IBM Pegs Strong Q1 Earnings on Hardware, Raises 2011 Forecast

IBM announced its first quarter 2011 earnings results, with the company's hardware and software businesses hitting double-digit growth and the services business gaining healthy single-digit growth.

IBM announced strong first-quarter 2011 earnings, with healthy growth among its core hardware, software and services sectors; Big Blue also raised its outlook for 2011.

IBM said first-quarter 2011 net income was $2.9 billion compared with $2.6 billion in the first quarter of 2010, an increase of 10 percent. Total revenues for the first quarter of 2011 of $24.6 billion increased 8 percent from the first quarter of 2010.

In a call with analysts to report the earnings, Mark Loughridge, IBM senior vice president and chief financial officer, said revenue from IBM's STB (Systems and Technology Business) were up 19 percent, with growth in every platform. STB revenue totaled $4 billion for the quarter. Revenues from System z mainframe server products increased 41 percent compared with the year-ago period. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), increased 34 percent. Revenues from Power Systems increased 19 percent compared with the 2010 period. Revenues from System x increased 13 percent. Revenues from System Storage increased 10 percent, and revenues from Retail Store Solutions increased 18 percent year over year. Revenues from Microelectronics OEM increased 23 percent.

"This was the best first-quarter growth in over a decade" for the hardware business, Loughridge said during the analysts call. Moreover, Loughridge called out IBM's systems success in delivering its Jeopardy!-winning Watson computing system with deep question-and-answering technology and analytics. "We did not invest in Watson just to play Jeopardy!; we invested to provide business applications leadership to our clients."

"We delivered a strong first quarter with revenue growth across hardware, software and services and with more than 40 countries growing in double digits, said Samuel J. Palmisano, IBM chairman, president and CEO, in a statement. "We continued to see excellent momentum in our growth initiatives--smarter planet, cloud, business analytics, and growth markets--which bring together the full value of the IBM portfolio. We achieved broad-based margin improvement, while our cash flow and strong financial position enabled us to continue to return value to our shareholders. On the strength of this performance, we are raising our full-year 2011 operating earnings per share expectations to at least $13.15."

Revenues from the IBM Software segment were $5.3 billion, an increase of 6 percent, or 10 percent excluding the first-quarter 2010 divestiture of the PLM (Product Lifecycle Management) operations, compared with the first quarter of 2010. 

Revenues from IBM's key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.3 billion, an increase of 16 percent versus the first quarter of 2010. Revenues from the WebSphere family of software products increased 51 percent year over year. Information Management software revenues increased 13 percent.  Revenues from Tivoli software increased 8 percent. Revenues from Lotus software increased 1 percent, and Rational software increased 5 percent. However, IBM Rational's Jazz-based products were up 64 percent, Loughridge said. Also, revenues from IBM's business analytics operations across services and software segments increased 20 percent.

Meanwhile, IBM's total Global Services revenues increased 6 percent. Global Technology Services segment revenues increased 6 percent to $9.9 billion. And Global Business Services segment revenues were up 7 percent at $4.7 billion.

Loughridge said IBM's Smarter Planet business was up 20 percent over the quarter, business analytics revenues were up 40 percent, and revenues from cloud-related offering were up five times.

"With our cloud business up five times this quarter and expected to double this year, that's the trend line we need to reach $7 billion in cloud revenues by 2015," Loughridge said.