IBM unaffected by falling hardware, service sales

Soars in second quarter.

IBM has posted a 6 percent growth in net income for its second quarter of 2012 despite falling hardware and service revenue and flat software sales.

Net income was $US3.9 billion, up from $US3.7 billion in the same period one year earlier

"We run this business for profit and cash contribution," said CFO Mark Loughridge.

"I think the results demonstrate the strength and resiliency of IBM's business model, delivering profit and cash on a sustained basis. Despite currency headwinds and a tough pipeline comparison, we delivered strong performance."

Revenue from Systems and Technology, IBM's hardware operations, was down 9 percent in the quarter to $US4.3 billion. Sales of Power Systems servers declined 7 percent, System x server sales were down 8 percent and storage system sales dropped 4 percent.

"Our hardware sales declined, as you would expect at this point in our product cycle," Loughridge said. "We continued our success in competitive displacements in the second quarter, with over 320 displacements that [drove] over $US265 million in business. These came from a combination of HP and Oracle-Sun [installations]."

He also cited the PureSystems converged infrastructure line of systems that IBM introduced earlier this year as a future growth driver. But he did not disclose any sales numbers to-date for those products.

Total software sales of $US6.2 billion were flat compared with last year's second quarter. Loughridge said the quarterly comparison was tough because software sales grew significantly in the year-ago period.

In services, revenue generated by Global Technology Services was $US10 billion, down 2 percent, while revenue from Global Business Services dropped 4 percent to $US4.7 billion.

IBM's Loughridge cited growth in key segments such as business analytics products and services, up 13 percent in the first half of 2012, "smarter planet" products and services, up more than 20 percent in the first half, and cloud computing-related revenue, which doubled year-over-year in the first six months of the year.

"An important element of our long-term model is to expand margins through a combination of productivity and [shift] to higher margin businesses," Loughridge said.

In the second quarter, what the CFO called "workforce rebalancing" -- employee cutbacks, primarily in Europe -- added $US150 million in one-time expenses. He said cutbacks would continue in the second half of this year, almost all outside of the U.S.

This article originally appeared at crn.com