IBM posts flat revenue, falling hardware sales

Revenue from the System Z mainframe group dropped 25 per cent, but the company's profit grew

(NOTE: All figures in this story are in $US)

While IBM continues to financially excel at selling software and systems, its hardware revenue for the past three months has been sluggish, according to the latest quarterly results posted by IBM. The hardware results didn't help the company's overall revenue, which was flat for the quarter.

For the first quarter of 2012, IBM reported virtually no revenue growth from a year earlier, though the company posted solid gains in both net income and earnings per share. IBM reported revenue of US$24.7 billion, 0.3 percent above the $24.6 billion reported for last year's first quarter. Net income was $3.1 billion, up 7 percent from the $2.9 billion a year earlier. Earnings were $2.61 per share, a 13 percent improvement from $2.31 per share in the first quarter of 2011.

Software provided a solid increase in revenue during the quarter. IBM generated $5.6 billion for the quarter from software, an increase of 5 percent. Sales of IBM middleware -- such as the company's WebSphere, Tivoli, Lotus and Rational products -- were particularly strong, accounting for $3.5 billion in sales, an increase of 7 percent.

IBM's hardware sales did not fare as well. Revenue from the Systems and Technology division totalled $3.7 billion for the quarter, down 7 percent. Revenue from System z mainframe server products dropped by 25 percent, while revenue from Power systems and System x systems was flat from a year earlier.

The services divisions delivered mixed results. The Global Technology Services segment generated $10 billion in revenue, an increase of 2 percent from a year earlier. The Global Business Services segment generated $4.6 billion, down 2 percent.

Emerging markets continue to provide growth for the company. Collectively, the revenue for Brazil, Russia, India and China increased 10 percent for the quarter, while the Americas saw an increase in revenue of only 1 percent from the same time in 2011. Asia-Pacific revenue increased 4 percent.

The company's initiatives in emerging technology areas continue to do well. Business analytics revenue grew by 14 percent. Revenue from Smarter Planet systems, software and services grew by more than 25 percent, and cloud computing revenue doubled in the first quarter. IBM does not disclose dollar amounts for emerging technology revenue.

As a result of the first-quarter performance, IBM has revised upward its expectations for full-year earnings, to at least $14.27 per share from its former estimate of at least $14.16.

The past few months have been busy ones for the company.

Last week, the company announced it had acquired Varicent software for its sales analysis tools. Earlier in the year, it acquired Emptoris for its supply chain analysis software and Green Hat for its software testing tools.

Also last week, the company unveiled a new line of prepackaged sets of systems, called PureSystems. The company expects PureSystems to address what it sees as a growing corporate need for low-management IT systems.

The company is also in the process of selling its retail POS (Point-of-Sale) business to Toshiba, for $850 million. This move will allow IBM to concentrate on providing the software for the systems, which Toshiba will build.

Joab Jackson covers enterprise software and general technology breaking news for The IDG News Service. Follow Joab on Twitter at @Joab_Jackson. Joab's e-mail address is Joab_Jackson@idg.com

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