IBM Posts Healthy Q2 Figures On Software Gains

IBM has reaped the financial benefits from hardware and software gains in the second quarter, which pushed net income up 8 percent, and revenues up 12 percent.

IBM reported revenue of $26.7 billion (£16.5bn) for the quarter, up from $23.7 billion (£14.7bn) in the same quarter last year. Meanwhile net income rose to $3.7 billion (£2.3bn) from $3.4 billion (£2.1bn) for the second quarter of 2010.

Revenue for both Big Blue’s Software, as well as its Systems and Technology Group was up 17 percent. And the company continues to invest heavily in a growth-markets strategy, an approach that seems to be paying off.

Financial Drivers

During a call with financial analysts to discuss the company’s Q2 earnings, Mark Loughridge, IBM’s chief financial officer, said IBM’s software growth was driven by key branded middleware, which was up 21 percent. IBM’s systems revenue was up 20 percent, with strong performance in System z, Power and System x servers. And Big Blue’s total services backlog increased to $144 billion (£89bn) from $15 billion (£9.3bn) over last year, Loughridge said.

Moreover, Loughridge said growth-markets performance was strong, and revenue from these countries was up 13 percent. And the company saw continued momentum in all of its growth initiatives: growth markets, business analytics, cloud and Smarter Planet, he said.

“Since we announced our growth-markets unit in the beginning of 2008, the revenue growth rate has outpaced the major markets by an average of 9 points, on a local currency basis,” Loughridge said. “With 13 percent revenue growth, this is the fourth consecutive quarter of double-digit revenue growth and share gains. We also had double-digit growth and share gains in each of the BRIC [Brazil, Russia, India and China] countries. The combined revenue in the BRICs was up 21 percent. But our success goes beyond the BRICs; we had double-digit growth in almost 40 growth-market countries.”

In the growth countries, IBM saw a 24 percent increase in hardware sales. In fact, IBM gained 24 new mainframe customers in growth-markets countries since the introduction of the zEnterprise system last year.

“Think of it as planting the flag, which provides a great base for future growth,” Loughridge said. “Our software business supports the growth markets build-out, with WebSphere providing key underlying infrastructure capabilities. This quarter, WebSphere grew almost 40 percent in the growth markets.”

As evidence of its commitment to growth markets, IBM has been focusing on expanding its presence in Africa.

Middleware Gain

During the second quarter, IBM’s key branded middleware grew 21 percent, gaining share for the fifteenth straight quarter, the company said. WebSphere grew 55 percent over last year this time. And business process management grew 30 percent, spurred by IBM’s Lombardi, ILOG and WebSphere products. IBM’s information-management software business grew 18 percent. The software component of IBM business analytics grew 15 percent in the first half of the year. And the company’s Netezza line continued to perform well, Loughridge said, adding that transactional volumes were up 70 percent year to year.

“IBM Netezza has more than a 10X price/performance advantage over Exadata for running analytics workloads,” Loughridge said. “Since its introduction in 2009, when going head-to-head against competition in Proof of Concepts, the Netezza appliance has an 80 percent win rate.”

IBM also saw gains in its other software areas. The Tivoli line grew 9 percent over last year, with storage-related Tivoli products growing 25 percent. And Lotus revenue increased 12 percent, driven by IBM’s new social-business offerings.

Hardware Performance

In the hardware space, IBM’s Systems and Technology Group saw an increase of 17 percent in revenue with the mainframe leading the charge. IBM’s System z revenue grew 61 percent, year-to-year, and MIPS (millions of instructions per second) were up 86 percent. And IBM’s storage hardware revenue rose 10 percent in the quarter.

On 12 July, IBM announced the zEnterprise 114 mid range server, which costs 25 percent less and delivers up to 25 percent more performance than the previous z10 business class system, Loughridge said. “It utilises up to 14 processors running at 3.8 GHz, and can consolidate workloads from up to 300 competitive servers on a single z114.”

Finally, services – the other dominant contributor to IBM’s bottom line – delivered $15.1 billion (£9.4bn) in revenue, amounting to 10 percent growth over the same quarter last year.