IBM growth driven by software, systems

New hardware and software releases fueled IBM's growth this quarter

Software and services fueled IBM growth in the second quarter of 2011, the company said Monday.

For the quarter ended June 30, IBM reported revenue of $26.7 billion, which is up 12 percent from the same quarter last year. GAAP net income was $3.7 billion, up 8 percent. It reported non-GAAP net income of $3.8 billion, an 11 percent increase from the year before. Earnings per share were $3.00 by GAAP estimates, and $3.09 by non-GAAP accounting.

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Overall, both software and systems grew by 17 percent, according to the company. Revenue from software provided $6.2 billion. IBM's key middleware products alone, such as WebSphere, Tivoli, Lotus and Rational, brought in $3.9 billion, a jump of 21 percent.

On the hardware side, the Systems and Technology segment generated $4.7 billion for the quarter. System z mainframe revenue grew by 61 percent; and MIPS systems sales enjoyed an 86 percent growth. Power System sales grew 12 percent from last year.

Services revenue growth trailed behind the rate for software and system sales, though it still grew at 10 percent. The company reported a backlog of $144 billion of work that has been booked, up by $15 billion from a year ago. Revenue from the Global Technology Services segment increased 11 percent to $10.2 billion and Global Business Services revenue rose 9 percent to $4.9 billion.

With these results, IBM beat analysts' estimates, which forecast that the company would bring in $25.345 billion in revenue, with $3.7 billion in net income, according to a poll by Thomson Financial. As a result of this quarter's performance, IBM has raised its expectations for operating (non-GAAP) diluted earnings per share to $13.25, up from $13.15.

"We had continued momentum in all of our growth initiatives, growth markets, business analytics, cloud, and Smarter Planet" initiative, CFO Mark Loughridge said during a webcast to discuss the earnings.

Sales of analytics software, for instance, increased by 20 percent in the quarter. "In business analytics, we're helping our customers optimize the massive amounts of data they're dealing with," he said.

Sales of cloud services and software also grew, according to the company. Loughridge didn't disclose the financial results from cloud deployments, but said the average transaction size has tripled and that IBM generated more revenue in the first half of 2011 from its cloud business than in all of 2010.

Revenue from the company's Smarter Growth technologies and services has grown over 50 percent, fueled by work and product sales in telecommunications, health care and retail.

IBM is seeing faster growth in emerging countries, where sales grew 13 percent, than in the fully industrialized G-7 countries, which produced a more modest 3 percent growth. The U.S. generated 6 percent growth and Canada 11 percent. In Japan, however, IBM's revenue declined 5 percent.

"We have 24 new mainframe customers in growth-market countries just since the introduction of the [new System z mainframes] last year. Think of it as planting the flag, which provides a great base for future growth," Loughridge said.

One area of concern was the weakening market for government systems, though the overall impact turned out to be "minimal" for IBM, Loughridge said. Global Business Services was affected, though the unit was able to make up much of the loss elsewhere, he said.

WebSphere sales grew 55 percent, thanks to the release of a new version. Sales of IBM's Business Process Management package grew 30 percent. Tivoli sales grew by 9 percent and Lotus was up by 12 percent, thanks to the software's social business capabilities, according to the company.

In March, IBM launched a new e-commerce practice that it said would address the growing market for bringing computational capabilities to retail businesses, which the company expects to generate $70 billion in software sales by 2015. With the help of partners, the company has also been tailoring its software for small and medium-size businesses.

The company is also celebrating the 100th-year anniversary of its founding.

Joab Jackson covers enterprise software and general technology breaking news for The IDG News Service. Follow Joab on Twitter at @Joab_Jackson. Joab's email address is

Copyright © 2011 IDG Communications, Inc.

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