IBM Reports Double-Digit Growth in Quarter

Company predicts climbing fortunes as enterprises replace aging hardware. Customer infrastructures 'are the oldest they've been in 20 years,' says exec.

Fueled by double-digit growth in both hardware and software, IBM on Thursday reported first-quarter revenues of $22.2 billion, an 11 percent increase over the $20.1 billion in the same period in 2003.

Income for the three months ended March 31 was $1.6 billion, a jump of 16 percent over the $1.4 billion earned during the same period last year

John Joyce, senior vice president and chief financial officer for the Armonk, N.Y., company, said the aging IT infrastructures of many customers—mostly cobbled together before 2000—as well as IBMs on-demand computing initiative helped push growth in both areas as well as in services.

Customer infrastructures "are the oldest theyve been in 20 years," Joyce said during a conference call with analysts. "They havent invested in hardware for quite some time, and their infrastructure is getting old."

On the hardware side, IBM saw revenues grow 10 percent to $6.7 billion, with revenue growing along all server groups except the midrange iSeries, which saw a 7 percent drop. Joyce said that later in the second quarter IBM will roll out a new line of iSeries systems with greater integrated Power technology.

Still, IBMs Unix business was strong, with the Power-based pSeries gaining 15 percent in revenues, and the companys aggressive Linux-on-Power strategy should fuel more growth, he said. Revenue in the Intel Corp.-based xSeries systems jumped 28 percent, and in the mainframe zSeries by 34 percent.

/zimages/1/28571.gifClick here to read more about IBMs servers running its Power architecture.

"ZSeries is gaining more acceptance," Joyce said. "It used to be that the new one just replaced the old one." However, IBM is seeing new workloads being put on the systems.

During the first quarter, IBM combined the systems and processors units, creating the Systems and Technology Group. Within that group, the microelectronics unit lost $150 million, though Joyce said it will be profitable by the end of the year.

Joyce said IBM was looking for greater synergy between the groups. An example, he said, it the companys Power Everywhere initiative, in which IBM is opening up the Power architecture to enable other companies to build custom chips and software on top of the platform.

"This move recognizes that systems-level integration, not chip frequency, will drive innovation going forward," he said.

/zimages/1/28571.gifRead more here about IBMs Power Everywhere initiative.

First-quarter storage revenue grew 18 percent, to $2.8 billion.

Software revenue grew 11 percent, to $3.5 billion. Middleware revenue—from IBMs WebSphere, Tivoli, Rational, DB2 and Lotus products—great 13 percent, to $2.7 billion. Those numbers will be helped by the acquisitions of Candle Corp. and Trigo Technologies Inc.

IBM Global Services, which account for half of IBM revenues, increased 9 percent, to $11.1 billion.

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