IBM Q2 Profit Up 9%, Spurred by Software

IBM announced its second quarter 2010 earnings, reporting profit growth of 9 percent at $3.4 billion versus $3.1 billion for the same period a year ago.

IBM announced its second quarter 2010 earnings, reporting profit growth of 9 percent at $3.4 billion versus $3.1 billion for the same period a year ago.

In a call with analysts announcing the Q2 2010 financial results, Mark Loughridge, IBM senior vice president and chief financial officer, said the growth was fueled by software and services, and key IBM initiatives including the company's Smarter Planet push, business analytics and the focus on growth markets.

Total revenues for the second quarter of 2010 of $23.7 billion increased 2 percent. However, the impact of changes in currency rates since IBM's first-quarter earnings report in April reduced revenue by approximately $500 million in the second quarter, Loughridge said.

"For revenue, we did exactly as we said we were going to do," he said. "If you look at the difference, the difference is all currency."

"In the second quarter we again delivered double-digit earnings-per-share growth, increased margins, as well as improving constant-currency revenue performance in our ongoing software, services and hardware businesses, and in all geographies," said Sam Palmisano, IBM chairman, president and chief executive officer, in a statement.

Regarding growth markets, Loughridge said IBM's revenue performance in the so-called BRIC countries - Brazil, Russia, India and China - was up 14 percent in the quarter. Revenue for the Americas region was up only 3 percent.

Revenues from IBM's Software segment were $5.3 billion, an increase of 2 percent compared with the second quarter of 2009. Revenues from IBM's key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.3 billion, an increase of 9 percent versus the second quarter of 2009.

Revenues from the WebSphere family of software products increased 17 percent year over year. Revenues from Information Management software grew 7 percent. Revenues from Tivoli software increased 18 percent, revenues from Lotus software decreased 6 percent, and revenues from Rational software increased 1 percent.

"Middleware was up nine percent and gained share for the eleventh straight quarter," Loughridge said. "The breadth and diversity of our software portfolio combined with a focus on high-value business" continues to drive growth for IBM, he added.

As evidence of this, revenues from the company's Business Analytics operations within Global Business Services and Software increased 14 percent, IBM reported.

"With the benefit of our strategic growth investments, our mix of higher-value business and the introduction of new System z and Power Systems, we are confident of our ability in the second half of the year to continue our strong business performance, grow profit and drive shareholder returns," Palmisano said in a statement. "As a result, we expect full-year 2010 diluted earnings per share of at least $11.25."

Indeed, Loughridge said IBM plans to announce new System z and Power7 high-end systems in the third quarter of this year. These systems will be capable of running more than 1,000 virtual images, and are "five to seven times more efficient than the latest Unix-based systems from Sun or HP."

Loughridge said IBM will have more to say on the new high-end systems "later this week," noting that the System z will be presented as a "system in a system" environment. These new systems are slated to become available in September, he added.

Meanwhile, revenues from the Systems and Technology segment totaled $4 billion for the quarter, up 3 percent from the second quarter of 2009 and revenues from the System x increased 30 percent. However, revenues from Power systems decreased 10 percent compared with the 2009 period, and revenues from System z mainframe server products decreased 24 percent compared with the year-ago period.

Loughridge said IBM continues to win business from Oracle/Sun. He said IBM displaced Oracle in 225 deals amounting to about $225 million in the second quarter. And over the last 10 quarters, IBM displaced Oracle/Sun in 620 deals worth $650 million.

"As IBM beefs up its high-end Unix and mainframe portfolios in September and Oracle works to get its hardware train rolling, TBR anticipates IBM will continue to aggressively pursue competitive displacements through 2H10," said Greg Richardson, an analyst with Technology Business Research (TBR). "We believe, however, that Oracle's continued push into high-end hardware will create new hurdles for IBM to leap over, challenging its rate of displacements in 2011."