IBM services, hardware revenue falls in Q2 while profit grows

IBM system revenue declined and software revenue remained flat

For its most recent financial quarter, IBM experienced a drop-off in revenue, though it was able to maintain profit growth.

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For the second quarter, IBM generated US$25.8 billion in revenue, down 3 percent from the second quarter of 2011. The revenue fell short of estimates by analysts, who, according to Thompson Reuters, expected to see $26.28 billion, or only a 1.5 percent decrease.

Despite the dip in revenue, the company was better able to remain buoyant by other financial measures. Net income was $3.9 billion, up from $3.7 billion in the second quarter of 2011. Earnings rose to $3.34 per share, an 11 percent increase from $3.00 per share in the second quarter of 2011. As a result, the company has raised its EPS estimate for the full year to at least $15.10, from a previously estimated $15.

"IBM's business model enabled our strong profit performance in the current environment," said IBM Chief Financial Officer Mark Loughridge in a conference call with financial analysts. He attributed the results to a number of factors. This quarter's results are being compared to an exceptionally strong performance in the second quarter of 2011, he said. "We had a challenging compare," he said. In addition, global currency fluctuations cost IBM about $1 billion in revenue, he added.

Revenue by geographical region varied greatly. Revenue in the Americas was $11.1 billion, down 1 percent from a year earlier. Revenue from Europe, the Middle East and Africa was $7.9 billion, down 9 percent from a year earlier. The Asia-Pacific region proved to be a bright spot, producing $6.3 billion in revenue, up by 2 percent from a year earlier.

The service arms of IBM experienced a slump in revenue, down by 3 percent from a year earlier. Global Technology Services logged $10 billion, a decrease of 2 percent. And Global Business Services posted $4.7 billion in revenue, a dip of 4 percent from a year earlier.

IBM software sales, on the whole, were flat. Software revenue totalled $6.2 billion. Both middleware and operating systems showed no growth in revenue, though Websphere revenue grew by 3 percent from the same time a year earlier. On the other hand, Lotus software revenue decreased 8 percent, and Rational software decreased 7 percent, both year over year.

Hardware sales didn't do so well either. Revenue from the Systems and Technology division totaled $4.3 billion for the quarter, down 9 percent year over year. Total revenue from systems sales and service were down 7 percent from a year earlier. Power Systems revenue was down 7 percent. System x revenue was down 8 percent from a year earlier. System z mainframe server revenue decreased by 11 percent.

In the conference call, Loughridge talked up the growth of some of IBM's technology initiatives. Revenue in business analytics was up 13 percent from a year earlier. Revenue from cloud computing initiatives doubled for the year, when compared with the first half of 2011. And revenue from work in Smarter Planet initiatives was up by 20 percent. IBM did not break out specific revenue numbers for any of these initiatives.

Joab Jackson covers enterprise software and general technology breaking news for The IDG News Service. Follow Joab on Twitter at @Joab_Jackson. Joab's e-mail address is Joab_Jackson@idg.com

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