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1© 2006 IBM Corporation
Integrated Operations - ISC Global Procurement
© IBM Integrated Operations© Copyright 2007 IBM Corp.
IBM Power Symposium October - 2007
Pat TivnanDirector ISC Engineering
2© IBM Integrated Operations
Integrated Operations - ISC Global ProcurementIBM Integrated Operations - Integrated Supply Chain
© Copyright 2007 IBM Corp. 2
About IBM - Company Profile (FY 2006)
IBM delivers on-demand solutions through the following business segments:
Business Segment FY’06 %
Global Services $48.2 52.8%
Hardware $22.5
$18.2
$2.4
$0.1
$91.4B
Software
24.6%
19.9%
2.6%
0.1%
Global Financing
Enterprise Investments/Other
Total Revenue = 100%
Incorporated in 1911 as the Computing-Tabulating-Recording Company (C-T-R)
In 1924, C-T-R became International Business Machines Corporation
Mainframe Computers
Personal ComputersPunch cards Tabulating Machines Networking
e-Business
Business Process Transformation
Services
2006 Year-end from Continuing Operations:Revenue: $91.4 billion
Net Income: $9.4 billion
Earnings per share: $6.06
Total Assets: $103.2 billion
Net Cash from Operating Activities: $15.0 billion
Number of employees: 355,766
Number of registered stockholders: 613,993
Over time, the nature of our business operations has shifted from a hardware oriented business to what is now a services-led business.
A Balanced Mix of Hardware, Software and Services
3© IBM Integrated Operations
Integrated Operations - ISC Global ProcurementIBM Integrated Operations - Integrated Supply Chain
© Copyright 2007 IBM Corp. 3
IBM Organization
4© IBM Integrated Operations
Integrated Operations - ISC Global ProcurementIBM Integrated Operations - Integrated Supply Chain
© Copyright 2007 IBM Corp. 4
ISC Engineering Initiatives (& Themes)
Ensure IBM’s Technical Superiority (Competitiveness)Drive Design for Supply Chain across the brands, particularly product simplification
Ensure Outstanding Quality (Quality)Drive reduction in Mfg Stop Ships and Field Impacts
Drive End-to-End Cost Reductions (Brand Convergence)Cost reductions, Simplification, Supplier Recoveries, Cost avoidance of HW Warranty spend, Design for System Value, Design and Operations Excellence (DOX)
Drive the Globalization of the Supply Chain (People, Competitiveness)Distributing technical work based on skills, not geographic or brand boundariesFurther develop WW ISC engineering talentGrow strategic business missions.
5© IBM Integrated Operations
Integrated Operations - ISC Global ProcurementIBM Integrated Operations - Integrated Supply Chain
© Copyright 2007 IBM Corp. 5
ISC WW Engineering Optimization BenefitsConvergence
Implementation of cross-brand best practices /standardizationCreate a “flexible workforce” to better leverage skills and workload across key competencies Do once vs. Do many
Center of CompetenciesCreate “teams of expertise” to drive optimizationBuild around key commodities (components, HDD, ECAT, etc.) and functions (new products, fulfillment, etc. ) to drive common strategy
Brand structure Maintain and improve alignment with brand, development, procurement and manufacturing teams Simplify focal points
6© IBM Integrated Operations
Integrated Operations - ISC Global ProcurementIBM Integrated Operations - Integrated Supply Chain
© Copyright 2007 IBM Corp. 6
IBM Financials
7© IBM Integrated Operations
Integrated Operations - ISC Global ProcurementIBM Integrated Operations - Integrated Supply Chain
© Copyright 2007 IBM Corp. 7
2Q07 IBM GEOGRAPHIC REVENUE
($B)2Q07
B/(W) Yr/YrRptd @CC
Americas 10.1 6% 5%
Europe/ME/A 8.2 13% 6%
Asia Pacific 4.6 10% 10%
OEM 0.9 (9%) (9%)
IBM 23.8 9% 6%
Emerging countries +25% yr/yr @CC
8© IBM Integrated Operations
Integrated Operations - ISC Global ProcurementIBM Integrated Operations - Integrated Supply Chain
© Copyright 2007 IBM Corp. 8
2Q07 GROWTH DYNAMICS1Q07 2Q07
Geographic RevenueAmericas 1% 6%Europe/ME/A 13% 13%Asia Pacific 10% 10%Emerging Countries 24% 32%
Segment RevenueGlobal Technology Services 7% 10%Global Business Services 9% 10%Systems & Technology 2% 2%Software 9% 13%Global Financing 6% 4%
EPS 12% 19%EPS excl. Printer Sale 12% 15%
Free Cash Flow (excl. GF Receivables) $0.1B $1.7B
Year-to-Year Growth
9© IBM Integrated Operations
Integrated Operations - ISC Global ProcurementIBM Integrated Operations - Integrated Supply Chain
© Copyright 2007 IBM Corp. 9
2Q07 SEGMENT REVENUE and GROSS MARGIN
Revenue Gross Margin
($B) 2Q07B/(W) Yr/Yr
Rptd @CC 2Q07B/(W)
Yr/Yr Pts
7%
Global Business Services 4.3 10% 8%
0.0 pts29.8%
24.3%
37.3%
84.9%
46.0%
42.0%
0.9 pts
0.8 pts
0.7 pts
(5.0 pts)
0.6 pts
Systems and Technology 5.1 2% 0%
9%
1%
6%
41.8% 0.6 ptsTotal IBM 23.8 9% 6%
Total Segments 23.6 8%
Global Technology Services 8.8 10%
Software 4.8 13%
Global Financing 0.6 4%
10© IBM Integrated Operations
Integrated Operations - ISC Global ProcurementIBM Integrated Operations - Integrated Supply Chain
© Copyright 2007 IBM Corp. 10
2Q07 GLOBAL SERVICES SEGMENTS($B) 2Q07 Yr/Yr @CCGlobal Technology Services (GTS)
Global Business Services (GBS)
7%PTI Margin 8.6% (0.8 pts)
8%
Revenue (External) 8.8 10%
Revenue (External) 4.3 10%PTI Margin 10.4% 0.9 pts
$B Yr/YrGlobal Technology Services
Total 6.5 20%
Total Signings 11.7 22%
Total 5.1 23%
Global Business ServicesShort-Term 3.2 6%Long-Term 1.9 70%
Short-Term 2.1 8%Long-Term 4.5 27%
Yr/Yr @CC
Strategic Outsourcing 8%
15%
15%
10%
10%
10%
5%
Bus. Transformation Outsourcing 11%
Integrated Tech Services 12%
Global Business Services 8%
Maintenance
Global Technology Services 7%
7%
RevenueSignings
11© IBM Integrated Operations
Integrated Operations - ISC Global ProcurementIBM Integrated Operations - Integrated Supply Chain
© Copyright 2007 IBM Corp. 11
2Q07 SYSTEMS & TECHNOLOGY SEGMENT
2Q07 Revenue
MIPS +45%Specialty engines up >130%POWER6 in 3QContinued share gainsGrowth in all geographiesBlades up 15%Tape +19%, Disk flat
Retail Store Sols 18% 15% - + 6th consecutive qtr of growth
Printing Systems (41%) (41%) - Printer sale – June 1, 2007
Systems 7% 4% +
Game processor weaknessTransition to custom systems
As Rptd @CC
1%
(17%)4%
13%
4%
(9%)0%
GP% Share
+
+++
-
-E&TS (1%) -
System z 4% =
System i (15%) -System p 7% +System x Servers 16% +
System Storage 6% =
Microelectronics (9%)
2.6 pts6.2%PTI Margin0%
@CC2%5.1Revenue (External)
Yr/Yr2Q07($B)
12© IBM Integrated Operations
Integrated Operations - ISC Global ProcurementIBM Integrated Operations - Integrated Supply Chain
© Copyright 2007 IBM Corp. 12
$0.11
$0.06$0.05
$0.03
$0.02 $0.03
$0.10
$0.05
$1.50
$1.30
2Q '06 EPS Revenue Growthof 9% As Rptd
Gross MarginExpansion 0.6
pts Y/Y
E/R Growth IncrementalRestructuring
Interest Expenseon $11.5B Debt
to Fund ASR
Tax Rate 30.0% to 28.5%
ShareRepurchases
2Q '07 EPS
19% Yr/Yr
15% Yr/Yr
Printer Sale Gain
$1.55
2Q07 EARNINGS PER SHARE (EPS) ANALYSIS
13© IBM Integrated Operations
Integrated Operations - ISC Global ProcurementIBM Integrated Operations - Integrated Supply Chain
© Copyright 2007 IBM Corp. 13
IBM’s 2010 FINANCIAL ROADMAP
1H 2007 Results
• Revenue Growth of 5% @CC (8% as Rptd)
• Gross Margin Expansion of 0.9 pts
• Investing in key strategic areas
• Executed ASR(1H07 avg. share reduction of ~5%)
• EPS Growth 16%
Key Drivers of 2010 EPS Goal
• Revenue Growth of 3% - 8%
• Expand Margins
• Reduce Shares by average of 3% per year
• EPS Growth 10% - 16%
Good progress against 2010 roadmap
$6.06
~$10
~$11
EPS
w/Pension
2006
2010
14© IBM Integrated Operations
Integrated Operations - ISC Global ProcurementIBM Integrated Operations - Integrated Supply Chain
© Copyright 2007 IBM Corp. 14
Power Efficiency and IBM
15© IBM Integrated Operations
Integrated Operations - ISC Global ProcurementIBM Integrated Operations - Integrated Supply Chain
© Copyright 2007 IBM Corp. 15
Market TrendsIT Trends
Server market is not expected to grow significantly, but the storage growth is expected to be 5%
IT model is shifting, as real-time event-driven workloads, richer content, and modular technologies alter how systems are deployed and integrated
Enterprise networking has been steadily increasing its share of the systems HW market
Client TrendsLarge enterprise clients need to address increasing IT complexity & costs (labor, power/cooling)
Small and Medium Enterprise is the largest and fastest growing segment, growing faster than large enterprise
Web 2.0 outlays are expected to constitute 11% of the total IT spending by 2011
Demand for IT is increasing outside the data center, particularly in retail, telecom, and healthcare/life sciences
Product Trends– Virtualization addressing increasing IT
costs, providing asset management advantage
– Integrated infrastructure, industry specific solutions growing in popularity
– Significant market shifts occurring to x86 and to blades form factor
– Variability of web-centric workloads and the increasing deployment of x86 systems has led to a significant underutilized server capacity
Technology Trends– Power-efficient technologies becoming a
primary datacenter mgmt. Requirement
– Multi-core/multi-thread designs becoming primary drivers for system performance
– Real-time event-driven processes offering opportunity for specialized acceleration & offload engines
16© IBM Integrated Operations
Integrated Operations - ISC Global ProcurementIBM Integrated Operations - Integrated Supply Chain
© Copyright 2007 IBM Corp. 16
Energy efficiency: Data centers are at a tipping point
“. . . power will be the #1 issue for most large company IT executives to address in the next 2-4 years. Ignoring this issue will NOT be an option.”
“Left unchecked, the cost to power & cool servers in the future may well equal acquisition cost .”
-Robert Francis Group
-IDC
What is the greatest facilities problem with your primary data center? Gartner 2006
None of the above
Poor location
Excessive facility cost
Insufficient raised floor
Insufficient power
Excessive heat
0% 5% 10% 15% 20% 25% 30% 35%
17© IBM Integrated Operations
Integrated Operations - ISC Global ProcurementIBM Integrated Operations - Integrated Supply Chain
© Copyright 2007 IBM Corp. 17
Government regulations and proposed regulations in United States, Europe, and Japan
New BenchmarksSPEC server energy metric
InitiativesGreen Grid – IT professionals to reduce data center powerEuropean Computer Manufacturer’s Association –energy reduction
Power efficiency is becoming the subject of government regulations, and industry advertising, initiatives and benchmarks
Industrial activitiesFEM modeling of data center air flow and temperatureServer microprocessor “power down” states Advertisements touting ‘product greenness’
18© IBM Integrated Operations
Integrated Operations - ISC Global ProcurementIBM Integrated Operations - Integrated Supply Chain
© Copyright 2007 IBM Corp. 18
So What is IBM’s play??Drive leadership at data center (IT & Facilities) level
Expand to Measure/Monitor the entire IT environmentIntegrate IT and Facilities management for customer value– Drive partnerships with Facilities providers
• eg. Eaton, Eaton, Emerson, Aperture, Johnson Controls, …Deliver Leadership DataCenter ROI–Convert more Power/Cooling into compute cycles
Drive Power savings solutions leadership Component and System Level Enablement–Effective Metering–Power / Cooling Efficiency–Leadership Performance / Watt–Low Power ModesExpanded and New Automation Solutions–Director / Tivoli Management Automation
• Alert /Action plans for Power / Thermal Events• Change Management Support
–Data Center Level Actions• Integration with Facilities Partners
–Targeted Solutions• Blades based systems with Pre-packaged power savings modes.
19© IBM Integrated Operations
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© Copyright 2007 IBM Corp. 19
Thank You