IBM Profits Rise 22% on Services, Software

IBM manages net income growth of 22 percent selling services, software and systems in a largely international market.

IBM's second-quarter profits grew 22 percent, led by services and software revenue and sales in international markets.

IBM's revenues grew 13 percent to $26.8 billion, while net income for the period was $2.8 billion, the company said. Also, as IBM pulled $10.9 billion in revenue from its Americas sector, the company drew $15.1 billion from international markets, indicating that it might be buffered by its broad participation in worldwide and emerging markets as the economy undergoes a downturn.

IBM revenues from the Europe, Middle East and Africa market segments rose 20 percent to $9.8 billion, while revenues from the Asia-Pacific market grew 16 percent to $5.3 billion. U.S. revenues grew by 5 percent. However, overall Americas revenue grew by 8 percent, to $10.9 billion.

"IBM had an outstanding quarter and a strong first half for 2008. These results demonstrate that IBM has the ability to thrive in both emerging and established markets. Once again, IBMers performed very well around the world," Samuel Palmisano, IBM chairman, president and CEO, said in a statement.

"We really executed to focus on high-growth emerging markets," Mark Loughridge, IBM senior vice president and chief financial officer, said in a conference call with analysts. "We enter the second half [of the year] with a lot of momentum."

Accounting for the lion's share of IBM's revenues, total IBM Global Services revenues grew 16 percent. IBM's Global Technology Services segment revenues increased 15 percent to $10.1 billion, with significant growth from existing clients, the company said. Global Business Services segment revenues increased 18 percent to $5.1 billion.

"The advantage of having a high-value services business is we can adapt our offering to meet customer needs," Loughridge said. "We see both Global Business Services and Global Technology Services performing well within their model. We're quite encouraged by our services business."

Revenues from IBM's combined Systems and Technology segment totaled $5.2 billion for the quarter, up 2 percent. However, systems revenue grew 10 percent, with revenues from IBM's System z mainframe computers growing by 32 percent, the company said.

"We're pleased with the z Series performance at 33 percent [growth]," Loughridge said. "As we closed out the second quarter we were sold out [of System z servers] ... and I think the z Series is going to be a very strong play for us in the second half."

Software revenues accounted for $5.6 billion of IBM revenues, up 17 percent over the same period last year. Revenues from IBM's total middleware products, which primarily include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $4.3 billion, up 17 percent, versus the second quarter of 2007.

Among the individual software units, IBM's Rational unit showed the highest growth at 37 percent, Information Management software revenues grew by 30 percent, Lotus grew 21 percent and the WebSphere and Tivoli units both grew by nine percent.

"We had good closure on our software base as we closed out the quarter," Loughridge said. "The software business had a very effective quarter on both the revenue and profit line."