Enterprise Productivity Initiatives. Linda Sanford Senior Vice President Enterprise Transformation

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1 Enterprise Productivity Initiatives Linda Sanford Senior Vice President Enterprise Transformation

2 Enterprise Productivity Initiatives Progress to date - $4.7B $4.2B spending reduction in the Shared Services over past four years $5M in process transformation in 29 Shifted emphasis to value delivered Next generation transformation $8B in productivity benefits over next 5 years Shared Services End-to-End Process Transformation Integrated Operations New capabilities and technologies drive performance Business Analytics and Optimization Cloud Computing

3 Transformation Maturation 22 Sharing & partnering The Smarter phase of our transformation is beginning 26 Globally integrating Consistent set of processes worldwide Leverage best practices Standardize and reduce waste Governance and performance discipline Right skills, right place, right cost Rationalize support functions for greater efficiency Radically simplify processes 21 Making things smarter Instrumented, interconnected, intelligent Enable growth and productivity Optimize the whole system

4 Progress to Date Shared Services Spend ($B) Productivity improvements of $4.7B have been achieved over the last 4 years $4.2B spending reduction in Shared Services from 25 through YtY Shared Services Savings and Process-Related Productivity ($B) $4.7B $.5B $4.2B $5M productivity improvement in end-to-end process transformation Shared Services Process Redesign

5 Operating Leverage $78B Applying transformation principles to all of IBM s spending to drive $8B in productivity benefits over the next 5 years Shared Services $2.4B End-to-End Process Transformation $2.5B $16B $12B Integrated Operations $3.1B Shared Service Spending 29 Total Cost and Expense Continuous improvement Radical simplification Integrate operations across units

6 Shared Services Continuous Improvement Continuous improvement driven by optimization and innovation will yield $2.4B in savings through 215 Efficiency Focus on high-value advisory activities Globally integrating Effectiveness Growth Greatness Making things smarter Locate work to where it can best be performed Leverage business analytics Radically simplify Information Technology Global Sales Operations Integrated Supply Chain Finance Human Resources Marketing & Communications Legal Real Estate Operations

7 Shared Services Continuous Improvement Continuous improvement driven by optimization and innovation will yield $2.4B in savings through 215 Increase the financial planning work performed Focus in Centers on high of value advisory Excellence Efficiency by 25% activities Increase Effectiveness the number of globalized Making processes Globally Locate from 53% work to to 8% where it can integrating things Leverage Smarter GrowthBuilding capabilities best be performed smarter to reduce energy usage by 18% from 211 through 215 Greatness Leverage business analytics Sunset 9 applications through enterprise-wide Radically SAP simplify deployment Information Technology Global Sales Operations Integrated Supply Chain Finance Human Resources Marketing & Communications Legal Real Estate Operations

8 Globally Integrated Support Processes Continued focus on horizontal process transformation and radical simplification will contribute $2.5B in productivity through 215 Shared Service Service Shared Service Shared Service Shared Business Unit Business Unit Business Unit Business Unit Integrating Globally Serving Local Client Needs Hardware Product Management Transformation Incentives Order-to-Cash Opportunity-to-Order Service Labor Management Transformation Service Product Management Transformation Business Partner Enablement Achieve $25M in savings through 215 Enable productivity by reducing product portfolio and design complexity Reduced feature and options by 35% and systems portfolio by 4% Deliver $47M of benefit over the next five years Sales support tasks moved to Sales Transaction Hub Decrease seller time spent on pre-sales support tasks from nearly 2% to 1%

9 Integrated Operations Draws on significant synergies in our worldwide process, skills, and assets to drive integration Reduces complexity through smarter technology Places greater emphasis on moving the right services through the right delivery channels Integrate related operations across all of IBM s $78B of spending to drive $3.1B in productivity through 215 $78B R&D Sales BU Operations Shared Services Total Cost and Expense Call Centers Deploy best practices across centers for world-class operations Optimize global capacity across 255 sites and 6k agents Business Operations Standardize to 6 roles across 4 business units Increase leverage by shifting work to MBPS Client Centers Build a network of centers that truly look, sound, think and perform as one, integrated IBM Unify IBM's 124 centers to respond to shifts in client behavior

10 $B $4 $35 $3 $25 $2 $15 $1 $5 $ 5 Available GCF IB M C ash 1Q'5 2Q'5 3Q'5 4Q'5 1Q'6 2Q'6 3Q'6 4Q'6 1Q'7 2Q'7 3Q'7 4Q'7 1Q'8 2Q'8 3Q'8 4Q'8 1Q'9 CP Bank Debt Term Debt Average % (CP+Bank Debt):~25% % Of Debt In CP & Bank Debt 1Q'5 2Q'5 3Q'5 4Q'5 1Q'6 2Q'6 3Q'6 4Q'6 1Q'7 2Q'7 3Q'7 4Q'7 1Q'8 2Q'8 3Q'8 4Q'8 1Q'9 Total Debt Interest Expense as a % (QoQ) 3M Libor (QoQ) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q % 5% 4% 3% 2% 1% 6% 5% 4% 3% 2% 1% % FCF (Ops) Term Debt (New - Maturity) Change in CP Balance Di vidend Acquisition Buyback GF A/R + Others FCF (Ops) Term Debt (New - Maturity) C hange in C P Balance Dividend A cquisi tion Buyback GF A/R + Others FCF (Ops) TermDebt (New - Maturity) Change in CP Balance Di vidend Acquisition Buyback GF A/R + Others FCF (Ops) Term Debt (New - Mat urit y) Change in CP Balance Dividend Acquisition Buyback GF A/R+ Others Core Debt Net Income Total Equity Core Debt to Cap 49% 42 % 37 % 2 3% 13% CP (1.5) 6.2 (.1) (1.5) 3.3 (.6 ).. (.5) (. 1) (.6 ) (.7) 2. (4.1) (.7) 1. (2.8 ) 1. (2.).2 (. 1) ( 1.5) (5.1) 12.9 (3.) 2. 6 (.7) (1.9) (. 2) (1.9).3 (.7) (.) (2.). (.3) Q'8 1Q'9 2 Q'9 3 Q'9 4Q'9 Pension Equi ty Impact ROA May 31 -$3.B 51% 44% 2 8% $Mi llion Term D ebt Maturity Profile as of May'9 6, 5, 4, 3, 2, 1, 3,5 3, 2,5 2, 1,5 1, 5 Debt Maturity Profile by Qu arter next 5 ye ars 2,9 1,47 1,242 1, 1, 5 1, Q 1 4Q 1 1 Q11 2 Q11 3Q1 1 4Q 11 1 Q12 2 Q1 2 3 Q1 2 4Q1 2 1Q1 3 2Q 13 3 Q13 4 Q1 3 1 Q1 4 2Q1 4 3 Q14 4Q 14 1Q15 2Q >22 4 C u rre nc y >2 24 T o tal USD ,675 1,4 2,3 3, 1,6 75 3,982 15,93 USD IG C 4,53 1 1, ,95 EU R 1, ,3 8 3,252 JPY ,225 CHF Total 5,182 1,927 2,826 2,9 2,513 1, , 1,6 75 3,982 26,123 USD EUR CHF USD IGC LIQUIDITY ANALYSIS / CASH - DEBT < 3 MONTHS June 4, 29 Actual Actual Actual Actual Projected ($B) 1Q7 2Q7 3Q7 4Q7 1Q8 2Q8 3Q8 4Q8 1Q9 2Q9 3Q9 4Q9 Cash US TC + IIG Others Countries Total WW Cash Debt < 3 Months US TC + IIG Others Countries Total WW Debt Liquidity < 3 Months US TC + IIG (1.) (2.2) (2.4).8 (2.5) (.3).9 (3.2) Others Countries (.6) (.2) (.2).4 (.6) World wide JPY 15% Business Analytics and Optimization (BAO) The application of business analytics to enterprise performance will allow better and faster business decisions Enterprise Transformation HR Resource Management Manufacturing Planning & Forecasting Risk Management Sales Management Development 2.5 X </= $4,386 5% X </= $4,778 67% Mean = $4,694M 2 Debt ($B) CP Plus Bank Debt / Total Debt (%) Values in 1^ Total Debt ($B) Percentage (%) Revenue ($B) Matching engine aligns staff to open project positions Real-time data analysis identifies defects and improves yields Pipeline analysis helps predict and optimize performance Linkage and analysis across data sources enables compliance and lowers risk Deployment of sellers to best opportunities improved through optimization Simulation of future investment performance enables higher portfolio returns

11 $B $4 $35 $3 $25 $2 $15 $1 $5 $ 5 Available GCF IB M C ash 1Q'5 2Q'5 3Q'5 4Q'5 1Q'6 2Q'6 3Q'6 4Q'6 1Q'7 2Q'7 3Q'7 4Q'7 1Q'8 2Q'8 3Q'8 4Q'8 1Q'9 CP Bank Debt Term Debt Average % (CP+Bank Debt):~25% % Of Debt In CP & Bank Debt 1Q'5 2Q'5 3Q'5 4Q'5 1Q'6 2Q'6 3Q'6 4Q'6 1Q'7 2Q'7 3Q'7 4Q'7 1Q'8 2Q'8 3Q'8 4Q'8 1Q'9 Total Debt Interest Expense as a % (QoQ) 3M Libor (QoQ) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q % 5% 4% 3% 2% 1% 6% 5% 4% 3% 2% 1% % FCF (Ops) Term Debt (New - Maturity) Change in CP Balance Di vidend Acquisition Buyback GF A/R + Others FCF (Ops) Term Debt (New - Maturity) C hange in C P Balance Dividend A cquisi tion Buyback GF A/R + Others FCF (Ops) TermDebt (New - Maturity) Change in CP Balance Di vidend Acquisition Buyback GF A/R + Others FCF (Ops) Term Debt (New - Mat urit y) Change in CP Balance Dividend Acquisition Buyback GF A/R+ Others Core Debt Net Income Total Equity Core Debt to Cap 49% 42 % 37 % 2 3% 13% CP (1.5) 6.2 (.1) (1.5) 3.3 (.6 ).. (.5) (. 1) (.6 ) (.7) 2. (4.1) (.7) 1. (2.8 ) 1. (2.).2 (. 1) ( 1.5) (5.1) 12.9 (3.) 2. 6 (.7) (1.9) (. 2) (1.9).3 (.7) (.) (2.). (.3) Q'8 1Q'9 2 Q'9 3 Q'9 4Q'9 Pension Equi ty Impact ROA May 31 -$3.B 51% 44% 2 8% 15% Debt Maturity Profile by Qu arter next 5 ye ars 3,5 Term D ebt Maturity Profile as of May'9 3, 2,9 2,5 2, 1,47 1,5 1,242 1, 1, 5 1, 42 1, , Q 1 4Q 1 1 Q11 2 Q11 3Q1 1 4Q 11 1 Q12 2 Q1 2 3 Q1 2 4Q1 2 1Q1 3 2Q 13 3 Q13 4 Q1 3 1 Q1 4 2Q1 4 3 Q14 4Q 14 1Q15 2Q15 5, 4, USD USD IGC EUR JPY CHF 3, 2, 1, >22 4 C u rre nc y >2 24 T o tal USD ,675 1,4 2,3 3, 1,6 75 3,982 15,93 USD IG C 4,53 1 1, ,95 EU R 1, ,3 8 3,252 JPY ,225 CHF Total 5,182 1,927 2,826 2,9 2,513 1, , 1,6 75 3,982 26,123 LIQUIDITY ANALYSIS / CASH - DEBT < 3 MONTHS June 4, 29 Actual Actual Actual Actual Projected ($B) 1Q7 2Q7 3Q7 4Q7 1Q8 2Q8 3Q8 4Q8 1Q9 2Q9 3Q9 4Q9 Cash US TC + IIG Others Countries Total WW Cash Debt < 3 Months US TC + IIG Others Countries Total WW Debt Liquidity < 3 Months US TC + IIG (1.) (2.2) (2.4).8 (2.5) (.3).9 (3.2) Others Countries (.6) (.2) (.2).4 (.6) World wide $Mi llion Business Analytics and Optimization (BAO) The application of business analytics to enterprise performance will allow better and faster business decisions Enterprise Transformation HR Resource Management Manufacturing Planning & Forecasting Risk Management Resource Analytics Hub Sales Management Development Matching engine aligns staff to open project positions Integrated, granular view of resource data to support fact-based decisions Debt ($B) Total Debt ($B) Percentage (%) CP Plus Bank Debt / Total Debt (%) Revenue ($B) Increased GBS utilization by 18% over the last 4 Pipeline Linkage and Deployment of years through a global alignment of resource analysis helps analysis across supply and demand Real-time data analysis identifies defects and improves yields predict and optimize performance data sources enables compliance and lowers risk sellers to best opportunities improved Improved project-based PTI performance through optimization Values in 1^ X </= $4,386 5% X </= $4,778 67% Mean = $4,694M Simulation of future investment performance enables higher portfolio returns

12 Cloud IBM s internal Cloud implementation moves resources to more cost effective platforms while enhancing the work environment Analytics Collaboration Development and Test Desktop Storage Business Services Blue Insight LotusLive CIO Dev/Test Cloud Workplace Cloud Network Storage Cloud Production Cloud 19, users growing to 2, 75% of all web conferencing Time to build a development & test environment from 1 week to 1-2 hours 12 users in China Dev Lab, pilots with another 1 users in process Up to 4% savings in storage costs 1, applications identified

13 Enterprise Productivity Initiatives Summary $16B Shared Services $2.4B $12B Shared Service Spending Integrated Operations $3.1B $78B 29 Total Cost and Expense End-to-end Process Transformation $2.5B Apply the proven principles of the Globally Integrated Enterprise to all of IBM s spending Beginning the Smarter phase of our transformation -- uses a rich, new set of technologies and capabilities to reduce spending, improve productivity and enable revenue growth Already achieved $4.7B of productivity improvements over the last 4 years Confident in ability to further improve productivity by $8B from 211 through 215

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15 Certain comments made in the presentation may be characterized as forward looking under the Private Securities Litigation Reform Act of Those statements involve a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the Company's filings with the SEC. Copies are available from the SEC, from the IBM web site, or from IBM Investor Relations. Any forward-looking statement made during this event or in these presentation materials speaks only as of the date on which it is made. The Company assumes no obligation to update or revise any forward-looking statements. These charts and the associated remarks and comments are integrally related, and are intended to be presented and understood together. In an effort to provide additional and useful information regarding the Company s financial results and other financial information as determined by generally accepted accounting principles (GAAP), certain materials presented during this event include non-gaap information. The rationale for management s use of this non-gaap information, the reconciliation of that information to GAAP, and other related information is included in supplementary materials entitled Non-GAAP Supplementary Materials that are posted on the Company s investor relations web site at The Non-GAAP Supplementary Materials are also included as Attachment II to the Company s Form 8-K dated May 12, 21.

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