Mainframe sales, strong overseas market buoy IBM earnings

July 17, 2008 (IDG News Service) IBM reported strong second-quarter earnings Thursday, beating analyst expectations with numbers that were buoyed by sales of its mainframes and by continued strong performance overseas.

Diluted earnings per share for the quarter were $1.98 on revenue of $26.8 billion, a 13% revenue increase over last year, or 6% when adjusted for fluctuations in currency values.

Analysts polled by Thomson Financial had on average predicted $1.82 per share and $25.9 billion in revenue.

Mark Loughridge, IBM's chief financial officer, crowed about the results during a conference call Thursday. "This is one of the best quarters I've ever seen," he said. "These are truly powerful results."

Like that of rivals such as Oracle Corp. and SAP AG, IBM's financial results are increasingly seen as a bellwether for the economy as the world goes through an economic slowdown.

Sales in the Americas region stood at $10.9 billion, an increase of 6% when adjusted for currency effects. Revenue from the Europe, Middle East and Africa region was $9.8 billion, up 7%, and Asia-Pacific revenue was $5.3 billion, a 6% jump, both on a currency-adjusted basis.

IBM's System z mainframe sales grew by 32% over the previous year's level. System z "has been extremely well received in the marketplace," Loughridge said. "We entered the quarter with a strong deal pipeline, and this quarter, frankly, we were sold out."

System p sales also grew, by 29% over last year. It was a different story for IBM's other hardware lines, however: System x sales fell by 5%, and System i by 47%.

Loughridge associated the latter decline with IBM's ongoing efforts to move its legacy System i customer base to the Power Systems hardware platform that it announced in April to unify the i and p midrange lines.

Overall, business at the company's Systems and Technology group fell 3% year to year when adjusted for currency fluctuations, with revenue amounting to $5.2 billion.

Meanwhile, Global Technology Services revenue rose 8% on a currency-adjusted basis to $10.1 billion, and Global Business Services sales were up 9% to $5.1 billion.

IBM raised its profit forecast for the year as a whole to at least $8.75 per share, up from $8.50 previously. The company has a 2010 target of $10 to $11 per share.

Without identifying any potential target areas, Loughridge suggested that IBM is looking to make further acquisitions even as it comes off some recent large deals, such as its purchase early this year of business intelligence vendor Cognos Inc. "At today's prices, there are some very attractive candidates out there," he said without elaborating.

Reprinted with permission from

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