IBM Hardware Struggles Continue As Profits Rise

IBM has reported mixed second quarter results featuring an impressive growth in profits, that beat market expectations, coupled with ongoing market concern about falling hardware revenues, plus the added headache of sluggish software sales

For the quarter ending 30 June, IBM posted a net profits of $4.1 billion (£2.4bn), up 28 percent compared to $3.2 billion (£1.9bn) in the same year-ago quarter. This rise in profits was driven in large part to cost-cutting at IBM.

Sales meanwhile beat analyst expectations of $24.1 billion (£14bn), when IBM reported revenues of $24.4 billion (£14.2bn) during the quarter, down 2 percent from $24.9 billion (£14.6bn) a year ago.

Financial Results

“In the second quarter, we made further progress on our transformation,” said Ginni Rometty, chairman, president and CEO. “We performed well in our strategic imperatives around cloud, big data and analytics, security and mobile. We will continue to extend and leverage our unique strengths to address the emerging trends in enterprise IT and transform our business, positioning ourselves for growth over the long term.”

So what were the winners and losers among IBM’s various businesses?

Well, software revenues increased 2.6 percent to $7.3 billion (£4.3bn), but again analysts had been expecting better. That said, cloud and mobility seems to be performing well for IBM, with its mobility and cloud businesses up 100 percent and 50 percent respectively.

This is important, as IBM is banking on software to bring in half of its profits by 2015, as it seeks to refocus on cloud computing, mobile security and big data. To this end, earlier this week Apple and IBM agreed a wide-ranging partnership that will see Big Blue bringing its cloud, analytics and mobile management services to iOS devices such as the iPad.

Meanwhile, the results revealed less good news for IBM’s legacy business. The company’s largest division is its Global Technology Services unit which posted a 1.7 percent decline in revenues to $9.7 billion (£5.6bn). Likewise the Global Business Services unit posted a 2.5 percent decline to $4.7 billion (£2.3bn).

Revenue in IBM’s Systems and Technology unit, which includes its hardware business, slid 9.8 percent to $3.5bn (£2bn), the 11th straight period of year-over-year declines. But the mainframe business did better than expected (only a 1 percent decline in revenues), and overall the IBM’s hardware revenues marked an improvement from declines of more than 20 percent in the two preceding quarters.

Some have questioned IBM’s long-term hardware commitment, considering that it recently sold its low-end server unit to Lenovo, and is also reportedly nearing a deal to sell its chip-making unit to GlobalFoundries. That said, the company is still investing heavily in computer chip research.

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