IBM: Earnings rise, revenues fall, but growth ahead

IBM on Thursday reported second-quarter earnings of US$2.32 per share, an 18 percent increase over last year, but said revenue fell 13 percent to $23.3 billion. Net income for Q2 rose 12 percent to $3.1 billion.

Analysts polled by Thomson Reuters had predicted earnings of $2.02 per share and $23.59 billion in revenue.

But in a ray of hope for a market eager for any sign of economic recovery, IBM also raised its full-year earnings expectations to at least $9.70 per share, compared to at least $9.20 per share.

During a conference call, IBM Chief Financial Officer Mark Loughridge cited cost-cutting measures and moves toward "higher-value segments" as reasons why the company has been able to "improve margin and profit even with declining sales."

The Q2 results were mixed when broken down by category.

Software revenues fell 7 percent to $5.2 billion compared to the same period last year, but IBM said it expected pre-tax software income to see double-digit growth rates this year and rise to $8 billion.

WebSphere performed especially well within the software segment, with sales up 8 percent over last year.

But IBM's Lotus collaboration and messaging applications suffered a 14 percent decrease in sales, a performance Loughridge chalked up to weak customer demand due to workforce downsizing and other factors.

Total services revenue fell 12 percent -- indicating the reluctance of companies to embark on major IT projects amid the weak economy -- but pre-tax income was up 23 percent. Global Business Services revenue was $4.3 billion, a drop of 15 percent, while Global Technology Services revenue fell to $9.1 billion, down 10 percent.

Meanwhile, revenue in the Systems and Technology division dropped 26 percent compared to the corresponding quarter last year, to $3.9 billion. System z mainframe revenues particularly suffered, falling 39 percent.

But IBM is hoping to turn that around with an upcoming series of System z offerings that are pre-integrated with software for business intelligence and other purposes, according to Loughridge.

IBM also has other key initiatives underway, including its program for helping companies build private computing clouds, Loughridge said.

However, Big Blue is facing serious competitive challenges, including from Oracle in the middleware arena.

Oracle launched Fusion Middleware 11g this month, and along with the hardware sales it will gain from the pending acquisition of Sun Microsystems, the company is hoping to become a full-stack provider for customers.

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