and carefully integrated solutions. The latest development in the IBM/Siebel relationship is an extension of the partnership to offer hosted CRM solutions.

Cisco Systems

IBM and Cisco leverage their strengths in internet infrastructure, e-business systems (applications, middleware, servers) and services (systems integration, support, outsourcing etc.) and deliver end to end internet business solutions for e-business transformation. The alliance offers customers ‑ ‑e business security, availability and applications performance, as well as speech-enabled self-service ‑solutions to contact centers. In the alliance’s latest development, Cisco will sell IBM’s Lotus Sametime directly through its 1,200 channel partners spread throughout the world.

Appendix – Tables

TBR


IBM/IGS’ Application Vendors Partnership Highlights

COMPANY SCOPE OF PARTNERSHIP

Dassault Systemes

IBM BCS and Dassault Systemes provide customers with product lifecycle management services, which optimize product development processes. The partnership provides business transformation consulting, implementation, integration and managed services for the CATIA, ENOVIA and SMARTEAM families of products, and also introduces, integrates and implements Dassault Systemes’ software solutions.

i2 TechnologiesIBM BCS and i2 manage other companies’ value chains by providing comprehensive solutions for supply and demand chains. The services accelerate optimization and collaboration across the entire value chain and allow supply and demand management and timely response to unpredictable events.

Red Hat

IBM and Red Hat have joined together to help customers accelerate Linux adoption on the IBM eServer zSeries mainframe. The solutions include IBM’s Integrated Facility for Linux engine and subscription of Red Hat Linux Enterprise v.4 for zSeries systems. The two companies are also working together with educators on Linux skills-building and curriculum development. The alliance will help institutions educate students and develop their skills on Linux and IBM software and servers.

Avaya

IBM and Avaya formed an alliance to integrate Avaya’s VoIP technology with IBM’s enterprise e mail, web conferencing and instant messaging offerings (Lotus Notes and Domino). The alliance ‑will enable “click-to-call” capabilities in e-mail and instant messaging products across Lotus Notes, Domino and IBM Lotus Sametime. IBM will use audio conferencing provided by Avaya Meeting Exchange with Lotus’ web conferencing solutions.

Appendix – Tables

TBR


Samuel J. PalmisanoChairman of the Board

President & CEO

Steven A. MillsSVP,

Group ExecutiveSoftware and Systems

Michael E. Daniels

SVP, Global Technology Services, IGS

Rodney C. AdkinsSVP,

Systems & Technology Group

Frank KernSVP, IBM Global Business Services

text

Mark Loughridge

SVP, Chief Financial Officer

Virginia Rometty

SVP, Global Sales, Marketing and Strategy

Linda Sanford

SVP, Enterprise on Demand

Transformation & IT

Robert C. Weber

SVP, Legal & Regulatory Affairs & General

Counsel

Jon C. Iwata

SVP, Marketing/ Communications

Dr. John E. Kelly III

SVP & Director of IBM Research

J. Randall MacDonald

SVP, Human Resources

Corporate Functions

Hardware Group

Software Group

Services Group

KEY:

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Appendix – Tables

IGS Organization Chart

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Physical Infrastructure and Worldwide LocationsIGS’ Global Delivery Center Network

IBM’s Technology and Business CapabilitiesAmericas EMEA APAC

Global Delivery Centers

• Brazil• Argentina• Canada

• Slovakia• Poland• Romania• Hungary• Egypt• South Africa

• China• India• Vietnam• Philippines• Australia• Singapore

Research Labs• San Jose, Calif.• Maryland• New York• Austin, Texas

• Israel (Haifa)• Switzerland (Zurich)

• India (New Delhi, Bangalore)

• China (Beijing)• Japan (Tokyo)• Taiwan (Taipei City)

Software & Hardware Labs

• Mexico• Brazil• Argentina

• Poland• Israel• Egypt• Russia

• China• India• South Korea• Vietnam• Malaysia• Singapore• Australia

Cloud Computing Centers • Brazil

• South Africa• Poland• Germany

• China• India• South Korea• Vietnam

Appendix – Tables

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Physical Infrastructure and Worldwide LocationsIGS’ Global Delivery Center Network

IBM’s Technology and Business Capabilities

Americas EMEA APACInnovation Centers • Brazil

• Austin, Texas• Chicago• Dallas• San Mateo, Calif.• Waltham, Mass.• Mexico

• Czech Republic• Denmark• France• Germany• Hungary • Ireland• Israel• Italy• Morocco• Netherlands• Poland• Romania• Russia• Slovakia• South Africa• Spain• Sweden• Switzerland• Turkey • Ukraine• U.K.

• Australia• China• India• Japan• South Korea• Malaysia• Philippines• Vietnam

Market and Industry Leadership Centers

• Mexico (retail)• Brazil (finance)• Austin, Texas

(communications)

• Russia (oil & gas) • India (telecom, finance)

• Australia (electricity)• South Korea (finance)• China (rail, telecom,

health, electricity)

Appendix – Tables

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