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7/31/2019 2008 Ibm Annual
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2008 ANNUAL REPORT
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Dear IBM Investor:As I write to you, the global economy
is experiencing proound disruption. There is a great deal o
understandable and appropriate anxiety about where we
are headed in the near and medium term. Many approaches
are being oered to stimulate economic recovery and growth.
And it is clear that IBMs industry, as well as many others,
will look very dierent a ew years rom now.
You need to know, in this time o turmoil, that your
company is well positioned to continue delivering strong
results, as we have been doing and did again in 2008
achieving record revenue, record pre-tax earnings, record
earnings per share and record ree cash ow. Even more
importantly, we are also positioned to lead in the new era
that lies on the other side o the present crisis.
In this letter, I will explain why. I will describe how this
moment o historic change presents an opportunity or
IBM, not only to assert leadership in our industry, but to play
a central role in changing how the world literally works.
Our confdence is grounded in the strategic transormation oIBM over the past several years and the ocused execution
o nearly 400,000 dedicated and innovative women and men
around the world.
IBM is now a very dierent company than it was just
a ew years ago. As a result, we entered this turbulent period
strong, and we expect to exit it stronger.
a lett er f rom t he ch air man
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A New Eraand a New IBM
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a let ter from t he ch air man
7/31/2019 2008 Ibm Annual
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Samuel J. PalmisanoCHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
7/31/2019 2008 Ibm Annual
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A IBM, w w wd
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revenue and income: O $103.6 b, . I 2008
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Since the dot-com crash in 2002,
we have more than doubled
our pre-tax income and ree cash
fow, and more than tripled our
earnings per share.
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In sum, with our excellent fnancial position,
strong balance sheet, solid recurring revenue,
strong proft streams and unmatched global
reach, we are confdent about 2009 and are ahead
o pace to achieve our 2010 objective o $10
to $11 in earnings per share. The inormation
on pages 1015Generating Higher Value
at IBMwill help explain why.
A Smarter Planet
The coming era will not be kind to enterprises
or institutions that have ailed to step up to
unresolved issues in their core models, strategies
or operations. In our view, this is not simply a
cyclical downturn, but a major shit in the
global economy and societyone that is simple
to state, but proound in its implications.
In the last two decades, we have seen our
planet become smaller and atter. In the nexttwo, we will see it become smarter.
This isnt a metaphor, and Im not talking
about the Knowledge Economyor even the
act that hundreds o millions o people rom
developing nations are gaining the education
and skills to enter the global workorce. I mean
the inusion o intelligence into the way the
world actually works: the systems and processes
that enable physical goods to be developed,
manuactured, bought and sold; services to be
delivered; everything rom people and moneyto oil, water and electrons to move; and billions
o people to work and live.
Through pervasive instrumentation and
interconnection, almost anythingany person,
any object, any process or any service, or any
organization, large or smallcan become
digitally aware, networked and intelligent. This
means that industries, inrastructures, processes
and entire societies can be more productive,
efcient and responsive. And problems that have
heretoore been insoluble can now be tackled.Problems like wasting too much energy. Like
spending too much time in trafc. Like produc-
ing ood too expensively, and wasting too much
o what we produce. Like missing too many
sales opportunities and disappointing too many
customers because o inefcient supply chains.
Like making too many medical errors, and
spending too much to deliver healthcare to too
ew. And most obviously o late, like ailing to
manage fnancial risk.
These and other systems by which the world
works are increasingly unsustainable. They may
be networked, but it turns out that beingconnected isnt enough. It doesnt make them
smart. But the good news is, they can be.
a let ter from t he ch air man
In the last two decades, we have
seen our planet become smaller
and fatter. In the next two, we will
see it become smarter.
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W k b IBM b
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smarter water: W cn vn u copuodling o iul, oniond ponilly
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a let ter from t he ch air man
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The selected reerences in this letter to the companys fnancial result s (i) excluding Enterprise Investments and stock-based compensation, (ii ) atlocal (constant) currency, and (iii) excluding Global Financing receivables are, in each case, non-GAAP fnancial measures. These reerences are madeto acilitate a comparative view o the companys ongoing operational perormance. Inormation about reerences to the companys fnancial resultsexcluding Enterprise Investments, stock-based compensation and Global Financing receivables is provided in the companys Form 8-K submitted to theSEC on January 20, 2009 (Attachment IINon-GAAP Supplementary Materials). Inormation about reerences to local currency is provided in thecompanys 2008 Annual Report to Stockholders (Management DiscussionYear in Review) and in the companys Form 10-K or 2008 (Part II, Item 7).
We fnd ourselves at such a moment now.
This is an inection pointboth in the course
o modern technology and economic history,
and in the nearly 100-year journey o IBM.
As someone who has been here or more than
a third o that journey, I can tell you that it
presents the best opportunity I have seen in my
IBM career to align those two trajectories
in very powerul ways.From cabinet rooms, to board rooms, to
kitchen tables around the world, people are
eager or change. Such a mandate doesnt come
around very otenperhaps once in a genera-
tion, or once in a century. Its not something
to squander. I and my ellow IBMers have no
intention o doing so.
Let me close by expressing my pride in the
worldwide IBM team or bringing us to this
point, and my gratitude to you, our shareholders,
or your unwavering support. I hope that
you are pleased with how your company is
perorming and evolving. And I trust that you
share our excitement about the role we can
play in what promises to be a new era or our
industry, or business and or our planet.
Samuel J. PalmisanoCHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
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0
1. Several years ago, we saw change coming.
Value was shiting in the IT industry, driven by the rising
tide o global integration, a new computing paradigm and
new client needs. These shits meant the world was
becoming not just smaller and atter, but also smarter.
80
60
40
20
0
100%25 Software
Services
Financing
Hardware
28 42 34 35 42 40 40 40
4046
44
41 35
30 37 37 42
10
10
14
1213 14
11 99
24
1613
1815 13 14
9
080706050403020100* *
2000Pre-tax Margin
12.0%
2000Pre-tax Income
$10.2B
2008Pre-tax Margin
16.1%
2008Pre-tax Income
$16.7B
* Segment mix excludes Enterprise Investments and stock-based compensation.
Economies of developingnations were growing rapidly,driven by historic investments infundamental business infrastructure.Enterprises were looking to tapskills and capabilities availableall over the world and to integratetheir operations globally.
A new computing architectureenabled pervasive instrumentation,unprecedented computing powerand advanced analytics to transformoceans of data into insight andintelligence.
Companies were seeking tointegrate advanced technologywith their business processesand operations, not only to reducecosts, but to enable innovationand growth.
2. We remixed our businesses in order to move to the emerging
higher-value spaces.
IBM has divested commoditizing businesses like
personal computers and hard disk drives, and
strengthened its position through strategic investments
and acquisitions in higher-value segments like
business intelligence and analytics, virtualization
and green solutions.
From 2000 to 2008 we acquired more than
100 companies to complement and scale our portolio
o products and oerings. This has changed our
business mix toward higher-value, more proftable
segments o the industry.
SEGMENT PRE-TAX INCOME MIX
Generating Higher Value at IBM
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2
10
Revenue
7
9
Gross
Profit
1
13
Sales and
Marketing
Expense
0
General and
Administra tive
Expense
12
9
6
3
0
15%
We are rebalancing our spendingto areas o greatest opportunity.As we continue to drive signifcantproductivity in Major Markets,we are increasing investment inGrowth Markets, expanding ourgo-to-market capabilities and skillsto capture the inrastructurebuild-out in these regions. We areleveraging our global reach andintegrated model to drive higher
proftability across the company.
Major Markets Growth Markets Total IBM
3. We became a globally integrated enterprise in order to capture thebest growth opportunities and improve IBMs proftability.
IBM operates in more than 170 countries and enjoys
an increasingly broad-based geographic reach.
Our non-U.S. operations generated approximately
65 percent of IBMs revenue in 2008. IBMs Growth
Markets unit, which was established in 2008,
grew 10 percent last year, and made up 18 percent
of our revenues. Revenue increased 18 percent
(15 percent in local currency) in Brazil, Russia, India
and China.
2008 GROWTH
In local currency (excludes OEM)
Major Markets Growth Markets
Major Markets Growth Markets
82% 18%5% 10%
2% 10%
Percent o IBM
Geographic Revenue
Revenue Growth
Revenue Growthin Local Currency
2008 PERFORMANCE
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2
4. As a result, IBM is a higher-performing enterprise todaythan it was a decade ago.
Our business model is more aligned with our clients needsand generates better fnancial results.
We have achieved record earnings per share
Diluted earnings per share in 008 were $8.93,marking six consecutive years o double-digitgrowth. Pre-tax earnings rom continuing operationswere $6.7 billion, an increase o 5 percent.
and record cash performance.
In 008 our ree cash fow, excluding the year-to-yearchange in Global Financing receivables, was$4.3 billionan increase o $.9 billion rom 007.
EARNINGS PER SHARE
$20
18
14
10
6
2
16
12
8
4
0
$10499
919196
89
818385
Pre-taxIncome
FreeCash Flow
Revenue
080706050403020100
$14.3*
$16.7
080706050403020100
8.93
7.18
6.06
4.91
4.39
3.76
2.43
3.943.88
$10
8
6
4
2
0
* excdg Go fcg cs
FINANCIAL PERFORMANCE HISTORY
($ in billions)
GeneratinG hiGher value at ibm
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5. We have thereore been able to invest in uture sources o growthand provide record return to investors
while continuing to invest in R&Dmore than$50 billionrom 2000 to 2008.
PRIMARY USES OF CASH FROM 2000 TO 2008
6. This gives us confdence that we are entering the current economicenvironment rom a position o strength
In 2008 we made progress toward our 2010 objectivesby growing earnings per share 24 percent. And with
this strong 2008 performance, we are clearly ahead of paceon our road map to $10$11 of earnings per share.
keydrivers
Historical revenue growth:We maintain historicalrevenue growth through annuity businesses, globalpresence and a balanced business mix.
Margin expansion: We ocus on delivering highervalue to cl ients and on increasing productivity, to
improve proftability.Share repurchases: Our strong cash generationlets us return value to shareholders by reducing sharesoutstanding while reinvesting or uture growth.
Growth initiatives and future acquisitions:Weinvest in key growth initiatives and strategic acquisitionsto complement and scale our product portolio.
Retirement-related costs: Retirement-related costsvary based on market perormance and plan redesigns.
$6.06
07
$7.18
08
$8.93
10
$10
$11
09
18%
24%
6%-11%Compound
Annual GrowthRate
$12
10
6
2
8
4
0
06
Reinvested:
Acquisitions and Capital ExpendituresReturned to Shareholders:
Share Repurchases and Dividends
$60 billion$146
billion $86 billion
EARNINGS PER SHARE ROAD MAP
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4
generating higher value at ibm
7.and that we will emerge from it even stronger, thanks to ourlong-term fundamentals and our agenda for a smarter planet.
All around the world, businesses, governments
and institutions are investing to reduce costs,
drive innovation and transorm their inrastructure.
The economic downturn has intensifed this trend,
as leaders seek not simply to repair what is
broken, but to prepare or a 21st Century economy.
Many o their key priorities are in areas where
IBM has leading solutionssuch as smarter utility
grids, trafc, healthcare, fnancial systems,
telecommunications and cities. We are aggressively
pursuing this transormational, global opportunity.
Smarter TrafficCities are struggling with trafc todayand its aboutto get much worse, as the planet urbanizes. By 200,59 metropolitan areas will have populations above5 million. Smart trafc systems encompass tolling,embedded sensors and large-scale simulations to predicttrafc lows. Stockholm has seen 20 percent less trafc,2 percent lower emissions and 0,000 additionalusers o public transport a day.
Smarter Grids
With businesses and societies acing oten-volatile energysupplies and costs, as well as growing environmentalconcerns, a smart grid can save electricity and money andprotect the planet, by linking smart meters in the homewith instrumented power lines and plants. And it evenpaves the way to integrate renewable sources like wind andsolar. IBM today is leading seven o the worlds top tenautomated meter management projects.
Smarter Healthcare
Our healthcare system isnt a system at all. It cant link
rom diagnosis, to drug discovery, to providers, insurers,employers and patients. But smart healthcare canlower costs, reduce errors and empower patients. Onehospital is applying analytics to speed childhoodcancer research and improve patient outcomeswhilelowering the cost o data acquisition by 75 percent.
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Smarter FoodIn a world where 820 million people are undernour-ished, it is a tragedy that grocers and consumers throwaway $48 billion worth o ood each year in the U.S.alone. Inefciencies and quality issues plague the globalood supply chain. But with new technologies totrace ood rom the arm to the market shel, and moreintelligent solutions to track supply and demand,a healthier uture is in store.
Smarter MoneyThe worlds fnancial institutions could spread risk.But the worlds fnancial inrastructure couldntmanage risk, in a world where money moves with thespeed o ones and zeroes. However, smart moneysystems are at hand. Intraday settlement risk or morethan $2 trillion in daily currency exchange has beeneectively eliminated. Smart systems can enable asaer and more transparent global economy.
Smarter Telecommunications
Two billion people will soon be onlinealong witha trillion intelligent phones, cameras, cars, appliances,packages, power lines, roadways and more. By 202,video will account or nearly 90 percent o consumerIP trafc. To handle this vast data stream, well need asmart global network. Fortunately, next-generationdigital platorms are already enabling telecom providersto deliver new services, and helping billions o peoplejoin the global economy.
Smarter OilAs we move toward a renewable energy uture, we
need smarter oil and gas felds today. We can only extracta third o the oil in an existing reservebut thatschanging, thanks to 3-D models o reservoirs, to helpdecide where to drill; and sensors embedded acrossan entire feld, to optimize well perormance and protectthe environment.
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6
($ in millions except per share amounts)For the year: 2008 2007
Revenue $103,630 $ 98,786
Income from continuing operations $ 12,334 $ 10,418
Income/(loss) from discontinued operations (00)
Net income $ 12,334 $ 10,418
Earnings/(loss) per share of common stock:
Assuming dilution:
Continuing operations $ 8.93 $ 7.18
Discontinued operations (0.00)
Total $ 8.93 $ 7.18
Basic:
Continuing operations $ 9.07 $ 7.32
Discontinued operations (0.00)
Total $ 9.07 $ 7.32
Net cash provided by operating activities from continuing operations $ 18,812 $ 16,094
Capital expenditures, net 4,536 4,968
Share repurchase 10,578 18,828
Cash dividends paid on common stock 2,585 2,147
Per share of common stock 1.90 1.50
At year end: 2008 2007
Cash, cash equivalents and marketable securities $ 12,907 $ 16,146
Total assets 109,524 120,431Working capital 6,568 8,867
Total debt 33,926 35,274
Stockholders equity 13,465 28,470
Common shares outstanding (in millions) 1,339 1,385
Market capitalization $112,698 $149,744
Stock price per common share $ 84.16 $ 108.10
Number of employees in IBM/wholly owned subsidiaries 398,455 386,558
financial Highlights
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Rpr In ter nAtIon Al B usIn ess MAch In es c orpo rAt Ion ad sbidi ay cma i
management discussionR Mp 18
rwr-Lk Cry S 18
M D Sph 19
Drp B 20
Yr Rvw 25
Prr Yr Rvw 39
D Opr 44
Ohr Ir 44
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RepoRt of ManageMent 58
RepoRt of Independent RegIsteRed
publIc accountIng fIRM 59
consolidated financial statementsEr 60
P 61
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Skhr Eqy 63
notes to consolidated financialstatementsA S A P 66
B A Ch 76
c Aq/Dvr 78D r V 84
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fIve-yeaR coMpaRIson of selected
fInancIal data 120
selected QuaRteRly data 121
peRfoRMance gRaphs 122
boaRd of dIRectoRs and senIoR leadeRshIp 124
stockholdeR InfoRMatIon 125
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8
M DIn ter nAtI onAl BusI ne ss M Ach In es c orp orA tIon ad sb idia y cma i
Mgemet diui ................................................................................................18
road Map ............................................................................................................ 18
forward-looking and cauTionary sTaTeMenTs .....................................18
ManageMenT discussion snapshoT ...........................................................19
DESCRIPTIoN of BuSINESS................................................................................20
YEAR IN REvIEW ...................................................................................................25
PRIoR YEAR IN REvIEW .......................................................................................39
DISCoNTINuED oPERATIoNS ..............................................................................44
oThER INfoRMATIoN ..........................................................................................44
GloBAl fINANCING .............................................................................................53
Rert o Mgemet ............................................................................................... 58
Rert o Ieeet Regitere pubi autig firm .................................59
cite sttemet ............................................................................................ 60
nte ...............................................................................................................................66
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M DIn te rna tIon al BusI ne ss M ach In es c orp or atIo n d s bidi y c mi
Management Discussion Snapshot( $ and shares in millions except per share amounts)
Yr.-to-Yr.Percent/
MarginF y d d Dmb 31: 2008 2007 Change
Revenue $103,630 $ 98,786 4.9%*
Gross profit margin 44.1% 42.2% 1.8pts.
Total expense and other income $ 28,945 $ 27,240 6.3%
Total expense and other
income-to-revenue ratio 27.9% 27.6% 0.4pts.
Income from continuing
operations before income taxes $ 16,715 $ 14,489 15.4%
Provision for income taxes 4,381 4,071 7.6%
Income from continuing
operations $ 12,334 $ 10,418 18.4%
Net income $ 12,334 $ 10,418 18.4%
Net income margin 11.9% 10.5% 1.4pts.
Earnings per share of
common stock:Assuming dilution:
Continuing operations $ 8.93 $ 7.18 24.4%
Discontinued operations (0.00) NM
Total $ 8.93 $ 7.18 24.4%
Weighted-average shares
outstanding:
Assuming dilution 1,381.8 1,450.6 (4.7)%
Assets** $109,524 $120,431 (9.1)%
Liabilities** $ 96,058 $ 91,962 4.5%
Equity** $ 13,465 $ 28,470 (52.7)%
* 2.3 percent adjusted for currency.
** At December 31.
NMNot meaningful
continuing operationsI 2008, y f y w ff -
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Gross Yr.-to-Yr. ConsolidatedMargin Change Impact
Global Technology Services 32.6% 2.7 pts. 0.8 pt
Global Business Services 26.7% 3.2 pts. 0.5 pt
Software 85.4% 0.2 pts. 0.5 pt
Systems & Technology 38.1% (1.7) pts. (0.2) pGlobal Financing 51.3% 4.6 pts. 0.1 pt
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0
Mnmn DicuionIn ter nAtIonA l Bus In ess MAch Ine s cor por AtIon a d sb idiay c mai
Mgemet diui ................................................................................................18
RoAD MAP ............................................................................................................18
foRWARD-lookING AND CAuTIoNARY STATEMENTS ........ ....... ........ ........ ....... 18
ManageMenT discussion snapshoT ...........................................................19
descripTion of business ...............................................................................20
YEAR IN REvIEW ...................................................................................................25
PRIoR YEAR IN REvIEW .......................................................................................39
DISCoNTINuED oPERATIoNS ..............................................................................44
oThER INfoRMATIoN ..........................................................................................44
GloBAl fINANCING .............................................................................................53
Rert o Mgemet ............................................................................................... 58
Rert o Ieeet Regitere puli autig firm .................................59
clite sttemet ............................................................................................ 60
nte ...............................................................................................................................66
Tol xpn nd oh incom incd 6.3 pcn in 2008 vu
2007. Th -o- div w ppoximl:
Opionl xpn, -1 poin
Acquiiion, +5 poin Cunc, +2 poin
Th civ x o 2008 w 26.2 pcn, compd wih 28.1
pcn in 2007. Th dc in h x w pimil du o
incd uilizion o x cdi.
A Dcmb 31, 2008, h compn blnc h nd liquidi
poiion mind on. Ch on hnd w $12,741 million. Tol
db dcd $1,349 million o , nd h compn n-
d $18,812 million in opin ch low in 2008. Th compn
h coninl nd on ch low om opion nd lo
coninu o hv cc o ddiionl ouc o liquidi houh
h cpil mk nd i lobl cdi cili.
K div in h compn blnc h nd ol ch low hihlihd blow.
Tol dcd $10,907 million ($5,854 million djud
o cunc) pimil du o dc in ch nd ch quivln
($2,250 million), ppid pnion ($15,816 million), ho-m
mkbl cuii ($989 million) nd ol inncin civbl
($1,233 million). Th dc w pill o b inc in
lon-m dd x ($5,757 million), oodwill ($3,941 million)
nd innibl ($771 million).
Tol libilii incd $4,097 million ($5,275 million djud
o cunc) divn pimil b inc in imn nd non-
pnion poimn bni obliion ($5,871 million) nd ol
dd incom ($547 million), pill o b dc in ol
db ($1,349 million) nd ccoun pbl ($1,041 million).Sockhold qui o $13,465 million dcd $15,004 million
vu 2007. N incom o $12,334 million w o b h c o
pnion mumn nd oh imn-ld im ($14,856
million), common/u ock civi ($6,322 million), dividnd
($2,585 million) nd qui nlion djumn ($3,552 million).
Th compn nd $18,812 million in ch low povidd b
opin civii, n inc o $2,718 million, compd o 2007,
pimil divn b incd n incom ($1,916 million). N ch
ud in invin civii o $9,285 million w $4,611 million hih
hn 2007, pimil du o incd pndin o cquiiion
($5,304 million). N ch ud in inncin civii o $11,834
million incd $7,095 million pimil du o db ncion
($14,556 million), pill o b low common ock pu-
ch ($8,249 million) in 2008 vu 2007.
Tol Globl Svic inin incd 2 pcn o $57,182
million ($49,738 million djud o cunc, l vu 2007).
Sho-m inin w $26,831 million, n inc o 8 pcn
o (5 pcn djud o cunc), whil lon-m in-
in w $30,351 million, dc o 3 pcn (5 pcn djudo cunc). Th imd Globl Svic bcklo, djud o
cunc, w $117 billion Dcmb 31, 2008, down $2 billion v-
u h Dcmb 31, 2007 blnc.
fo ddiionl inomion nd dil, h Y in Rviw
cion on p 25 o 39.
deriti buiepa f IBM Aa r Fm 10-K fid wi sec
Fbay 24, 2009 f a m daid vi f i Dii f
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Th compn c buin vlu o clin nd olv buin
poblm houh ind oluion h lv inomionchnolo nd dp knowld o buin poc. IBM oluion
picll c vlu b ducin clin opionl co o b
nblin nw cpbilii h n vnu. Th oluion dw
om n indu ldin poolio o conulin, dliv nd impl-
mnion vic, npi ow, m nd inncin.
strategyIn IBM viw, od nwokd conom h cd lobl bui-
n lndcp nd mnd o buin chn. I lo opn h
oppouni o upd h icinc nd civn o h lobl
inucu houh mbddd inomion chnolo wh
IBM cll m pln. Sm ipo, m hihw, muppl chin ll poibl. IBM i wokin wih clin nd
ovnmn ound h wold o xplo h oppounii nd
implmn nw id.
Ind lobl conomi hv opnd mk o nw
oppouni nd nw ouc o kill. Th Inn h nbld com-
municion nd collboion co h wold nd bouh wih i
nw compuin modl pmid on coninuou lobl conncion. In
h lndcp, compni cn diibu wok nd chnolo n-
wh in h wold. IBM coninu o dju i oopin owd
min ophi, ppin hi hih owh, povidin h
chnolo inucu h nd nd kin dvn o h l-
n pool h povid o b vic h compn clin.
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M DcInt er nAtIonA l Bus In ess MAch In es c orpo rAt Ion ad sbidi ay cma i
A h , h c cc c c h p
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2
M DoIn ter natIo nal BusI ne ss M achI nes corp ora tIon d sb idi y cm i
Managmnt Discussion ................................................................................................18
Road Map ............................................................................................................18
FoRwaRd-Looking and CautionaRy StateMentS ........ ....... ........ ........ ....... 18
ManageMent diSCuSSion SnapShot ............................................................ 19
Description of Business ...............................................................................20
yeaR in Review ...................................................................................................25
pRioR yeaR in Review .......................................................................................39
diSContinued opeRationS ..............................................................................44
otheR inFoRMation ..........................................................................................44
gLobaL FinanCing .............................................................................................53
Rport Of Managmnt ............................................................................................... 58
Rport Of Indpndnt Rgistrd Puic Accounting Firm .................................59
Consoidatd Statmnts ............................................................................................ 60
Nots ...............................................................................................................................66
business segments and capabilitiesTh oy jor oro r or of: Go Th-
ooy Srv ; Go B Srv ;
Sofwr ; Sy Thooy ; Go
F .Go Srv r oo of h oy ry
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o rqr . Wh Go Srv hr r wo ror
: Go Thooy Srv Go B Srv.
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sgi oig svi. Corhv IT rv r
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rovy.
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M DcuIn ter natI onal BusI ne ss M achI ne s cor por atIon d sb idi y cm i
risoftware. Sf h hp c h f-
vp pc cp. Wh h cqu f
Tc 2008, R f upp f vp
f h IT u y u.
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c huh h cpy u p;
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f c IBM xv k f Bu P
vp p u.
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4
Management DiscussionIn ter natI onal BusI ne ss M ach In es c orp ora tIon d sb idi y cm i
Management Discussion ................................................................................................18
Road Map ............................................................................................................18
FoRwaRd-Looking and CautionaRy StateMentS ........ ....... ........ ........ ....... 18
ManageMent diSCuSSion SnapShot ............................................................ 19
Description of Business ...............................................................................20
Year in review ..................................................................................................25
pRioR yeaR in Review .......................................................................................39
diSContinued opeRationS ..............................................................................44
otheR inFoRMation ..........................................................................................44
gLobaL FinanCing .............................................................................................53
Report Of Management ............................................................................................... 58
Report Of Independent Registered Public Accounting Firm .................................59
Consolidated Statements ............................................................................................ 60
Notes ...............................................................................................................................66
Distribution: Consumer Products, Retail, Travel and Transportation
Communications: Telecommunications, Media and Entertainment,
Energy and Utilities
Small and Medium Business: Mainly companies with less than
1,000 employees
Research, Development and Intellectual Property
IBMs research and development (R&D) operations differentiate the
company from its competitors. IBM annually spends approximately
$6 billion for R&D, focusing its investments on high-growth, high-
value opportunities. As a result of innovations in these and other
areas, IBM was once again awarded more U.S. patents in 2008 than
any other company, the first company to achieve over 4,000 patents
in a year. The company will continue to actively seek intellectual
property protection for its innovations, while increasing emphasis on
other initiatives designed to leverage its intellectual property leader-
ship and promote innovation.
In addition to producing world-class hardware and software prod-
ucts, IBM innovations are also a major differentiator in providing
solutions for the companys clients through its services businesses.
The companys investments in R&D also result in intellectual prop-
erty (IP) income of approximately $1 billion annually. Some of IBMs
technological breakthroughs are used exclusively in IBM products,
while others are licensed and may be used in either/both IBM prod-
ucts and/or the products of the licensee. While the companys various
proprietary intellectual property rights are important to its success,
IBM believes its business as a whole is not materially dependent on
any particular patent or license, or any particular group of patents or
licenses. IBM owns or is licensed under a number of patents, which
vary in duration, relating to its products. Licenses under patentsowned by IBM have been and are being granted to others under
reasonable terms and conditions.
Integrated Supply Chain
Consistent with the companys work with clients to transform their
supply chains for greater efficiency and responsiveness to global
market conditions, the company continues to derive business value
from its own globally integrated supply chain, which provides astrategic advantage for the company to create value for clients. IBM
leverages its supply-chain expertise for clients through its supply-chain
business transformation outsourcing service to optimize and help
operate clients end-to-end supply-chain processes, from procure-
ment to logistics.
IBM spends approximately $38 billion annually through its sup-
ply chain, procuring materials and services globally. The supply,
manufacturing and logistics, and customer fulfillment operations are
integrated in one operating unit that has optimized inventories
over time, improved response to marketplace opportunities and
external risks, and converted fixed costs to variable costs. Simplifying
and streamlining internal processes has improved operations, sales
force productivity and processes, and these actions have improvedclient satisfaction.
Integrated Technology Delivery
Integrated Technology Delivery (ITD) combines all of the worldwide
service delivery capabilities for Strategic Outsourcing with strong
local and regional management teams supported by a set of global
competencies. ITD leverages the companys global scale and advanced
technology to deliver standardized solutions that are automated,
repeatable and globally integrated. Clients gain cost advantages, access
to industry-leading skills and IBMs scale and overall flexibility. ITD
manages the worlds largest privately-owned IT infrastructure with
employees in over 40 countries supporting over 450 data centers.
Business Process Delivery
Business Process Delivery (BPD) provides highly efficient, world-class
delivery capabilities in IBMs business process delivery operations,
which include Business Transformation Outsourcing, Business Pro-
cess Outsourcing and Business Process Services. BPD has employees
and delivery centers in over 40 countries worldwide.
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M DIn te rnA tIon Al BusI ne ss M Ach In es c orp or AtIo n ad s bidia y c mai
year in Review
results of continuing operations
segmen deail
Th w y h 2008 v 2007 b . Th y 2007 v 2006 b
39 42.
Th w b h b x v d .
( $ in millions)Yr.-t-Yr. Yr.-t-Yr.Percent/ Percent ChangeMargin Adjusted
F ya d d Dmb 31: 2008 2007 Change r Currency
Revenue:
Glbal Technlgy Services $ 39,264 $36,103 8.8% 5.8%
Grss margin 32.6% 29.9% 2.7pts.
Glbal Business Services 19,628 18,041 8.8% 5.1%
Grss margin 26.7% 23.5% 3.2pts.
Stware 22,089 19,982 10.5% 8.2%
Grss margin 85.4% 85.2% 0.2pts.Systems and Technlgy 19,287 21,317 (9.5)% (10.8)%
Grss margin 38.1% 39.7% (1.7)pts.
Glbal financing 2,559 2,502 2.3% 0.3%
Grss margin 51.3% 46.7% 4.6pts.
other 803 842 (4.6)% (5.9)%
Grss margin 13.4% 4.4% 9.1pts.
ToTal revenue $103,630 $98,786 4.9% 2.3%
Grss prit $ 45,661 $41,729 9.4%
Grss margin 44.1% 42.2% 1.8pts.
Th w b h b x v v d h b
-x -x .
Revenue Pre-tax Incme*
F ya d d Dmb 31: 2008 2007 2008 2007
Glbal Technlgy Services 38.2% 36.9% 26.3% 23.5%
Glbal Business Services 19.1 18.4 15.3 13.6
Ttal Glbal Services 57.3 55.3 41.6 37.1
Stware 21.5 20.4 40.4 39.6
Systems and Technlgy 18.8 21.8 8.8 14.2
Glbal financing 2.5 2.6 9.2 9.1
ToTal 100.0% 100.0% 100.0% 100.0%
* Segment pre-tax income includes transactions between segments that are intended to reflect an arms-length transfer price.
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6
Maageet DcuIn ter nAtI onAl BusI ne ss M Ach In es c orp orA tIon ad sb idia y cma i
Mmt diui ................................................................................................18
RoAD MAP ............................................................................................................18
foRWARD-lookING AND CAuTIoNARY STATEMENTS ......................................18
MANAGEMENT DISCuSSIoN SNAPShoT ............................................................ 19
DESCRIPTIoN of BuSINESS................................................................................20
year in review ..................................................................................................25
PRIoR YEAR IN REvIEW .......................................................................................39
DISCoNTINuED oPERATIoNS ................................................................................44
oThER INfoRMATIoN ..........................................................................................44
GloBAl fINANCING .............................................................................................53
Rrt o Mmt ............................................................................................... 58
Rrt o It Ritr pui auti firm .................................59
cit sttmt ............................................................................................ 60
nt...............................................................................................................................66
In 2008, Global Services and Software increased as a percentage of total
eget reveue ad tta eget pre-tax ce. Gba Servce
creaed t reveue ad prft ctrbut by 2.0 pt ad 4.5
pt, repectvey, whe the Sftware bue creaed by 1.1 pt
ad 0.8 pt, repectvey. Thee prveet refect the cpa-y prtf act ad targeted vetet tratege bth aed
at arket eget that preet the bet g-ter pprtute.
global seRvIces
The Gba Servce eget, Gba Techgy Servce (GTS)
ad Gba Bue Servce (GBS), had cbed reveue f
$58,891 , a creae f 8.8 percet (6 percet adjuted fr
currecy) 2008 whe cpared t 2007. Reveue perfrace wa
brad baed acr the eget, e f bue ad gegraphc
ut, drve prary by a trg auty bae ad grwth hrt-
ter gg.
I 2008, tta Gba Servce gg creaed 2 percet year t
year t $57,182 ($49,738 adjuted fr currecy, fat
year t year). Shrt-ter gg were $26,831 , a creae f
8 percet (5 percet adjuted fr currecy) veru 2007. Shrt-ter
gg creaed bth the grwth arket ad the ajr arket.
Lg-ter gg were $30,351 , a decreae f 3 percet
(5 percet adjuted fr currecy) cpared t 2007. Lg-ter g-
g deced bth the ajr ad grwth arket. The tta
Gba Servce backg decreaed $2 b fr the prr year t
a etated $117 b at Deceber 31, 2008.
The Gba Servce eget everaged very trg arg
perfrace ad devered cbed pre-tax prft f $7,288
2008, a prveet f 29.6 percet veru 2007. The ervce
bue ctrbuted apprxatey 42 percet f the cpay eg-et pre-tax prft 2008. Thrugh t trafrat tatve,
the Gba Servce bue ha fcued hgher vaue fferg
wth a re fexbe abr de that ca adapt t chagg arket
evret.
( $ in millions)Yr.-t-Yr.
F ya d d Dmb 31: 2008 2007 Cange
global services revenue: $58,891 $54,144 8.8%
Gba Tecngy Serices $39,264 $36,103 8.8%
Strategic otsrcing 20,183 18,701 7.9
Integrated Tecngy Serices 9,283 8,438 10.0
Bsiness Transrmatin otsrcing 2,550 2,294 11.2
Maintenance 7,250 6,670 8.7Gba Bsiness Serices $19,628 $18,041 8.8%
Gba Techgy Servce reveue creaed 8.8 percet (6 percet
adjuted fr currecy) 2008 veru 2007 wth trg perfrace
acr a e f bue. Tta gg GTS creaed 1 percet
(fat adjuted fr currecy) ed by hrt-ter gg grwth f
5 percet (4 percet adjuted fr currecy). Lg-ter ggdecreaed 1 percet (2 percet adjuted fr currecy).
Strategc Outurcg (SO) reveue wa up 7.9 percet (5 percet
adjuted fr currecy) wth grwth a gegraphe, drve by prr
year gg ad ctued grwth the bae accut. SO g-
g 2008 creaed 3 percet (1 percet adjuted fr currecy)
whe cpared t 2007. Sgg were very trg the furth
quarter (up 20 percet), a cet fcued the vaue f the SO
fferg the curret evret. The tatve arud ta-
dardzat, gba tegrat ad prved effcecy are drvg
prveet quaty ad cuter atfact whch are refected
the gg perfrace ad prved prftabty.
Ifrat Techgy Servce (ITS) reveue creaed 10.0
percet (7 percet adjuted fr currecy) 2008 veru 2007 edby grwth key fratructure fferg uch a Gree Data Ce-
ter ad Cverged Cucat. ITS fratructure fferg
dever hgh-vaue, tadardzed, aet-baed ervce that everage
the cpay ervce, hardware ad ftware capabte, prvdg
cet ed-t-ed ut ad prcee that trafr ther bu-
ee. ITS gg creaed 5 percet (4 percet adjuted fr
currecy) 2008.
Bue Trafrat Outurcg (BTO) reveue creaed
11.2 percet (12 percet adjuted fr currecy) wth grwth a
gegraphe, ed by Aa Pacfc. The Dakh bue, whch fcued
bue prce uturcg, devered trg grwth. BTO g-
g decreaed 18 percet (14 percet adjuted fr currecy) 2008
cpared t 2007.
Mateace reveue creaed 8.7 percet (5 percet adjuted
fr currecy) wth grwth avaabty ervce bth IBM ad
-IBM IT equpet.
Gba Bue Servce reveue creaed 8.8 percet (5 percet
adjuted fr currecy) 2008, wth baaced grwth acr a three
gegraphe. Reveue perfrace wa ed by grwth Appcat
Maageet Servce (12.5 percet) ad Cre Cutg (6.1 per-
cet). Tta gg GBS creaed 2 percet (decreaed 1 percet
adjuted fr currecy), ed by a 10 percet (6 percet adjuted fr
currecy) grwth hrt-ter gg. Shrt-ter gg grwth
wa drve by fferg that eabe cet t reduce ct ad cerve
capta. I the ecd haf f the year, gg fr trafrataad cpace fferg a creaed. Lg-ter gg decreaed
14 percet (16 percet adjuted fr currecy) year ver year.
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Maageet DcuInt er natIona l Bus In ess Mach In es c orpo rat Ion d sbidi y cm i
( $ in millions)Yr.-to-Yr.
F y d d Dm b 31: 2008 2007 Change
global services gross profit:
Global Technology Services:
Gross profit $12,802 $10,800 18.5%
Gross profit margin 32.6% 29.9% 2.7pts.
Global Business Services:
Gross profit $ 5,238 $ 4,240 23.5%
Gross profit margin 26.7% 23.5% 3.2pts.
GTS gr prft creaed 18.5 percet cpared t 2007, wth
gr prft arg prvg 2.7 pt. A e f bue dev-
ered gr arg expa year ver year drve by a cbat
f a x t hgher vaue fferg ad a prved ct tructure.
Seget pre-tax prft creaed 29.5 percet t $4,607 wth
a pre-tax arg f 11.3 percet, a creae f 1.9 pt veru
2007. GTS ha devered x cecutve quarter f dube-dgt
pre-tax prft grwth. The arg prveet wa drve prar-
y by a devery tructure that axze utzat ad fexbty,
a x t hgher vaue fferg, wer retreet-reated ct ad
prved prductvty.
GBS gr prft creaed 23.5 percet t $5,238 2008
whe cpared t 2007, ad the gr prft arg prved 3.2
pt. Seget pre-tax prft creaed 29.9 percet t $2,681
wth a pre-tax arg f 13.0 percet, a prveet f 2.2 pt
year ver year. Th wa the thrd traght year f prft grwth
greater tha 20 percet GBS ad detrate the reut f a
trg peratg dcpe ad the beeft f a gbay tegrated
peratg de. The arg expa wa drve by prved
utzat, ct ad expee aageet, tabe prcg ad werretreet-reated ct.
Gb svi sigig
The tabe bew preet Gba Servce gg a reprted ad
adjuted fr currecy. Sgg at actua currecy rate prvde ve-
tr a better vew f hw thee gg w cvert t ervce reveue
ad prvde better cparabty t ther cpae the dutry
wh reprt gg ug actua rate.
At Actual Currency Rates( $ in millions)
Yr.-to-Yr.F y d d Dm b 31: 2008 2007 Change
global technologyservices signings:
Long term $24,446 $24,576 (0.5)%
Short term 10,247 9,776 4.8
total $34,693 $34,352 1.0%
global business services
signings:
Long term $ 5,905 $ 6,847 (13.8)%
Short term 16,584 15,094 9.9
total $22,488 $21,941 2.5%
Adjusted for Currency($ in millions)
Yr.-to-Yr.F y dd Dmb 31: 2008 2007 Change
global technology
services signings:
Long term $21,220 $21,550 (1.5)%
Short term 8,920 8,604 3.7
total $30,141 $30,154 0.0%
global business services
signings:
Long term $ 5,333 $ 6,330 (15.8)%
Short term 14,264 13,411 6.4
total $19,597 $19,741 (0.7)%
Gba Servce gg are aageet ta etate f the
reveue vaue f a cet ctet uder a Gba Servce c-
tract. Sgg are ued by aageet t ae perd perfracef Gba Servce aageet. There are thrd-party tadard
r requreet gverg the cacuat f gg. The cacua-
t ued by aageet cude a apprxat f currecy ad
vve etate ad judget t gauge the extet f a cet
ctet, cudg the type ad durat f the agreeet,
ad the preece f terat charge r wd-dw ct. Fr
exape, fr g-ter ctract that requre gfcat up-frt
vetet by the cpay, the prt f thee ctract that
cttute a gg are the perd whch there a gfcat
ecc pact the cet f the ctet t acheved,
uuay thrugh a terat charge r the cet currg gf-
cat wd-dw ct a a reut f the terat. Fr hrt-ter
ctract that d t requre gfcat up-frt vetet, agg uuay equa t the fu ctract reveue vaue. Lg-ter
ctract repreet SO ad BTO ctract a we a GBS ctract
wth the U.S. Federa gveret ad t agece ad Appcat
Maageet Servce (AMS) fr cut ad egacy appcat.
Shrt-ter ctract repreet the reag GBS fferg f
Cutg ad Syte Itegrat, AMS fr packaged appcat
ad ITS ctract.
Sgg cude SO, BTO, ITS ad GBS ctract. Ctract
exte ad creae cpe are treated a gg y t the
extet f the creeta ew reveue vaue. Mateace t
cuded gg a ateace ctract ted t be re teady
tate, where reveue equa reewa.
Backg cude SO, BTO, ITS, GBS ad Mateace. Backg teded t be a tateet f vera wrk uder ctract ad
therefre de cude Mateace. Backg etate are ubject t
chage ad are affected by evera factr, cudg terat,
chage the cpe f ctract, perdc revadat, adjutet
fr reveue t aterazed ad currecy aupt ued t apprx-
ate ctat currecy.
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8
Maageet DcuIn ter natI onal BusI ne ss M ach In es c orp ora tIon d sb idi y cm i
Managmn Discussion ................................................................................................18
Road Map ............................................................................................................18
FoRwaRd-Looking and CautionaRy StateMentS ......................................18
ManageMent diSCuSSion SnapShot ............................................................ 19
deSCRiption oF BuSineSS................................................................................20
Year in review ..................................................................................................25
pRioR yeaR in Review .......................................................................................39
diSContinued opeRationS ..............................................................................44
otheR inFoRMation ..........................................................................................44
gLoBaL FinanCing .............................................................................................53
Rpor Of Managmn ............................................................................................... 58
Rpor Of Indpndn Rgisrd Public Accouning Firm .................................59
Consolidad Samns ............................................................................................ 60
Nos...............................................................................................................................66
Ctract prtf purchaed a acqut are treated a p-
tve backg adjutet prvded the ctract eet the cpay
requreet fr ta gg. A ew gg w be recgzed f
a ew ervce agreeet ged cdeta r ccdeta t a
acqut r dvetture.
SOFtwARe
( $ in millions)yr.--yr.
F y d d Dmb 31: 2008 2007 C
Software revenue: $22,089 $19,982 10.5%
Mlr $17,305 $15,505 11.6%
k Br Mlr 12,383 10,827 14.4
wbSr Fml 6.2
ifrm Mm 24.5
Ls 10.4
tl 2.9
Rl 13.2
or mlr 4,922 4,678 5.2
or ssms 2,337 2,319 0.8
prc Lfccl
Mm 960 1,051 (8.6)
or 1,488 1,107 34.4
Sftware eget reveue f $22,089 creaed 10.5 percet
(8 percet adjuted fr currecy) 2008 ed by grwth the Key
Braded Mddeware prduct ad trg ctrbut fr the
auty bae ad acqut. Cet ctue t ebed the cpa-
y ftware the fabrc f ther IT fratructure.
Key Braded Mddeware reveue creaed 14.4 percet (12 per-
cent adjusted for currency) and represented 56 percent of total Software
eget reveue, a creae f 2 pt fr 2007. Whe adjuted
fr currecy, grwth 2008 wa ed by Ifrat Maageet,
Rata ad Ltu. Strategc acqut, cudg Cg ad
Teegc, have exteded the eget ddeware capabte.
WebSphere Fay reveue creaed 6.2 percet (5 percet
adjuted fr currecy) 2008 ad wa ed by grwth WebSphere
Appcat Server ad WebSphere Bue Itegrat ftware.
I Deceber 2008, the cpay cpeted the acqut f ILOG,
whe prduct hep cuter prve bue dec wth pt-
zat, vuazat ad bue rue ftware. The WebSphere
products provide the foundation for Web-enabled applications and
are a key prduct et depyg a cet SOA. Ifrat
Maageet reveue creaed 24.5 percet (22 percet adjutedfr currecy) 2008 veru the prr year, refectg the ctrbu-
t fr Cg ad trg dead fr the dtrbuted reata
databae prduct. Cg perfrace aageet ut hep
cuter prve dec-akg acr the eterpre t pt-
ze bue perfrace.
Ltu reveue creaed 10.4 percet (8 percet adjuted fr
currecy) 2008 ed by grwth Ltu Nte prduct a cuter
ctue t vet t prve ther wrkfrce effcecy. Ltu ft-
ware we etabhed a a t fr prvdg prved wrkpace
cabrat ad prductvty.Tv reveue creaed 2.9 percet (2 percet adjuted fr cur-
recy) 2008 whe cpared t 2007. Reveue perfrace wa
ed by grwth Tv Securty ad Strage Maageet prduct.
Tv ftware prvde the advaced capabte requred t ru
arge -crtca evret. Th cude ecurty ad trage
ftware whch hep cuter prve utzat ad reduce ct.
Rata reveue creaed 13.2 percet (12 percet adjuted fr
currecy) 2008 drve prary by Teegc ctrbut.
Teegc ute f yte prgrag t cpeet Rata
IT t et, prvdg a c fraewrk fr ftware ad yte
devery acr a cet eterpre.
Reveue fr Other ddeware prduct creaed 5.2 percet
(3 percet adjuted fr currecy) 2008 veru the prr year. Thftware prduct et cude re ature prduct whch prvde a
re tabe fw f reveue.
Other ftware eget reveue creaed 34.4 percet (31 per-
cet adjuted fr currecy) veru 2007 refectg ctued grwth
ftware-reated ervce.
($ in millions)yr.--yr.
F y dd Dmb 31: 2008 2007 C
Software groSS profit:
grss rf $18,859 $17,015 10.8%
grss rf mr 85.4% 85.2% 0.2
Sftware eget gr prft creaed 10.8 percet t $18,859 -
2008, drve prary by the trg reveue grwth. The
arge auty bae f th bue ctue t prvde a predctabe
ad grwg prft trea. Gr prft arg wa 85.4 percet
2008, a creae f 0.2 pt veru 2007. The cpay ha bee
vetg gfcaty the ftware bue wth gd reut. The
Sftware eget ctrbuted $7,075 f pre-tax prft 2008,
a creae f 17.9 percet veru 2007 whe uccefuy tegratg
Cg ad Teegc. Sftware ctrbuted apprxatey 40 percet
f the cpay eget pre-tax prft 2008. The eget pre-tax
prft arg creaed 1.7 pt t 28.5 percet. The pre-tax ce
ad arg prveet have bee drve prary by reveue
grwth ad creag perata effcece.
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Maageet DcuIn te rnA tIon Al BusI ne ss M Ach In es c orp or AtIo n ad s bidia y c mai
systeMs and technology
( $ in millions)Yr.-t-Yr.
F ya d d Dmb 31: 2008 2007 Change
sysTems and Technology
revenue: $19,287 $21,317 (9.5)%
System z 12.5%
legacy System i (66.1)
Cnverged System p 11.2
System x (16.9)
System Strage (3.4)
Retai Stre Sutins (15.0)
Tta Systems (4.9)
Micreectrnics oEM (25.1)
Printing Systems NM
NMNot meaningful
Syte ad Techgy eget reveue decreaed 9.5 percet
(dw 11 percet adjuted r currecy) 2008 veru 2007. I Jue
2007, the cpay dveted t prtg bue. Syte ad Tech-
gy reveue, excudg the dveted prtg bue, decreaed
7.8 percet (9 percet adjuted r currecy) 2008 veru 2007.
Tta Syte reveue decreaed 4.9 percet (6 percet adjuted r
currecy) 2008 veru 2007.
I the curret ecc evret, cet are cued
reducg the ct rug ther IT ratructure. Vrtuazat,
whch prvde the capabty t ru utpe wrkad a ge
erver, a key eaber ececy. Syte z the eadg patr
r vrtuazat a t abe t upprt thuad age ad
perate uy utzed. The cpay POWER archtecture upprt
hudred partt, te drvg utzat rate ver 60 per-cet. Bth thee patr everage the etre yte, r the
cpay cut ecductr thrugh the tware tack, t
acheve thee hgh eve ececy ad wer ct werhp.
The dtrbuted cputg de, whch utze ay a erver,
cat er the ae eve ececy ad vaue.
Syte z reveue creaed 12.5 percet (11 percet adjuted r
currecy) 2008 veru 2007. Syte z reveue grwth wa partcu-
ary trg the Aerca (up 19 percet), a we a the faca
Servce ad Idutra ectr gbay. Cet eergg arket
a everaged th patr tabty ad ececy durg 2008.
MIPS ( truct per ecd) hpet creaed 25
percet 2008 veru 2007, ptg dube-dgt grwth each
quarter, reectg tregth bth tradta ad pecaty wrk-ad. Specaty MIPS creaed 68 percet 2008, a cet expt
the capabte Syte z t brg ew Lux ad Java appcat
t th hghy ecet ad ct eectve patr.
Cverged Syte p reveue creaed 11.2 percet (11 percet
adjuted r currecy) 2008 veru 2007, reectg d dead
r the eergy ecece ad ut-peratg yte capabte
POWER6 techgy. Cet are ccudg that POWER6
techgy the rght ut r a uttude wrkad. Thereveue grwth wa prary drve by drage erver whch
creaed 32 percet ad hgh-ed erver whch creaed 3 per-
cet 2008 veru 2007.
Legacy Syte reveue decreaed 66.1 percet (67 percet
adjuted r currecy) 2008 veru 2007, a the cpay ctue
t trat the Syte cuter bae t the cverged POWER
patr wth Syte p.
Syte x reveue decreaed 16.9 percet (19 percet adjuted r
currecy) 2008 veru 2007. Syte x erver reveue deced 15
percet ad bade reveue decreaed 3 percet, 2008 veru 2007,
repectvey. The dece erver reveue reect a gcat
wdw the x86 arket, epecay the ecd ha 2008, a
cet are vrtuazg ad cdatg wrkad t re e-cet patr uch a POWER ad arae.
Syte Strage reveue decreaed 3.4 percet (5 percet adjuted
r currecy) 2008 veru 2007. Tta dk reveue wa eetay
at 2008 veru 2007. Eterpre Dk reveue creaed 2 percet
prary due t creaed dead r the DS8000 prduct, whe
drage dk reveue deced 15 percet. Tape reveue deced
10 percet 2008 prary due t reduced dead ad cet
decdg t purchae addta eda t expad the utzat
ther extg devce.
Mcreectrc OEM reveue decreaed 25.1 percet (25 per-
cet adjuted r currecy) 2008 veru 2007. The prary
th bue t prvde eaderhp techgy r the yte
bue, a detrated durg 2008 the ew Syte z10 a-
rae ad POWER6 yte.
Reta Stre Sut reveue decreaed 15.0 percet (16 percet
adjuted r currecy) 2008 veru 2007, reectg weake the
reta ectr ad a cpare t a trg 2007, whe a ew prgra-
abe pt--ae ut wa beg devered t arge cet.
($ in millions)Yr.-t-Yr.
F ya dd Dmb 31: 2008 2007 Change
sysTems and Technology
gross profiT:
Grss prfit $7,341 $8,468 (13.3)%
Grss prfit margin38.1%
39.7% (1.7)p
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0
Maageet DcuIn ter natI onal BusI ne ss M ach In es c orp ora tIon d sb idi y cm i
Managmnt Discssion ................................................................................................18
Road Map ............................................................................................................18
FoRwaRd-Looking and CautionaRy StateMentS ......................................18
ManageMent diSCuSSion SnapShot ............................................................ 19
deSCRiption oF BuSineSS................................................................................20
Year in review ..................................................................................................25
pRioR yeaR in Review .......................................................................................39
diSContinued opeRationS ..............................................................................44
otheR inFoRMation ..........................................................................................44
gLoBaL FinanCing .............................................................................................53
Rport Of Managmnt ............................................................................................... 58
Rport Of Indpndnt Rgistrd Pic Acconting Firm .................................59
Consoidatd Statmnts ............................................................................................ 60
Nots...............................................................................................................................66
Overa, gr arg decreaed by 1.7 pt veru the prr year.
Th decreae wa prary drve by arg dece Syte z,
Syte x ad Mcreectrc OEM whch pacted the vera
arg by 1.6 pt, 1.3 pt ad 1.2 pt, repectvey. Partay
ffettg thee arg dece wa a reveue x beeft f 2.7 ptdue t the creaed reveue Syte z ad cverged Syte p.
Syte ad Techgy eget pre-tax arg deced 2.0
pt t 7.7 percet 2008 refectg the wer reveue ad gr
prft arg 2008 veru 2007.
GlObAl FINANCING
See page 53 ad 54 fr a aay f Gba Facg eget
reut.
GeOGRAPhIC ReveNue
I addt t the reveue preetat by reprtabe eget, the
cpay a eaure reveue perfrace a gegraphc ba.The fwg gegraphc, rega ad cutry-pecfc reveue
perfrace dcu excude OEM reveue, whch preeted
eparatey.
( $ in millions)yr.--yr.
F y d d Dmb 31: 2008 2007 C
ToTal revenue: $103,630 $98,786 4.9%
grs: $100,939 $95,320 5.9%
amrcs 42,807 41,122 4.1
er/Ml es/afrc 37,020 34,699 6.7
as pcfc 21,111 19,501 8.3
oeM $ 2,691 $ 3,465 (22.4)%
Gegraphc reveue creaed 5.9 percet (3 percet adjuted fr cur-
recy) t $100,939 2008 whe cpared t 2007. Reveue
creaed a gegraphe 2008, ad adjuted fr currecy, reveue
grwth wa trget the Aerca fwed by Eurpe ad Aa
Pacfc. Reveue fr the cpay grwth arket rgazat
creaed 9.8 percet (10 percet adjuted fr currecy) whe grwth
the re etabhed ajr arket wa 5.1 percet (2 percet
adjuted fr currecy).
Aerca reveue creaed 4.1 percet (4 percet adjuted fr
currecy) 2008. Reveue creaed a reg wth the U.S. up
2.9 percet, Caada 5.6 percet (6 percet adjuted fr currecy) ad
Lat Aerca 13.9 percet (11 percet adjuted fr currecy).
Eurpe/Mdde Eat/Afrca (EMEA) reveue creaed 6.7 per-
cet (3 percet adjuted fr currecy) 2008 whe cpared t 2007.
The ajrty f ajr arket cutre perfred we ed by Spa
whch grew 12.0 percet (5 percet adjuted fr currecy), Geray
creaed 10.8 percet (4 percet adjuted fr currecy) ad Frace
increased 9.0 percent (2 percent adjusted for currency). Italy increased
5.8 percet (decreaed 1 percet adjuted fr currecy) whe the U.K.
decreaed 4.9 percet (creaed 4 percet adjuted fr currecy).
Aa Pacfc reveue creaed 8.3 percet (2 percet adjuted fr
currecy) year ver year. Reveue creaed the Ida, Suth Krea,ASEAN, Autraa/New Zeaad ad Cha reg wth cbed
grwth f 8.1 percet (9 percet adjuted fr currecy). Japa reve-
ue, whch repreeted 49 percet f the Aa Pacfc reveue bae,
creaed 8.5 percet a reprted, but decreaed 5 percet adjuted
fr currecy 2008 whe cpared t 2007.
Acr the gegraphe, aggregate reveue fr the cutre
cprg the cpay grwth arket rgazat creaed
9.8 percet (10 percet adjuted fr currecy) 2008 ad repreeted
apprxatey 18 percet f the cpay tta gegraphc reveue.
The cpay ha ctued t vet t capture ew fratructure
pedg the grwth arket. Adjuted fr currecy, grwth
thee arket wa 8 pt hgher tha the ajr arket. The
BRIC cutre, a ubet f the grwth arket, tgether grew17.6 percet (15 percet adjuted fr currecy), wth grwth Ida
f 25.8 percet (33 percet adjuted fr currecy), Braz 18.3 percet
(13 percet adjuted fr currecy), Cha 14.7 percet (8 percet
adjuted fr currecy) ad Rua 11.0 percet (11 percet adjuted
fr currecy).
OEM reveue decreaed 22.4 percet (23 percet adjuted fr
currecy) 2008 whe cpared t 2007, drve by reduced dead
the Mcreectrc OEM bue.
TOTAl exPeNSe AND OTheR INCOMe
($ in millions)yr.--yr.
F y dd Dmb 31: 2008 2007 C
tl xs r cm $28,945 $27,240 6.3%
exs R 27.9% 27.6% 0.4
The key drver year t year tta expee ad ther ce were
apprxatey:
Operata expee, -1 pt
Acqut, +5 pt
Currecy, +2 pt
I 2008, the cpay ctued t fcu prductvty prve-
et t re etabhed arket ad creaed t vetet
the grwth arket. Wth eg, geera ad adtratveexpee (SG&A), tta ae ad arketg expee creaed 4
percet year t year (2 percet adjuted fr currecy). Sae ad ar-
ketg expee the grwth arket creaed 13 percet (13 percet
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Maageet DcuInt er nAtIonA l Bus In ess MAch In es c orpo rAt Ion ad sbidi ay cma i
adjuted fr currecy), a cpared t ajr arket where ae ad
arketg expee creaed 3 percet (1 percet adjuted fr cur-
rency) year to year. On a consolidated basis, general and administrative
expee, whch are drect expee curred the bue,
creaed 2 percet (fat at ctat currecy) year t year.
sig, Ga ad Admiiaiv
($ in millions)Yr.-t-Yr.
F ya d d Dm b 31: 2008 2007 Change
Seing, genera and
administrative base $20,006 $19,078 4.9%
Advertising and prmtina expense 1,259 1,242 1.4
Wrkrce reductins nging 706 318 121.8
Amrtizatin expense acquired
intangibes 306 234 30.5
Retirement-reated expense 319 607 (47.3)
Stck-based cmpensatin 484 480 0.8
Bad debt expense 306 100 205.1
ToTal $23,386 $22,060 6.0%
Tta SG&A expee creaed 6.0 percet (4 percet adjuted fr
currecy) 2008 veru 2007. The creae SG&A wa prary
due t acqut-reated pedg, predaty fr Cg ad
Teegc, whch accuted fr 5 pt f the creae, whe the
effect f currecy accuted fr 2 pt. Wrkfrce reduct
gg expee creaed $387 prary due t charge
recrded the furth quarter refectg wrkfrce act Japa
($120 ) ad ther gg k rebaacg that a reguar
eeet f the cpay bue de. I addt, bad debt
expee creaed $206 prary drve by addta pe-cfc accut recevabe reerve refectg the curret ecc
evret ay dutre. The cpay accut recevabe
prv cverage at year ed 2.0 percet, a creae f 50 ba
pt fr year-ed 2007. Thee creae were partay ffet by
wer retreet-reated expee f $287 .
o (Im) ad ex
( $ in millions)Yr.-t-Yr.
F ya d d Dm b 31: 2008 2007 Change
freign currency transactin sses* $ 330 $ 45 NM
(Gains)/sses n derivative instruments* (27) 194 (114.1)%
Interest incme (343) (565) (39.3)Net gains rm securities and
investment assets (52) (68) (22.6)
Net reaized gains rm certain
rea estate activities (26) (18) 45.0
other (179) (214) (16.5)
ToTal $(298) $(626) (52.4)%
* Reclassified to conform with 2008 presentation.
NMNot meaningful
Other (ce) ad expee wa ce f $298 ad $626 -
2008 ad 2007, repectvey. The decreae ce wa
prary drve by hgher freg currecy traact e ($285
) ad wer teret ce refectg wer cah baace ad
the curret teret rate evret ($222 ). Thee decreaewere partay ffet by a ga dervatve truet whch pr-
ary hedge freg currecy rk ($221 ). Icuded wth
the freg currecy hedgg actvty, the cpay hedge t ajr
cr-brder cah fw t tgate the effect f currecy vatty
t gba cah pag, whch a reduce vatty the year-
ver-year reut. The pact f thee hedgg prgra prar-
y refected ther (ce) ad expee, a we a ct f gd
d. The pact f e fr thee cah fw hedge refected
ther (ce) ad expee wa $186 , a decreae f $24 -
year t year.
ra, Dvm ad egiig
($ in millions)Yr.-t-Yr.
F ya dd Dmb 31: 2008 2007 Change
Research, devepment
and engineering
ToTal $6,337 $6,153 3.0%
The creae reearch, devepet ad egeerg (RD&E)
expee wa prary drve by acqut ad vetet t
ata techgy eaderhp acr the cpay fferg.
Sftware pedg creaed $262 , partay ffet by wer
pedg Syte ad Techgy ($54 ) ad ther ut
pedg ($74 ), whe tck-baed cpeat expee
decreaed $9 veru 2007.
Ia py ad cm Dvm Im
($ in millions)Yr.-t-Yr.
F ya dd Dmb 31: 2008 2007 Change
Saes and ther transers
inteectua prperty $ 138 $138 (00.0)%
licensing/ryaty-based ees 514 368 39.7
Custm devepment incme 501 452 10.9
ToTal $1,153 $958 20.4%
The tg ad aut f ae ad ther trafer f IP ay varygfcaty fr perd t perd depedg up tg f dvet-
ture, dutry cdat, ecc cdt ad the tg f
ew patet ad kw-hw devepet. Whe IP ce creaed
20.4 percet 2008, there were gfcat dvdua IP traac-
t 2008 r 2007. The prveet year t year wa prary
drve by the Syte ad Techgy bue.
7/31/2019 2008 Ibm Annual
34/128
2
Maageet DcuIn ter nAtI onAl BusI ne ss M Ach In es c orp orA tIon ad sb idia y cma i
Mm dii ................................................................................................18
RoAD MAP ............................................................................................................18
foRWARD-lookING AND CAuTIoNARY STATEMENTS ......................................18
MANAGEMENT DISCuSSIoN SNAPShoT ............................................................ 19
DESCRIPTIoN of BuSINESS................................................................................20
year in review ..................................................................................................25
PRIoR YEAR IN REvIEW .......................................................................................39
DISCoNTINuED oPERATIoNS ..............................................................................44
oThER INfoRMATIoN ..........................................................................................44
GloBAl fINANCING .............................................................................................53
Rr o Mm ............................................................................................... 58
Rr o I Rir pi ai firm .................................59
ci sm ............................................................................................ 60
n...............................................................................................................................66
I ex
( $ in millions)Yr.-t-Yr.
F ya d d Dmb 31: 2008 2007 Cange
Interest expenseToTal $673 $611 10.3%
The creae teret expee wa prary due t the creae
debt 2007 acated wth the acg the acceerated hare
repurchae agreeet, partay et by wer teret rate 2008.
See te N, Stckhder Equty, page 95 ad 96 r addta
rat regardg the acceerated hare repurchae. Iteret
expee preeted ct acg the Cdated State-
et Earg the reated extera brrwg are t upprt
the Gba facg extera bue. See page 56 r addta
rat regardg Gba facg debt ad teret expee.
Overa teret expee r 2008 wa $1,477 , a creae $46 veru 2007.
stock-based coMpensatIon
Tta pre-tax tck-baed cpeat ct $659
decreaed $54 cpared t 2007. The decreae wa prc-
pay the reut a reduct the eve tck pt grat ($203
), et by a creae reated t retrcted ad perrace-
baed hare ut ($149 ). The year-t-year chage wa
reected the wg categre: reduct ct ($50 )
ad RD&E expee ($9 ), ad creae SG&A expee ($4
) ad ther (ce) ad expee ($1 ).
See te T, Stck-Baed Cpeat, page 103 t 106 r
addta rat the cpay tck-baed cetve award.
RetIReMent-Related benefI ts
The wg tabe prvde the tta pre-tax ct r a retreet-
reated pa. Thee aut are cuded the Cdated
Stateet Earg wth the capt (e.g., ct, SG&A, RD&E)
reatg t the jb uct the pa partcpat.
( $ in millions)Yr.-t-Yr.
F ya d d Dmb 31: 2008 2007 Cange
Deined beneit and cntribtin
pensin pans cst $1,053 $2,198 (52.1)%
Nnpensin pstretirement pans csts 363 399 (9.0)
ToTal $1,416 $2,597 (45.5)%
Overa, retreet-reated pa ct decreaed $1,181 ver-
u 2007 prary a a reut pe pa redeg ert ad a
wer eve recgzed actuara e.
Eectve Jauary 1, 2008, beet accrua ceaed the IBM Per-
a Pe Pa, a U.S. deed beet pa. Th decreae wapartay et by a creae deed ctrbut pa, prary
the U.S. See te U, Retreet-Reated Beet, page 106
t 116 r addta rat thee pa chage ad a the
actr drvg the year-t-year chage tta ct.
Retreet-reated pa ct decreaed apprxatey $771 -
ct, $287 SG&A expee, $117 RD&E
expee ad $5 ther (ce) ad expee year t year.
acQuI Red IntangIble asset aMoRtIzatIon
The cpay ha bee vetg targeted acqut t creae
t capabte hgher vaue buee. The wg tabe pre-
et the tta acqured tagbe aet artzat cuded the
Cdated Stateet Earg. See te J, Itagbe Aet
Icudg Gdw, page 87 ad 88 r addta rat.
($ in millions)Yr.-t-Yr.
F ya dd Dmb 31: 2008 2007* Cange
Cst:
Stware (Saes) $173 $ 91 89.2%
Gba Tecngy Serices (Serices) 32 41 (21.0)
Gba Bsiness Serices (Serices) 0 1 (67.0)
Systems and Tecngy (Saes) 8 0 NM
Seing, genera and
administratie expense 306 234 30.5
ToTal $520 $367 41.5%
* Reclassified to conform with 2008
Recommended