INTERNATIONAL BUSINESS MACHINES CORP 10-K (Annual Reports) 2009-02-24

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UNITEDSTATESSECURITIESANDEXCHANGECOMMISSION

WASHINGTON,D.C.20549

FORM10-K

ANNUALREPORTpursuanttoSection13or15(d)oftheSecuritiesExchangeActof1934FORTHEYEARENDEDDECEMBER31,20081-2360

(Commissionfilenumber)

INTERNATIONALBUSINESSMACHINESCORPORATION

(Exactnameofregistrantasspecifiedinitscharter)

NEWYORK

(StateofIncorporation)

13-0871985

(IRSEmployerIdentificationNumber)

ARMONK,NEWYORK

(Addressofprincipalexecutiveoffices)

10504

(ZipCode)

914-499-1900

(Registrant'stelephonenumber)

SecuritiesregisteredpursuanttoSection12(b)oftheAct:

TitleofeachclassVotingsharesoutstandingatFebruary10,2009Nameofeachexchangeonwhichregistered

Capitalstock,parvalue$.20pershare1,341,677,786 NewYorkStockExchangeChicagoStockExchange4.00%Notesdue2011 NewYorkStockExchange4.95%Notesdue2011NewYorkStockExchange6.625%Notesdue2014NewYorkStockExchange7.50%Debenturesdue2013NewYorkStockExchange8.375%Debenturesdue2019NewYorkStockExchange7.00%Debenturesdue2025NewYorkStockExchange6.22%Debenturesdue2027NewYorkStockExchange6.50%Debenturesdue2028NewYorkStockExchange7.00%Debenturesdue2045NewYorkStockExchange7.125%Debenturesdue2096NewYorkStockExchangeIndicatebycheckmarkiftheregistrantisawell-knownseasonedissuerasdefinedinRule405oftheSecuritiesAct.Yes

˝

No

o

IndicatebycheckmarkiftheregistrantisnotrequiredtofilereportspursuanttoSection13orSection15(d)oftheAct.Yes

o

No

˝

Indicatebycheckmarkwhethertheregistrant(1)hasfiledallreportsrequiredtobefiledbySection13or15(d)oftheSecuritiesExchangeActof1934duringthepreceding12months(orforsuchshorterperiodthattheregistrantwasrequiredtofilesuchreports),and(2)hasbeensubjecttosuchfilingrequirementsforthepast90days.Yes

˝

No

o

IndicatebycheckmarkifdisclosureofdelinquentfilerspursuanttoItem405ofRegulationS-Kisnotcontainedherein,andwillnotbecontained,tothebestofregistrant'sknowledge,indefinitiveproxyorinformationstatementsincorporatedbyreferenceinPartIIIofthisForm10-KoranyamendmenttothisForm10-K.

˝

Indicatebycheckmarkwhethertheregistrantisalargeacceleratedfiler,anacceleratedfiler,anon-acceleratedfiler,orasmallerreporting

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company.Seedefinitionof"acceleratedfiler,""largeacceleratedfiler"and"smallerreportingcompany"inRule12b-2oftheExchangeAct.Largeacceleratedfiler

˝

Acceleratedfiler

o

Non-Acceleratedfiler

o

Smallerreportingcompany

o



(Donotcheckifasmallerreportingcompany)

Indicatebycheckmarkwhethertheregistrantisashellcompany(asdefinedinExchangeActRule12b-2).Yes

o

No

˝

Theaggregatemarketvalueofthevotingstockheldbynon-affiliatesoftheregistrantasofthelastbusinessdayoftheregistrant'smostrecentlycompletedsecondfiscalquarterwas$160.6billion.Documentsincorporatedbyreference:PortionsofIBM'sAnnualReporttoStockholdersfortheyearendedDecember31,2008intoPartsI,IIandIVofForm10-K.PortionsofIBM'sdefinitiveProxyStatementtobefiledwiththeSecuritiesandExchangeCommissionanddeliveredtostockholdersinconnectionwiththeAnnualMeetingofStockholderstobeheldApril28,2009areincorporatedbyreferenceintoPartIIIofForm10-K.

PARTIItem1.Business:

InternationalBusinessMachinesCorporation(IBMorthecompany)wasincorporatedintheStateofNewYorkonJune16,1911,astheComputing-Tabulating-RecordingCo.(C-T-R),aconsolidationoftheComputingScaleCo.ofAmerica,theTabulatingMachineCo.andTheInternationalTimeRecordingCo.ofNewYork.Sincethattime,IBMhasfocusedontheintersectionofbusinessinsightandtechnologicalinvention,anditsoperationsandaimshavebeeninternationalinnature.Thiswassignaledover80yearsago,in1924,whenC-T-RchangeditsnametoInternationalBusinessMachinesCorporation.Anditcontinuestoday:Thecompanycreatesbusinessvalueforclientsandsolves businessproblemsthroughintegratedsolutionsthatleverageinformationtechnologyanddeepknowledgeofbusinessprocesses.IBMsolutionstypicallycreatevaluebyreducingaclient'soperationalcostsorbyenablingnewcapabilitiesthatgeneraterevenue.Thesesolutionsdrawfromanindustryleadingportfolioofconsulting,deliveryandimplementationservices,enterprisesoftware,systemsandfinancing.

STRATEGY

InIBM'sview,today'snetworkedeconomyhascreatedaglobalbusinesslandscapeandamandateforbusinesschange.Italsoopenstheopportunitytoupgradetheefficiencyandeffectivenessoftheglobalinfrastructurethroughembeddedinformationtechnology—whatIBMcallsa"smarterplanet."Smartairports,smarthighways,smartsupplychainsareallpossible.IBMisworkingwithclientsandgovernmentsaroundtheworldtoexploretheseopportunitiesandimplementnewideas.Integratedglobaleconomieshaveopenedmarketsofnewopportunityandnewsourcesofskills.TheInternethasenabledcommunicationandcollaborationacrosstheworldandbroughtwithitanewcomputingmodelpremisedoncontinuousglobalconnection.Inthatlandscape,companiescandistributeworkandtechnologyanywhereintheworld.IBMcontinuestoadjustitsfootprinttowardemerginggeographies,tappingtheirhighergrowth,providingthetechnologyinfrastructuretheyneedandtakingadvantageofthetalentpoolstheyprovidetobetter servicethecompany'sclients.Atthesametime,thecurrenteconomiccrisisincreasesthepressureonbothbusinessesandgovernmentsaroundtheworldtoadapt.Theneedsforadditionaltransparency,securityandefficienciesareclear.Giventheseopportunitiesandeconomicchallenges,IBMisworkingwithitsclientstodevelopnewbusinessdesignsandtechnicalarchitecturesthatallowtheirbusinessestheflexibilityrequiredtocompeteinthisnewlandscape.IBM'sstrategyaddressesthisneweraanddeliversvaluetoitsclientsthroughthreestrategicpriorities:

FocusonOpenTechnologiesandHigh-ValueSolutions

Anewcomputingmodelhasemerged,replacingthePC-based,client/serverapproach.Thisnewmodelisnetworked,modular,openandrepresentsafundamentalshiftinthetechnologyrequirementsofthecompany'sclients.IBMiswellpositionedtoprovideitsenterpriseclientstheopentechnologiesandhigh-valuesolutionstheywillneedtocompete.•IBMisleveragingitsleadershippositionintheconvergenceofsoftwareandservices,inserviceorientedarchitecture(SOA),invirtualization,businessintelligenceandanalytics,inopenandmodularinformationtechnology(IT)—continuingitsshiftfromcommoditizingsegmentstohighervaluesegmentswithbetterprofitopportunity.•Thecompanycontinuestobealeadingforceinopensourcesolutionstoenableitsclientstoachievehigherlevelsof interoperability,costefficiencyandquality.1

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DeliverIntegrationandInnovationtoClients

ChangesinthemarkethavecausedIBM'sclientstoseekflexibilityandinnovationineverythingfromtechnicalarchitecturetotheir businessmodel.Inresponse,IBMisfocusedondeliveringintegrationandinnovationtoitsclients—offeringthemtechnologiesandservicesthatsupportrealvaluecreation.•IBMhasalongheritageoftransformingthebusinessoperationsoflargeenterprisesandhasearnedthetrusttobetheir innovationpartnerandglobalintegrator.•Thecompanyhasanextensivesetofglobalassetsandcapabilitiesitisapplyingtoimproveservicesprofitability,bothforitsclientsandforitself.

BecomethePremierGloballyIntegratedEnterprise

Asglobalnetworksandtechnologycapabilitieschangebusinesseconomics,legacybusinessdesignscanquicklybecomenoncompetitive.IBMbelievesaglobally-integratedenterprise,designedforthisnewlandscape,cancompeteeffectivelyandwillbenefitfromtheopportunitiesoffered.•Toreshapeitsbusinessfortheglobaleconomy,IBMhasreplacedverticalhierarchieswithhorizontallyintegratedteams.•Acrossthebusiness,thecompanyhasmadesignificantinvestmentsinemergingmarkets,takingcoreprocessesandfunctionsthatwereoncemanagedregionallyandshiftingthemtoagloballyintegratedmodel.Lookingforward,IBMisconfidentitunderstandstheeconomicshiftofglobalization,theevolutionofthenewcomputingmodelandthe powerfulroleofinnovationinthisnewlandscape.Itsuniquecapabilitiesarewelladaptedtohelpthecompany'sclientsinnovateandcompeteeffectivelyinthisnewenvironment.

BUSINESSMODEL

Thecompany'sbusinessmodelisbuilttosupporttwoprincipalgoals:helpingclientssucceedindeliveringbusinessvaluebybecomingmoreinnovative,efficientandcompetitivethroughtheuseofbusinessinsightandITsolutions;and,providinglong-termvaluetoshareholders.Thebusinessmodelhasbeendevelopedovertimethroughstrategicinvestmentsincapabilitiesandtechnologiesthathavethe bestlong-termgrowthandprofitabilityprospectsbasedonthevaluetheydelivertoclients.Thecompany'sglobalcapabilitiesincludeservices,software,hardware,fundamentalresearchandrelatedfinancing.Thebroadmixof businessesandcapabilitiesarecombinedtoprovidebusinessinsightandsolutionsforthecompany'sclients.Thebusinessmodelisflexible,adaptingtothecontinuouslychangingmarketandeconomicenvironment.Thecompanyhasdivestedcommoditizingbusinesseslikepersonalcomputersandharddiskdrives,andstrengtheneditspositionthroughstrategicinvestmentsandacquisitionsinhighervaluesegmentslikebusinessintelligenceandanalytics,virtualizationandgreensolutions.Inaddition,thecompanyhastransformeditselfintoagloballyintegratedenterprisewhichhasimprovedoverallproductivityandisdrivinginvestmentandparticipationintheworld'sfastestgrowingmarkets.Asaresult,thecompanyisahigherperformingenterprisetodaythanitwasseveralyearsago.Thebusinessmodel,supportedbythecompany'slong-termfinancialmodel,hasenabledthecompanytodeliverconsistentlystrongearnings,cashflowsandreturnsoninvestedcapitalinchangingeconomicenvironments.

BUSINESSSEGMENTSANDCAPABILITIES

Thecompany'smajoroperationsarecomprisedof:aGlobalTechnologyServicessegment;aGlobalBusinessServicessegment;aSoftwaresegment;aSystemsandTechnologysegment;andaGlobalFinancingsegment.2

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