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IBM expects to double its earnings per share by 2015.

Today, IBM is hosting its annual briefing with Wall Street analysts, and this being one of the few times that Big Blue's president, chief executive officer, and chairman speaks, Sam Palmisano stole the show when he said that in the next five years, earnings would reach at least $20 per share.</p

This does not include acquisition and pension costs, which are hard to predict, but that's a pretty dramatic jump. But no less dramatic than the jump that the company has been able to engineer between 2003 and 2010. In 2003, when IBM had $89.1bn in sales, it raked in $3.76 in earnings per share against a somewhat larger pool of shares.

As the economy recovered from the dot-com and Y2K crashes and IBM cut employees and divested of low-profit or unprofitable commodity businesses, the company has been able to accelerate its EPS numbers, breaking through to $10.01 per share in earnings in 2009 when sales were actually down 5 per cent from the prior year to $95.8bn. That's a factor of 2.7 increase in EPS against a 7.5 per cent increase in sales.

This would seem to suggest that Big Blue could be infinitely profitable if it would fire everyone. But pushing up to at least $20 in earnings per share is probably as close to infinite profitability as IBM can hope for.

IBM likes to throw its money around. Palmisano reminded Wall Street that between 2003 and 2009, the company spent $41bn on research and development, $47bn on capital expenses and acquisitions, and $77bn on share repurchases and dividend payments to shareholders. The company was kicking out $15.1bn in free cash flow in 2009, 74 per cent higher than the $8.7bn in cash it generated in 2003. Getting rid of PCs, printers, and disk drives and investing in complex, high-end software has been good to IBM and to its shareholders.

Just like IBM changed a lot between 2003 and 2009, Palmisano said that the company would continue to change in the next five years. Software will contribute more than half of IBM's profits, and IBM's growth initiatives - smart infrastructure, analytics, and business optimization, and cloudy infrastructure - will deliver $20bn in revenue growth, and growth markets - such as China, India, and Brazil - will account for a quarter of IBM's sales by 2015 (up from 19 per cent in 2009 from these areas).

Tweaking the company's own structure - meaning offshoring, layoffs, and other changes - will cut out $8bn in costs in the next five years. And when you add it all up, that is $100bn in free cash flow, of which about 70 per cent will be returned to shareholders through share buybacks and dividends.

That leaves around $30bn between now and 2015 for other stuff, including acquisitions. Palmisano said that Big Blue would spend twice as much on acquisitions in the next five years as it has done in the prior decade, with about $20bn earmarked for buying other companies to bolster IBM's sales and profits. IBM does not like to do big deals - and hence it walked away from acquiring Sun Microsystems for $7.5bn last year - so expect it to scarf up lots of small companies that fit into its services and software worldview.

As El Reg went to press on Wednesday afternoon while the IBM conference was still underway, Big Blue's shares were up 3.5 per cent to $131.35 a pop.

Wall Street is a tough audience, apparently. Maybe they will need to see infinite profitability before they push the stock to $200 a share so Palmisano can do a stock split ahead of his presumed retirement next year, IBM's 100th birthday. ®

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