IBM Revenues Up in Challenging Economy

CEO Palmisano credits IBM Global Services with the lion's share of IBM's growth.

IBM on Wednesday announced second-quarter 2003 diluted earnings of $0.98 per share, a figure that was up 10 percent in constant currency from year-ago figures after excluding incremental charges of $1.1 billion after tax.

When not figuring in those charges, the growth rate balloons to 262 percent. Second-quarter revenue totaled $21.6 billion.

Income from ongoing operations for the second quarter was $1.7 billion, compared with $445 million in the second quarter of 2002. Excluding charges, that represents an 11 percent growth rate over year-ago figures.

John Joyce, senior vice president and chief financial officer, vowed to do better in the second half of the year. "It is a tough market out there," he said in an analyst meeting. "We continue to gain share in key areas: Communication and the industrial sector businesses picked up. But we can and will do better as the second half evolves. [For example,] our microelectronics business can get better yields in product lines. Also, software can ramp up in new business areas to take advantage of new opportunities. [In addition,] we will roll out important functions for the new z90 servers."

IBM Chairman and CEO Sam Palmisano noted that the solid earnings came in despite a "challenging" economy in which IBM is still managing to gobble up market share.

"Once again, IBM delivered a solid quarter despite the challenging economic environment," Palmisano said in a statement. "We continued our momentum from the first quarter and grew revenues and earnings per share and gained market share in our strategic businesses. Further, we are benefiting from our acquisitions, as well as the restructuring actions we took last year. Most importantly, we are encouraged by the acceptance of our e-business on-demand strategy as more customers realize the productivity gains associated with becoming an on-demand business."

Palmisano credited IBM Global Services with the lions share of IBMs growth. Indeed, revenues from that division increased 23 percent, or 14 percent at constant current, to a total of $10.6 billion. This growth was due in large part to IBMs acquisition of PwC Consulting.

Revenues for the Armonk, N.Y., company were also bolstered by its new line of "Express" solutions, which are squarely aimed at the small to medium-sized business market—a fast-growing customer segment for IBM, Palmisano said.

One sector that slipped for IBM was hardware revenues, which decreased 1 percent (6 percent at constant currency) to $6.6 billion from year-ago figures. Systems group revenues, including IBM eServers and storage systems products, were $3.2 billion, up 10 percent (3 percent at constant currency). Revenues from zSeries mainframe servers declined as MIPS (millions of instructions per second) declined 7 percent.

Personal Systems Group revenues also dipped 3 percent (8 percent at constant currency) to $2.7 billion, mostly from lower sales of personal computers.

Revenues from IBMs software offerings increased 6 percent (which was down 2 percent in constant currency), to $3.5 billion. Middleware—including the WebSphere and DB2 product families—grew revenues 7 percent (down 1 percent in constant currency) to $2.7 billion. Operating systems revenues increased 5 percent (down 2 percent in constant currency) to $589 million.

WebSphere grew revenues 14 percent (6 percent at constant currency). IBMs DB2 database management software fattened revenue by 16 percent (7 percent at constant currency). Tivoli revenues increased 9 percent (flat in constant currency). Lotus revenues dipped 3 percent (12 percent at constant currency).

Global Financing shrank 18 percent (24 percent at constant currency), to $672 million.