IBM reports 'best first-quarter growth in over a decade'

IBM's hardware sales increased 19 percent, and there was continued recovery in its mainframe and Unix businesses as well

IBM on Tuesday reported quarterly sales growth across all its major divisions and raised its earnings outlook for the full year, the latest sign that business spending in the IT sector continues to recover.

IBM's total revenue for the quarter ended March 31 was $24.6 billion, up 8 percent from the same quarter a year earlier, or up 5 percent on a constant currency basis. Net income after one-time charges climbed 10 percent to $2.9 billion, IBM said.

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Revenue was up in all geographies, with sales growing 12 percent in the Asia Pacific and 9 percent in the Americas. The recovery in Europe continued to lag behind, with sales up 3 percent for the Europe, Middle East and Africa region.

"On the strength of this performance, we are raising our full-year 2011 operating earnings per share expectations to at least $13.15," IBM Chairman, President and CEO Sam Palmisano said in a statement.

Revenue from Global Technology Services increased 6 percent to $9.86 billion and revenue from Global Business Services increased 7 percent to $4.7 billion, IBM said.

In a conference call to discuss the results, financial analysts asked why IBM's service signings for the quarter were down 14 percent, or 18 percent when adjusted for currency fluctuations. The figure shows the total value of service contracts signed during the quarter, even though revenue from those contracts often is not recorded until much later.

The signings were down partly because public-sector spending is down, said Chief Financial Officer Mark Loughridge. Also, signings vary widely from quarter to quarter and were up 25 percent in the fourth quarter last year, so it's not surprising if IBM was "rebuilding the pipeline" in the first quarter, he said.

Its hardware sales increased 19 percent to $4 billion. "This was the best first-quarter growth in over a decade," Loughridge said. IBM's mainframe business continued its recovery, with sales up 41 percent from a year earlier, and its Power systems also did well, with sales of those Unix products up 19 percent, IBM said.

Software revenue climbed 6 percent to $5.3 billion. Within that, sales of IBM's middleware, including its Websphere and Tivoli products, were up 16 percent to $3.3 billion. Revenue from Websphere alone jumped sharply at 51 percent, IBM said.

IBM's business was relatively unscathed by the massive earthquake that hit Japan on March 11, Loughridge said. It incurred about $20 million in damage to its infrastructure in the country, but there was otherwise little impact from a business perspective.

Japan provides about 15 percent of IBM's revenue, mostly from service contracts, which tend to be stable even in turbulent times. "Our employees there are safe and that's the number-one thing," he said.

IBM raised its earnings forecast for the full year to at least $12.73 per share on a GAAP (generally accepted accounting principles) basis, up from $12.56 previously.

After the results, IBM's shares were down about 2 percent on the after-hours markets, at $162.09.

Copyright © 2011 IDG Communications, Inc.

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