International Business Machines Corp (IBM) 2005 Q1 法說會逐字稿

Welcome, and thank you for standing by.

At this time, all participants are in a listen-only mode.

Today’s conference is being recorded.

If you have any objections, you may disconnect at this time.

Now I will turn the meeting over to Ms. Patricia Murphy, VP of Investor Relations.

Ma’am, you may begin.

Thank you.

This is Patricia Murphy, VP of Investor Relations for IBM.

Here with me today is Mark Loughridge, IBM’s SVP and CFO.

Thank you for joining us on short notice.

At this time, the opening page of the presentation should have automatically loaded, and you should be on Chart 1 -- the title page.

In roughly an hour, you will be able to link to the prepared remarks, using LinkSound at the bottom of the presentation window.

Today’s presentation does not include an index page.

Any chart may be referenced at any time by utilizing the dropdown tool bar at the bottom of your screen.

As always, a replay of this web cast will be available on our investor relations website by this time, tomorrow.

This presentation includes certain non-GAAP financial measures, in an effort to provide additional information to investors.

All non-GAAP measures have been reconciled to the related GAAP measures, in accordance with the SEC rules.

You’ll find reconciliation charts at the end, and in the From 8K to be filed with the SEC immediately following this call.

Now, please click on the next button and move to Chart 2.

Certain comments made in this presentation may be characterized as forward-looking, under the Private Securities Litigation Reform Act of 1995.

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 filing with the SEC.

Copies are available from the SEC from the IBM website, or from us in Investor Relations.

Let me comment on one additional point.

As we communicated last week, we implemented the expensing of share-based compensation in the first quarter of this year.

Within this earnings presentation, the first quarter 2004 income statement, balance sheet and cash flow have been restated, to include the impact of share-based compensation expense.

As a reminder, the first quarter segment pre-tax profits do not include this expense.

Please click again on the next button for Chart 3.

Now, let me turn the call over to Mark Loughridge.

Thanks, Patricia.

This quarter did not play out as we expected.

We had a good start to the quarter -- consistent with the way we exited 2004.

In fact, we had revenue growth of over 6 percent through the end of February.

However, we had a significant drop-off, primarily in small transactions at the end of the quarter, and March revenue was down.

Given our skew of business within the quarter, the March shortfall significantly impacted first quarter’s overall growth rate and profitability.

For the first quarter, we delivered $22.9 billion in revenue, which was up 3 percent as reported, or up 4 percent without PCs.

Revenue improved 1 percent to constant currency.

Our pre-tax income was $2 billion -- up 3 percent over first quarter of last year.

We delivered $0.85 of EPS, which was an 8 percent improvement over last year’s first quarter.

This included $0.10 of incremental equity compensation expense, which we’re including in our financial statements for the first time this quarter.

Last quarter I told you that we would have a significant year-to-year increase in pension expense.

Without the year-to-year impact from pension, our EPS would be up 20 percent, year-to-year.

There are some specific items that impacted the results.

First, we had a disappointing quarter in Services -- contributing to the shortfall with a decline in short-term signings.

That impacted not only the total reported signings, but also our revenue and profit performance.

Second, we experienced an elongated sales cycle in a few of our product areas, due to both sales execution and customer deferrals.

We always have deals that don’t close, but more than the normal level of deals slipped, this quarter.

Third, while we had good customer acceptance of our new storage products, our results were impacted by late product availability.

In the past, I’ve told you about our Opportunity Management System that gives us headlights into our pipeline of deals.

This quarter, business fell out very late in the period, and while we were able to take some actions to improve performance, we weren’t able to deliver to the level that we had planned.

Putting this in perspective, our [Nudilife] stream of revenue and profit provided stability -- even when the transaction business fell off.

Our products remain extremely competitive.

And we had continued strong performance in the growth areas that we’d previously discussed -- such as emerging countries and business-performance transformation services.

We are encouraged by the opportunities in these areas, and we will continue to invest for growth.

Overall, we could have done better, this quarter.

But we had two soft weeks following several consecutive quarters of solid performance.

We’re taking action to address the issues, and improve our overall performance.

Please move to Chart 4, and we’ll get into geographic revenue.

I’d like to address the geographic performance from a couple of different perspectives.

First, we had declines in four major countries.

At constant currency, Japan was down 4 percent, Germany down 8 percent, France down 3 percent, and Italy down 7 percent.

Together, they represent over a quarter of IBM’s revenue, and were down 5 percent.

These four countries are all facing economic challenges, and spending has lagged other countries.

In light of this environment, we’ve been looking at our structure and operating model to ensure that we serve our clients in the most efficient and effective way possible.

This includes re-examining our operations and organizational structure in Europe.

This activity created some disruption toward the end of the quarter.

Let me share another perspective on our geographic performance.

Across all of our geographies, we continued our pattern of very strong growth in emerging countries.

China, Russia, India and Brazil together grew 18 percent in the first quarter, to over $1 billion.

We will continue to shift investment to these geographies to better address these important markets.

Now let’s turn to revenue and gross profit margin by brand -- Chart 5.

Total revenue in the first quarter was up 3 percent, year-to-year, as reported.

Or 4 percent without PCs.

Revenue was up 1 percent at constant currency.

Global services, which is about half of IBM’s revenue, was up 6 percent year-to-year, as reported -- contrary to the trend we saw in the second half of 2004.

Short-term signings declined more rapidly than long-term signings -- which resulted in a deceleration in the revenue-growth rate.

[Arbor] revenue was flat, as reported, but up 2 percent without the PC business.

We had double-digit growth in pSeries. xSeries was up 8 percent. iSeries returned to growth.

And our storage products grew, despite late availability of our new products.

This performance was offset by an expected decline in zSeries, following a very strong first half in 2004.

PC revenue was also down.

Again, impacted by the pending sale of our business to Lenovo.

Software revenue grew 2 percent, as reported.

The results were mixed by geography.

Global-financing revenue was down 12 percent, as reported -- driven by both a decline in the asset-base and yield, and lower used-equipment sales.

Gross profit margin in the first quarter was 36 percent -- up 0.4 of a point from last year’s first quarter.

I’ll expand on key drivers in the discussion of the business units.

Now, let’s turn to expense -- Chart 6.

Total Expense and Other Income grew 5 percent in the first quarter, as reported.

Since revenue was up 3 percent, total expense to revenue increased 0.5 point.

This quarter, only two items materially impacted earnings growth.

We include these items in the expense discussion, even though some portions of spending is charged to cost in the income statement.

We recently announced that IBM would implement expensing of equity compensation in the first quarter.

These results include a year-to-year reduction of $94 million -- about $0.04 a share.

To a lesser degree, continued workforce rebalancing expense also improved earnings.

Retirement-related plans -- both pension and health -- were a year-to-year hurt of $247 million -- about $0.10 a share.

We told you in January that the full year-to-year impact of pension alone will be $1 billion.

You’ll see us continue to take actions over the course of the year, designed to offset the significant year-to-year pension impact.

Before I move on, let me comment on currency.

As you know, we have ongoing hedging programs that are intended to mitigate the volatility of currency on period results.

The impact of these hedging programs is principally reflected in Other Income and Expense, as well as Cost-of-Goods Sold.

The supplemental chart at the end of the presentation benchmarks currencies, potential future impact on revenue -- assuming Wednesday’s exchange rates.

Now let’s turn to Cash Flow -- Chart 7.

In the first quarter, we had strong cash flow from operations, excluding the funding of our US Pension Plan.

This cash flow analysis chart has one primary difference from the FAS95 format, which is included in our supplemental chart.

It considers the global financing receivables as an investment to generate profit -- not as working capital that should be minimized for efficiency.

In first quarter net cash from operations excluding the change in global financing receivables, was a use of over $900 million -- down $1.4 billion from last year.

This year, we funded an additional $1.7 billion in US Pension contributions over last year.

Excluding this incremental funding, we generated over $250 million more cash from operations, year-over-year.

The principle driver was our continued focus on working capital management.

Our use of cash for investments was consistent with last year’s activity.

We returned $3.8 billion to investors in the first quarter. $3.5 billion of this was through share repurchase -- which remains an important part of our financial model.

With a strong cash balance and cash performance, we increased purchases both year-over-year and sequentially.

We bought back almost 37 million shares in first quarter, and average diluted shares stood at 1.66 billion -- down 3.9 percent from a year ago.

We have approximately $250 million remaining from our last board authorization.

In the first quarter, we paid out almost $300 million in dividends.

Now please turn to Chart 8, and we’ll discuss the balance sheet.

Our balance sheet remains strong in First Quarter 2005, with cash on hand of $8.7 billion -- up $150 million year-to-year -- despite our increase in the share repurchase program and our increased pension funding.

Ninety-four percent of our total debt of $23 billion was driven by our global financing business.

And global financing was leveraged at an appropriate 6.7 to 1.

The remaining non-financing debt level was about $1.5 billion -- $800 million higher than last year.

Non-financing debt-to-capital was within acceptable levels, at 5.3 percent.

Our balance sheet remains very strong, and we’re well-positioned to capitalize on future opportunities and meet our cash needs.

I want to provide some detail on individual businesses -- starting with global services -- Chart 9.

Global services delivered revenue of $11.7 billion -- growing 6 percent as reported.

Pre-tax income was $942 million -- down 5 percent, year-to-year.

Let me remind you that the first quarter’s segment pre-tax profits do not include equity compensation expense.

Signings for services this quarter were $11 billion at spot rates, or $10 billion at constant currency.

We signed 14 deals larger than $100 million -- including strategic outsourcing, BCS, ITS services and maintenance.

The ending balance of our backlog is estimated at $110 billion.

Effectively flat from the end of the year -- with our backlog erosion remaining low.

Turning to the three major segments.

Strategic outsourcing, which was about 40 percent of global services, was up 8 percent.

We continued our pattern of double-digit year-to-year growth in AMIA.

Asia-Pacific also grew.

However, Americas declined -- reflecting the cumulative effect of lower signings.

I’ve told you over the past couple quarters that we have been able to maintain acceptable revenue growth while signings are declining -- due primarily to increases in yield.

This quarter, many of our signings were late-in-quarter, and we had a higher percentage of our total signings come from extensions to existing contracts.

While these extensions are a great indication of customer satisfaction and help over the longer term, they didn’t contribute to our current [tiered] revenue.

Although our strategic outsourcing yields continue to increase year-to-year, the increase was not sufficient to offset the impact from short-term signings.

Excluding maintenance, integrated technology services was up 6 percent.

This revenue growth is more dependent on signings in the quarter.

ITS signings were flat-to-down in all geographies, due to weakness in small deals.

Business consulting services grew 5 percent, year-to-year.

Double-digit growth in Americas was mitigated by performance in AMIA and AP.

In consulting and systems integration, we saw modest signings growth in the Americas and AMIA -- and signings declines in AP, driven primarily by weakness in Japan.

Revenue was impacted in the quarter by signing delays in Asia, and yield declines in AMIA.

Business transformation outsourcing signings nearly doubled year-to-year, and continued to show strong revenue growth, year-to-year.

I will talk more about BTO when I discuss BPTS.

Global services gross margin improved year-to-year, while pre-tax margin declined 0.8 of a point.

This decline was almost entirely attributable to weakness in ITS and BCS revenue.

With the cost onboard, the revenue shortfall effectively drops to the bottom line.

Coming into the first quarter, we began to reallocate resource, to put more emphasis on pipeline development, and invest in growth initiatives.

Both of these drive an increase in expense in the quarter, but should show benefits within our pipeline and our services lines-of-business.

Although our gross profit margins increased year-to-year, we are driving for greater improvement, in order to offset expected erosion in the expense-to-revenue ratio.

As we look forward, our emphasis on pipeline development’s paying off.

Going into the second quarter of this year, our pipeline is 30 percent higher than we saw as we entered the first quarter.

This improvement is in all lines of business -- both short-term and long-term, with particular strength in strategic outsourcing, ITS and BTO.

The improvement in the pipeline gives us more confidence that we will regain signings growth in the second quarter.

Please turn to Chart 10 -- Hardware.

Hardware revenue was essentially flat, year-to-year.

The Systems and Technology Group grew 2 percent year-to-year, but this was offset by a decline in our Personal Systems Group.

This series revenue declined 16 percent, year-to-year.

A decline was expected following the strong performance in 2004.

MIP shipments decreased by 11 percent.

We saw particular weakness in Europe and Japan as customers delayed a number of sizable transactions.

Our customers remain focused on infrastructure simplification.

The mainframe’s unmatched security, integration and workload management capabilities enable customers to remove complexity and cost from their IT infrastructure.

iSeries returned to modest growth after several quarters of decline.

Customers find value in iSeries capabilities of running more tightly integrated and secure business solutions, and multiple operating systems to simplify and consolidate their IT environments. eSeries grew 12 percent year-to-year in the first quarter, with growth in all geography.

We expect that when external share results are reported, pSeries will again grow share in the Unix market.

xSeries server revenue growth decelerated to 8 percent, year-over-year.

We had double-digit growth in both the Americas and Asia.

Competitive pressure was especially strong in Europe, contributing to modest revenue declines.

This was compounded by a product transition on our high-end servers, which were not available until late in the quarter.

Our momentum in Blades -- the fastest-growing server platform -- remains strong, with revenue growth of nearly 90 percent, year-to-year.

IBM total storage was up 5 percent, year-to-year.

Enterprise disks grew over 20 percent.

Tape improved 3 percent, and [Sand] declined.

Our new disk product -- the DS8000 and DS6000 -- again, volume shipment late this quarter, and have been well received by customers.

When the data becomes available, we believe we will have gained share in the external disk market.

Commerzbank is a perfect example of the value these new systems bring to customers.

Here, they replace more than 100 EMC and HP storage devices, with just 13 IBM systems -- significantly reducing costs and operating complexities.

I mentioned earlier that the storage product transition impacted our profitability.

Before the new product was available, in order to meet customer demand, we substituted predecessor product at deep discount -- significantly impacting the margin.

Our new products will be available for the entire second quarter, and we expect to return to more-normal profit levels.

Technology OEM revenue grew 2 percent.

Yield stability continues to improve in our East Fishkill Fab.

IBM semiconductor technology leads the industry.

It is the basis of many of the industry’s cutting-edge semiconductors.

Engineering and technology services revenue grew over 55 percent, year-to-year.

This growth opportunity enables customers to leverage our design skills, know-how and technical capabilities to meet their needs.

I will address this further in our discussion of BPTS.

Turning to our Personal Systems Group.

Revenue from personal computers declined 2 percent, year-to-year -- driven by a decline in desktops.

Gross margin for personal systems group improved -- a result of our continued focus on costs.

We remain on track to close the sale of our personal computer business to Lenovo in the second quarter.

Please turn to Chart 11, and we’ll discuss software.

Software -- at $3.6 billion -- was up 2 percent, year-to-year.

Total middleware grew 3 percent.

There was strong growth in many of our strategic offerings.

However, “other” middleware, which represents 40 percent of total middleware, was down 4 percent.

Operating Systems were down 2 percent.

Software demand was mixed by geography.

Strength in the Americas was offset by weakness in Europe and Asia.

In the quarter, we had a more-pronounced mix of small deals.

Now let me take you through some of the highlights by brand.

The WebSphere family of software grew 11 percent for the quarter.

WebSphere portal and WebSphere application service software grew 17 percent and 14 percent year-to-year, respectively.

Gartner Group reported that WebSphere was, again, the Number 1 provider of application, server, portal and integration software in its 2004 report -- extending our leading market share positions in all categories.

Information Management software grew 5 percent.

This was driven by DB2 database family, which grew 9 percent, year-to-year.

In addition, we announced two significant acquisitions in our Information Management business in first quarter.

In January, we acquired SRD -- whose technology provides fraud detection and business intelligence capability.

In March, we announced the intent-to-acquire Ascential Software -- a leader in Enterprise Data Integration -- which is expected to complement our DB2 and WebSphere products for integrating applications and business information.

Tivoli Software was up 15 percent -- driven by strong growth in security, storage and systems management software.

Lotus software was up 11 percent year-to-year and for the quarter, driven by strong Notes Domino growth and continued acceptance of our workplace product.

Rational software was flat.

Growth in Americas and Asia was offset by declines in Europe.

Overall, we believe we held share in software in the first quarter.

Now, please turn to Chart 12 and we’ll discuss business performance transformation services.

I mentioned earlier that we are continuing to gain traction in business performance transformation services, or BPTS -- a major growth play that was launched nearly a year ago.

Our objective is to capture opportunities that lie beyond what enterprises have traditionally spent on information technology products and services.

We see strong demand in BPTS as clients look for strategic partners in the marketplace for business services.

In the quarter, BPTS revenue was almost $900 million -- up 40 percent year-to-year.

The revenue growth was led by business transformation outsourcing -- which also had signings growth of almost 90 percent over last year.

We had a significant win at Dana Corporation, where the client is looking for a strategic partner to redesign processes like Payroll and Benefits -- but also transform human capital management in areas like recruiting and training.

We also signed two other major HR BTO agreements.

One was our first large HR win in Latin America.

The other leverages IBM’s own e-learning assets.

In Asia, we signed our first BTO deal -- focused exclusively on transforming and operating a client sales operation.

In our Engineering and Technology Services business, we take IBM assets and expertise and apply them to transform a client’s engineering or R&D capabilities.

This quarter, we had about $200 million of signings in ENTS -- a significant increase over last year.

These signings include our largest telematics engagement, ever.

We also made a significant announcement centered around the cell microprocessor.

Our engineers will now develop for other companies made-to-order products which incorporate the revolutionary technology, helping clients that range from government agencies to device manufacturers solve their most-challenging technical problems.

We are encouraged by our progress and are continuing to invest to build capabilities to address the BPTS opportunities.

Now, turn to Chart 13, and I’ll wrap up.

In the first quarter, we delivered 8 percent growth in EPS.

As I mentioned earlier, this includes a significant year-to-year increase in pension costs.

Without the pension impact, our EPS is up 20 percent.

We had good results in several of our product areas, and continued strength in emerging countries and business-performance transformation services.

But as I’ve said up front, this quarter did not play out as we’d expected.

We had a shortfall in services, an elongated sales cycle, and a product transition in storage.

We’re putting in place targeted actions to drive improvements in our future performance.

For example, addressing sales-execution issues across hardware, software and services.

Shifting investments from low-yielding areas to areas of growth, and optimizing our operating model to ensure that we have the most-efficient and effective client basing capabilities.

Many of these activities were already underway.

Given the softness in the last two weeks, we have decided to accelerate these plans.

A couple of these actions may require some sizable restructuring activities -- primarily, designed to move decision-making closer to the customer, and improve the speed-of-execution at the customer level.

We refer to this as, “lowering the center of gravity.”

We’re formulating our plans and expect to finalize them in the second quarter.

We’ll describe this to you in more detail later this quarter.

What does all of this mean for the balance of the year?

The actions we’re planning to take in the second quarter will start to yield benefits in the second half.

Based on what we know now, the analysts’ average estimates for EPS for the second half remain reasonable.

We’re driving to get there in every way -- at lower revenue and more cost-and-expense savings.

To be clear, the benefits that we will receive from the second quarter restructuring are included in these earnings objectives.

Our strategies, our investments, and our specific operational actions are all designed to deliver on our business model, based on innovation -- and best position us for the longer term.

Looking forward, we remain committed to our longer-term model to deliver double-digit EPS growth.

Now Patricia and I will take your questions.

Thanks, Mark.

Before we begin the q-and-a, let me comment on two items.

First, we have a few supplemental charts that were not part of Mark’s prepared remarks.

You’ll find these at the end of our presentation.

Second -- I’d ask you to refrain from multipart questions.

Okay, Operator.

Let’s open it up for questions.

Thank you.

If you would like to ask a question, please press *1 on your telephone keypad.

Our first question is from Steven Fortuna with Prudential Equity Group.

You may begin.

Just one question on your services margin.

Obviously, 7.6 wasn’t a great number.

You talked about taking some actions to fill the pipeline.

Hopefully try to improve performance, going forward.

How should we think about margins?

I think last quarter you conveyed that you’d like to try to get the margins about 100 basis points above where they were in 2004.

We fell short by 80 BIPS.

So how should we think about the margin progression in services, moving through Q2 in the back half of the year?

Good question, Steve.

First of all, let’s describe first quarter.

We saw a half-point improvement in our services gross margin.

But as you correctly observed, an erosion in net margin from 8.4 percent to 7.6.

We were clearly looking for an improvement, here.

The issue is really short-term contracts signings.

Now, since the bulk of the labor content for these contracts is already onboard, the incremental profit yield is very high.

Say 50-60 percent incrementally.

So $350 to $400 million of short-term signings revenue at these incremental margins drives another point and a half of net margin.

I will tell you that as I commented as I introduced this -- we were certainly looking for greater net margin, clearly related to short-term signings.

And we view a recovery in second quarter based on the strength of the pipeline that we have as we enter the second quarter.

Thanks, Steve.

Let’s go to the next question, please.

Thank you.

Our next question is from Steven Milunovich with Merrill Lynch.

You may begin.

Thanks.

If you had to attribute kind of a percentage to it, would you say about half the quarter miss was IBM specific and half seemed to be more industry/economic?

I mean just looking at that month-by-month chart -- are we falling off a cliff here in terms of what could happen in April and May?

Do you have any April experience at this point to get a sense of what’s going on?

Well, let’s do this in a couple of steps.

Let me first of all describe the quarter a little bit.

And then I will talk a little more about what we see from the economy.

So first of all, as we pointed out, and we showed you the chart -- we had very good performance in January and February.

We were up 6 percent year-to-year on a quarter-to-date basis.

At actual rates.

Now I’ll tell you that underneath that, without PCs, February recorded to date, we had 5 percent revenue growth constant currency, 7 percent at actual.

So we, through those first 2 months, were right on our model.

I will tell you, I expected to have a very good quarter.

Unfortunately, the falloff occurred in the last half of March.

As we stated before, we had headlines to give us insight into the progression of the quarter, which allows us to shift resources as appropriate.

But with the falloff occurring so late in the quarter, our actions were unable to completely mitigate the shortfall.

The late falloff was across most of our business lines.

Now, when you look at that, and back to your question, “How would we kind of correlate that to our experiences,” I would say to kind of look at it from a macro trend perspective.

We clearly had problems in Germany, France, Italy and Japan.

Really, those four countries account for about a quarter of our revenue.

So each of these countries are in a weak economic position.

We’ll counter, though.

We still saw a very strong growth in our emerging countries.

The China, Brazil, India and Russia.

But we did have a couple of very rough weeks across the board at the end of the quarter.

For right now, I think it’s too early to tell if this is part of a broader trend.

We know we experienced execution issues, and we have a solid action plan to recover.

Okay.

Thanks.

Let’s go to the next question, please.

Our next question is from Richard Gardner with Smith Barney.

You may begin.

I was hoping to get a little more detail on the services shortfall.

I know that you just talked a great deal about where the weakness came from, but can you talk about how much of it might have been competitive pressure in services?

Or do you think it’s primarily a market issue, and just the elongated sales cycles that you talked about at the end of the quarter?

Thanks, Mark.

I think really, as we looked at it, it was really just a falloff in short-term signings that impacted us.

In other respects, I think we showed some strength.

Clearly, in our new areas of growth -- BTO, ENTS -- these kind of core elements of BPTS -- we showed strong growth.

But the short-term falloff that we saw… And I say predominantly in ITS and CNSI… really impacted us.

And those tend to have much higher yields in the quarter.

As I said, given our resource planning, most resource being onboard, it has an even more dramatic effect on our margins.

Let’s go to the next question, please.

Our next question is from Ben Reitzes with UBS.

You may begin.

According to my math, Mark, your equity compensation was $0.10 on the quarter, and it was an improvement of $0.04 year-over-year.

Could you just talk about what was that running rate per quarter for the rest of the year?

And should we assume $0.10 for the rest of the year?

I guess I would say if you look at the year-to-year pension impact and also the equity compensation, these trends will be very similar as we go through the balance of the quarter.

So I think equity compensation can be counted on in many quarters, to offset the pension expense.

I think this relationship… It will very somewhat.

But it’s to the reasonable guide, as we go through the balance of the year.

Thanks, Ben.

Next question, please.

Thank you.

Our next question is from Andrew Neff with Bear Stearns.

You may begin.

I just wanted to see if I could get some clarity.

You talked about the second half of the year.

Can you give us any sense about the second quarter?

What your expectations are, relative to where The Street is, or otherwise?

Well, we just came out of a soft two weeks.

We have a good handle on what’s going on.

But I’m really not going to predict specific guidance on the quarter.

We certainly have greater confidence in our services pipeline, but now we need to execute.

We have a number of action items we’re putting in place, and these will be implemented as we go into the second quarter.

Actions that are designed to deliver benefits in the second half.

As you know, we are also [working for] the Lenovo transaction in the second quarter.

But really, if I step back, I want to re-emphasize that especially in the services area, having signed a little over $10 billion in the first quarter of last year and about $10 billion in the second, the fact that we see the pipeline going into the second quarter 30-40 percent stronger than the pipeline that we ended the first quarter, I think that’s very encouraging.

Thanks, Andy.

Next question, please.

Thank you.

Our next question is from Rebecca Runkle with Morgan Stanley.

You may begin.

Hi, Mark.

Thank you.

Just a quick follow-up on that.

Here, you’re emphasizing the 30-40 percent increase in pipeline.

But as you look at that, how much of that increase is due to the short-term contracts that you expected to sign in the first quarter getting pushed out to the second quarter?

Well, there certainly is some content, as always, that we see moving out in the quarter.

I’m sure just as you point out, that some of the short-term improvement that we see is from contracts moving out -- as is the long-term.

But I’ll also tell you that an improvement of 30-40 percent is pretty substantial for us.

Though I do think it contributed, I don’t think it’s the biggest part of that improvement, quarter-to-quarter.

Okay.

Thanks.

Let’s take on more question, please.

Thank you.

Our next question is from Steven Weber with SG Cowen.

You may begin.

Yes, Mark.

As you look across the businesses and your plans, can you tell us which part of this business -- which segments -- are you most-worried about, and which ones do you think are bound to recover as you go forward, for the rest of the year?

Sure.

I think we had a reasonable quarter in software.

I expect we’ll have a very strong quarter in the second.

Again, against an easy compare.

On a hardware standpoint, I think some of those issues that we had -- we know how to fix those.

The new introduction in the storage line will now be available much more robustly.

We’ll see those margins improve -- so I feel pretty confident.

I really think the services equation now is a function of the increase we see in that pipeline, going quarter-to-quarter.

We need to really capitalize on that increase in our pipeline, to regain growth in signings in the second quarter, moving into the second half.

Okay.

Thanks very much.

Thank you for participating on today’s call.

The conference has now ended.

You may disconnect, at this time.