IBMs Profits Climb on Strong Hardware and Services Sales

IBM saw second-quarter income and revenue increase despite flat software numbers and drops in revenue for servers based on the company's Power microprocessor.

IBM Corp. saw second-quarter income and revenue increase despite flat software numbers and drops in revenue for servers based on the companys Power microprocessor.

The Armonk, N.Y., company on Thursday reported $2 billion in net income—a 15 percent jump over the same period a year ago—on $23.2 billion in revenue in the three months ending June 30, up 7 percent over the second quarter in 2003.

Services and hardware revenue continued to grow by 7 percent and 12 percent, respectively, but IBM was impacted on the software side by the same trends of deferred transactions and fewer large deals that have hampered many in the software industry. Software revenue came in at $3.5 billion—basically flat over the same three-month period last year.

However, the impact on IBM was not as great as on software-only vendors given that the company sells everything from chips to mainframes, said Mark Loughridge, senior vice president and chief financial officer.

"Unlike other pure-play [software] companies, we overcame the challenges based on the strength of the IBM model," Loughridge said during a conference call with analysts.

He also said that the deferred software deals represented good opportunities in the second half of the year.

On the hardware side, where revenues were $7.4 billion, IBM racked up its fourth consecutive quarter of growth for its zSeries mainframe systems, since the introduction last year of its z990 system and in April of its z890 mainframe for midsize businesses. ZSeries revenue jumped 44 percent. Loughridge said that MIPS on zSeries systems increased 75 percent, with 70 percent of the growth coming in new workloads. Of that 70 percent, as much as 25 percent was workloads running Linux.

In addition, Intel Corp.-based xSeries server revenue increased 18 percent, driven by IBMs BladeCenter blade servers.

However, revenue in the Unix-based pSeries line fell 3 percent, and dropped 28 percent in the midrange iSeries. Loughridge attributed that to the introduction last quarter of new i5 systems running the new Power5 processor, and the rollout this week of the p5 servers running the chip.

Sales of the i5 systems were running as expected, but purchases of the older iSeries servers were behind, he said. Unix customers were simply waiting for the p5 systems to go on sale, he said.

IBM Global Services, or IGS, which represents half of all IBM revenue, saw revenues come in at $11.3 billion, and ended with an estimated backlog of $118 billion. Loughridge said IBM officials are expecting the newly introduced business process transformation services to add to the overall IGS business as the year continues.


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