2008 Ibm Annual

7/31/2019 2008 Ibm Annual

1/128

2008 ANNUAL REPORT

7/31/2019 2008 Ibm Annual

2/128

7/31/2019 2008 Ibm Annual

3/128

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

7/31/2019 2008 Ibm Annual

4/128

A New Eraand a New IBM

W x ,

? T

, IT

:1. the reality of global integration.I -

,

,

z. T ,

-

W W W

k .

T, k q

k : H k ? H

? A

? I,

,

k . A IBM,

G I E.

2. the emergence of a new computingmodel. T ,

PC-, / , k, . J

, IT

. I,

.

A

. W

:

instrumented: C z

: , , , ,

, ,

, k .

interconnected: A I,

.

intelligent:W ,

( ) k

k ,

.

3. innovation and integration. B

, x

z

k .

N

-- ,

k j

,

, ,

. T ,

.

a let ter from t he ch air man

7/31/2019 2008 Ibm Annual

5/128

Samuel J. PalmisanoCHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER

7/31/2019 2008 Ibm Annual

6/128

A IBM, w w wd

p m, d

mpv dp, d p p m

pp. S w md m

mp d, d w wk.

global integration:W md mj v-m m d p m

mk d wd. T p

v p w m mk

-d BRIC

Bz, R, Id d C, dz

dvp wd. A

m m, w d

IBM p. A , pp

, , w dvpm d

v dv d p.

W v md p wd

mk IBM G Id

Ep, w m d.

technology:W md IBM mx pd, v, k d

x mmdz k PC

d d dk dv, d mk m

100 q dd. W

d R&D. O m

,000 U.S. p IBM vd 2008 (

16 p dp), m

70 p w w d v.

IBM p d d wkd,

mdzd d mddd , v-d (SOA),

vz, d

. A , w w pd

d kd IT d

w v

.

business: T kd v qd p w m kwd

d, d w

kwd mp-p p

d mm m. Y d

m p dq.

S w md d d

xp, md mj w

w dp . W d k d d-

mk mkp d .

A m m, w md v

v dv p. W ppd

m, ddz d kd

d mm pp

w dpd m d

pp . T w p

m d -- v

v dv .

We Enter this Period Strong

P , IBM d v d

mp, w vd .

S d-m 2002, w v m

dd p-x m d

fw, d m pd p

. O d 2008 d d

p pm.


7/31/2019 2008 Ibm Annual

7/128

revenue and income: O $103.6 b, . I 2008

-x

by 1 , $16.7 b,

.

margins: IBM y 44.1 ,

7.6 2003. O -x

16.1 . B

. W

by y

b x

b . M 90

2008 ,

.

earnings per share: W EPS . L y

,

$8.93,

24 . T k x y b- EPS .

cash low: IBM y f. I 2008

f, x y--y

Gb F b, $14.3 b,

$1.9 b 2007. O

b

$84 b f

y. IBM 2008 $12.9 b

kb .

investment and return toshareholders: O f b b

b .

O 2008 $6.3 b

1 q10 ky

. A $6.3 b

R&D $4. b

x, b

$13 b y$10.6 b

$2.6 b

. L y

2 , k 13 y

.

I ,

y : y,

. W ,

by k

y y IBM.

I y b

y. I y

b

by -x b

y, $7 b 2008. A y jy -

z, - .

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.

7/31/2019 2008 Ibm Annual

8/128

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.


In the last two decades, we have

seen our planet become smaller

and fatter. In the next two, we will

see it become smarter.

7/31/2019 2008 Ibm Annual

9/128

W k b IBM b

, b -

k . I ,

bk

k, k,

, ,

k. W b

b .

smarter traffic: Sk , b IBM,

20 k, 12-

40,000

b . IBM b

L

Bb S

b .

smarter power grids: IBM v

j. O k CP E b

,

v,

, v v

, v

-

v. I M, b

,

.

smarter healthcare: T b b 90 .

F x, IBM b

v j

v 2

38 . A, G

C H A, v

b

v

.

smarter food systems: IBM b N

RFID

, ,

k v.

smarter money: F x k. Tk

IBM v,

k $2

v 60

x b

v . A -

b , z k

G F F INk O L. (FINO)

v

- v

- b.

smarter telecommunications: IBM v v,

b bb b-

k v.

IBM b I v

v 185

b bb

I k b v.

7/31/2019 2008 Ibm Annual

10/128

smarter water: W cn vn u copuodling o iul, oniond ponilly

ngh bhvio o iv bin ound

h old, W o Tooo, collboion

bn IBM nd Th Nu Convncy,

i no doing in Bzil, Chin nd h U.S.

In vy on o h xplnd h

ny o ipovd poduciviy,

fcincy, ponivn, pofbiliy nd

ocil bnf.

Wih o uch chnology nd noking

bundnly vilbl uch lo co, h

vic ouldn you povid cuo, ciizn,

udn o pin? Wh ouldn you connc?

Wh inoion ouldn you in o inigh?

Th n i, youo you copio

ill do ll o h. You ill do i bcu you

cn, bcu h chnology i boh vilbl

nd odbl.And govnn nd ocii ound h

old ill do i bcu hy u. A I lk o

ld vyh o buin, govnn

nd co civil ociy, I hing h

ugncy o cion, h nd o ignifcn

invn, nd h ocu on no iply

piing h bokn, bu pping o

n conoy in n cnuy. In picul,

h i idpd nd going cogniion

o h iponc o inucu.

Ou convion ound h old givingu confdnc h IBM i ll poiiond

o dd ociy nd buin o

ugn nd.

W ill b ggiv in ou puui o hi

oppouniy. Indd, you ill b hing nd

ing uch o bou ou pln

viion in h k nd onh hd,

blih ou poin o vi, build h igh

lionhip nd o oluion in

h kplc.

We Will Emerge StrongerIn cloing, I hink i ohhil o p bck

nd conid hi on, nd ou pon

o i, in bod conx. Mny copni

cing o h cun globl donun by

diclly cuiling pnding nd invn,

vn in h ipon o hi uu.

W king din ppoch.

O cou, u coninu o ipov

ou copiivn. Bu hil inin

diciplin nd pudnc in h n , lo inin h diciplin o pln o h

uu. W no looking bck, looking

hd. W coninuing o inv in R&D,

in gic cquiiion, in goh iniiiv

nd o iponly, duing h difcul

i, in ou popl.

In oh od, ill no iply id

ou h o. Rh, ill k long-

vi, nd go on on. Thoughou ou

hioy, duing piod o diupion nd globl

chng, hi i h IBM h don. Agin ndgin, hv plyd ldhip ol.

W hv igind h h old igh b,

nd cully buil i.


7/31/2019 2008 Ibm Annual

11/128

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

7/31/2019 2008 Ibm Annual

12/128

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

7/31/2019 2008 Ibm Annual

13/128

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

7/31/2019 2008 Ibm Annual

14/128

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

7/31/2019 2008 Ibm Annual

15/128

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

7/31/2019 2008 Ibm Annual

16/128

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.

7/31/2019 2008 Ibm Annual

17/128

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.

7/31/2019 2008 Ibm Annual

18/128

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

7/31/2019 2008 Ibm Annual

19/128

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

Lk rwr 44

Lqy Cp Rr 45

Cr A E 48

Crry R 51

Mrk Rk 51

Rk 52

Epy R Wrkr 52

Gb 53

RepoRt of ManageMent 58

RepoRt of Independent RegIsteRed

publIc accountIng fIRM 59

consolidated financial statementsEr 60

P 61

Ch w 62

Skhr Eqy 63

notes to consolidated financialstatementsA S A P 66

B A Ch 76

c Aq/Dvr 78D r V 84

e Ir (Ex Drvv) 85

F Ivr 86

G Rvb 86

h P, R Mh Ohr Prpry 86

I Iv Sry A 87

J Ib A I Gw 87

K Brrw 88

l Drvv H Tr 90

M Ohr Lb 94

n Skhr Eqy Avy 95

o C C 97

p Tx 99

Q Rrh, Dvp Er 101

r Er Pr Shr C Sk 102

s R Exp L C 103

t Sk-B Cp 103

u Rr-R B 106

V S Ir 116

W Sbq Ev 119

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

7/31/2019 2008 Ibm Annual

20/128

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

R MTh l h Il B Mh C-

(IBM h y) 2008 Al R h

M D, h Cl l S

h N h Cl l S. Th R M

v h wh v h

h l .

organization of information Th M D v wh

v h y l l

h y h v h

y . Th M D Sh

19 20 vvw h ky

v 2008.

B wh h Y Rvw 25, h M

D h l h h b, h y l

h lw, h ky . I

l h M D j wh

V, S I, 116 119.

Glbl bl h

w l y. A Glbl

l b 53. Th h

wh h y vw.

Th Cl l S 60

hh 65. Th v vvw h -

y h lw l .

Th llw h Cl l S. A

h , h h y l

( 66 76), q v ( 78 hh 83),

l wh h l -

, ( 97 99),

-l b ( 106 116).

Th j y h M

D h l l b vw

wh h l y xh

h l v vw b

. S Cy R l 51 l .

Wh h l bl h Al R, l

w y h b

l . P h l bl

hh h Al R ll h ly-

whl-ll b.

discontinued operationsO Db 31, 2002, h y l h k v (HDD)

b Hh, L. (Hh). Th HDD b w

lly

l (GAAP) h, h HDD l h lw hv b v h y l -

h lw ll h

x 2008, whh h w vy. S 44

l .

frwr-lkig cutiry sttemetC h Al R y

w-lk wh h h Pv S-

L R A 1995. Th vlv b

k, h h l l l

b lly , lly lwh hAl R h y l wh h S

Exh C (SEC), l h y 2008

10-K l by 24, 2009.

7/31/2019 2008 Ibm Annual

21/128

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 -

v, v v f v, - f,

fw f . T f -

f f f y b

f f f b.

T ky f y f :

A f v b;

Iv f w k;

Gb ; Iv v;

Ongoing productivity resulting in higher profit margins.

Ov, y z b

, y 65 f v

U S (U.S.), v f y w f 4.9

(2 j f y). Rv -

, b b j f y v f, j f y, w b

y y f .

Rv f y w k z

9.8 (10 j f y). I k,

w w v by f b-, -

y v vy . F f

y f q, w k, j f

y, w 8 j k.

G f v, f f

v b, f v f -

vy . P- f

w 15.4 f

18.4 f v y . D v 24.4

f w bf f

k . I 2008, y -

y 90 f k.

T 2008 v w y :

C f f Gb Ty Sv

Gb B Sv w w b

;

C Sfw b, v by Ky

B Mw , w b f

q;

C w k.

T f bf

2008 w y v w f

v Gb Sv Sfw .

T f 1.8 v

2007 44.1 . G f by

w fw:

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

7/31/2019 2008 Ibm Annual

22/128

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





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

Bi, iay Im 1A. id rik Fa.

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.

7/31/2019 2008 Ibm Annual

23/128

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

h v h w p. Th

pc, c cc c.

Gv h pp cc ch, IBM wk-

wh c vp w chcchc h w h h x q

cp h w cp. IBM h w

v v c hh h c p:

fu n on tnli an hi-valu sluin

A w cp h , pc h PC-, c-

/v ppch. Th w wk, , p

p h h ch q

h cp c. IBM w p pv p

c h p ch hh-v h w

cp.

IBM v hp p h cvc w vc, vc chc (SOA),

vz, c c, p

ch (IT) c h

cz hh v wh

p pp.

Th cp c c p c -

c chv hh v p,

c cc q.

dlir Inrain an Innain clin

Ch h k hv c IBM c k x

v vh chc chc h

. I p, IBM c v -

v c h ch

vc h pp v c.

IBM h h h p

p h h h v

p .

Th cp h xv cp

pp pv vc p, h c

.

bm prmir glally Inra enrri

A wk ch cp ch c-

c, c c qck c cpv.

IBM v p, h w

cp, c cp cv w h pp-

.

T hp h c, IBM h pc

vc hch wh hz .

Ac h , h cp h c v-

k, k c pc c

h w c h h .

Lk w, IBM c h cc h

z, h v h w cp h

pw v h w cp. I q cp-

w p hp h cp c v

cp cv h w v.

business modelTh cp pp w pcp :

hp c cc v v c

vv, c cpv hh h

h IT ; , pv - v h-

h. Th h vp v hh

c v cp ch h hv h

- wh p ppc h v

h v c.

Th cp cp c vc, w,

hw, ch c. Th

x cp c pv

h h cp c.

Th x, p h c

ch k cc v. Th cp h

v cz k p cp

h k v, h p hh cv cq hh v k

c c, vz . I -

, h cp h

p whch h pv v pcv v

v pcp h w w k.

A , h cp hh p p

h w v .

Th , pp h cp -

c , h h cp v c

, ch w v cp ch-

cc v.

7/31/2019 2008 Ibm Annual

24/128

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

of rov IT frrr h oo o

. Wh oo of ry- IBM ofwr

hrwr, ohr r ro r o f o-

o rqr . Wh Go Srv hr r wo ror

: Go Thooy Srv Go B Srv.

Goa Tchnoogy Srvics (GTS) rry rov IT

frrr rv ro rv, vr -

v hroh h oy o , rzo

oo.

GTS CAPAbIlITIeS

sgi oig svi. Corhv IT rv r

wh h work wh o r o rov

rovy hroh h oor of ro oro.

Igd tgy svi. Srv offr h h

, or hr hooy frrr hroh

oo of k ror, ofwr IBM kow of

ro. Th orfoo Srv Pro L whh

o hrwr fro Sy Thooy ofwr

offr fro h Sofwr .

Bi tfmi oig. A r of offr fro -

rz ro for B Pro Oorhroh rforo offr h vr rov

r o hroh h r h /or oro of h

ro, o frrr.

Mi. A r of or rv fro ro

hroh oo or o rov h vy of

IT frrr.

Goa businss Srvics (GbS) rry rov rofo

rv o oor rv, vr

v ovo o hroh oo whh vr

ry- -ro xr.

GbS CAPAbIlITIeS

cig d sym Igi. Dvry of v o hroh

o rv for -roh , f -

, h- , ry h,

y-h .

aii Mgm svi. Ao vo, -

, or rv for k ofwr, w

o y o. V vr hroh h

oy o ror , ry kow h

rzo oo of o vo.

Softar o rry of wr or y

ofwr. Mwr ofwr o r y,

ro o ro r ofwr for. IBM

wr o o r whh ow h ff

ro of r o h y hv

ry, or rov y k ofwr vor or yror. Or y r h ofwr h r o-

r. Aroxy wo-hr of xr ofwr rv

y-, o fro rrr hr oo

ro or fro o- hr (OTC) rr-

. Th r o-hr of xr rv r o OTC

rr, whh h y o -fro y for

r . Tyy, rr for h of OTC of-

wr o yr of . Th o rh

oo fr h fr yr, whh ro

r h or.

SOFTwARe CAPAbIlITIeS

Websphere software. Management of a wide variety of business processes

o r o ro o, or

y. Prov h foo for W- o

ky ro oy SOA.

Ifmi Mgmsoftware. Av , o -

, foro ro ofwr

h h o r, v fro hr

foro.

tivi software. Sofwr for frrr ,

ry or h w h orzo r

hr IT frrr o or ffvy vr IT rv.

lsoftware. Cooro, o work of-

wr h o o, oor r

rovy.

7/31/2019 2008 Ibm Annual

25/128

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.

oig sym. Sf h h fu pc

h k cpu u.

Sss tcgpv c h u u-

qu vc cpu p cp.

Appxy 55 pc f Sy Tchy v

c huh h cpy u p;

ppxy 45 pc c -u c. I ,

Sy Tchy pv cuc ch-

y puc, pck u chy

vc c f IBM vc chy .

SyStemS and teChnoloGy CapaBilitieS

sv. IBM y, hch ypcy cc k

pv h qu fucu f u. Th y u

h IBM -IBM p y, IBM v c

u Lux, ky p uc p y. (Sy , cy

Sy , cv Sy p Sy x).

sg. If fucu puc u, hch

cc c qu f f

chv, vy vu, cuy cp-

c. Th pf c f f k p

y f.

Mii. Scuc ufcu pyf u IBM y f x c (OEM).

ri s si. P-f- y (k cc

ch ) u hch cc h h

y.

Gb fcg c p 53 huh 57.

GloBal finanCinG CapaBilitieS

ci Fiig. L fc u

c f y v y.

cmmi Fiig. Sh- vy ccu cvfc k f IT puc.

rmkig. Th f u qup (py uc

f h ccu f c) x c.

ibm worldwide organizationsTh f py ky IBM v-

y f vu c:

S Du Rch, Dvp Icu Ppy

I Suppy Ch

I Tchy Dvy

Bu Pc Dvy

Ss dsbu

IBM h fc pc, p v 170 cu-

, h cy - phc u f

vu. Th cpy S Du

fp, h c cuy- p

u fcu v c vu. Wh h u, c

hp pf k h f cu,

puc pc vy fuf pv cu pfc. Th v vu y u

h c u , h h cp

f c IBM xv k f Bu P

vp p u.

By c xp h c xpc, IBM -

phc ucu c fcu f c

c, p k ppu y

v ppu. Th phc u

uy-k uc v c . IBM x

cp -k c y v uy

k h k, .c c Bu P uc.

I 2008, h cpy p h k -

c fcu h k f B,

Ru, I Ch h ppu u h

h hv k h h h v

cu h Suh A, E Eup, h M E

L Ac. Th cpy j k cu h U

S, C, h U.K., Fc, Gy, Iy, Jp, Dk,

S, S, Au, Bu, F, Gc, I, h

Nh, Pu, Cypu, Ny, I, Sp, h Bh

h C .

Th jy f IBM vu, xcu h cpy -

qup ufcu (OEM) chy u, ccu

u h y up x c:

Fc Svc: Bk, Fc Mk, Iuc

Puc: Euc, Gv, Hhc, Lf Scc

Iu: Apc Df, Auv, Chc

Pu, Ecc

7/31/2019 2008 Ibm Annual

26/128

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


Description of Business ...............................................................................20

Year in review ..................................................................................................25




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.

7/31/2019 2008 Ibm Annual

27/128

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%


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%


other 803 842 (4.6)% (5.9)%


ToTal revenue $103,630 $98,786 4.9% 2.3%

Grss prit $ 45,661 $41,729 9.4%


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.

7/31/2019 2008 Ibm Annual

28/128

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


year in review ..................................................................................................25


DISCoNTINuED oPERATIoNS ................................................................................44



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.

7/31/2019 2008 Ibm Annual

29/128

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%


Global Business Services:

Gross profit $ 5,238 $ 4,240 23.5%


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.

7/31/2019 2008 Ibm Annual

30/128

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


deSCRiption oF BuSineSS................................................................................20

Year in review ..................................................................................................25




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.

7/31/2019 2008 Ibm Annual

31/128

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


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

7/31/2019 2008 Ibm Annual

32/128

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


deSCRiption oF BuSineSS................................................................................20

Year in review ..................................................................................................25




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

7/31/2019 2008 Ibm Annual

33/128

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


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


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



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



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


year in review ..................................................................................................25





Rr o Mm ............................................................................................... 58

Rr o I Rir pi ai firm .................................59

ci sm ............................................................................................ 60

n...............................................................................................................................66

I ex



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.



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.


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

Documents

2008 Ibm Annual