The Rising Influence of Rising Affluence

[DewDiligence]

IBM’s Picture Looks Bright

http://online.wsj.com/article/SB10001424052702303661904576454391161965066.html

›Tech Firm Boosts Outlook for Year as Profit, Revenue Climb in Quarter

JULY 19, 2011
By SHARA TIBKEN

International Business Machines Corp. saw growth in all of its major businesses in the second quarter, a sign that companies continue to spend on technology even as they defer other investments such as hiring.

The technology bellwether's revenue rose 12%, with gains in its big software, hardware and services lines. While much of the increase came from favorable currency trends that made overseas sales more valuable in dollar terms, the results showed the company is succeeding in getting its top line growing again.

Chief Financial Officer Mark Loughridge said the gains came even as government spending on technology services fell. Emerging markets, where IBM has invested heavily in recent years, saw strong demand

Mr. Loughridge said IBM posted double-digit revenue growth in 40 emerging markets, with overall growth-market performance outpacing developed nations by 10 percentage points. [See more details later in this PR.] The company's services backlog in emerging markets has jumped 50% over the past two years as IBM expands into new markets and builds out IT infrastructure.

"There's a lot of opportunity for us to capture," Mr. Loughridge said.

For the second quarter, IBM posted a profit of $3.66 billion, or $3 a share, up from $3.39 billion, or $2.61 a share, a year earlier. Revenue increased to $26.67 billion.

"At face value, the revenue number is very encouraging for all tech," Gleacher & Co. analyst Brian Marshall said.

The results show that IBM has benefited from its push toward higher-margin, more complex businesses such as consulting and business software and away from crowded fields such as personal computers, where companies can only compete on price. [Duh—this is very old news.]

IBM's bet that developing economies such as Brazil, Russia, India and China would need to invest in more information technology also continues to reap benefits.

IBM shares—up 37% over the past 12 months through Monday's close—climbed 1.8% in after-hours trading to $178.39.

The company said signed service contracts, an indication of future demand, totaled $14.3 billion in the quarter, up 16% from the previous year. Analysts had expected $12.65 billion, according to a recent note from Janney Capital Markets. The company's services backlog was $144 billion, up $15 billion from the previous year, though all but $2 billion of that was due to currency effects.

IBM's hardware business reported a 12% increase in revenue adjusted for currencies. The unit has benefited from an updated mainframe line and strong demand for servers.

IBM also says it has been taking business from rivals Oracle Corp., which reported disappointing hardware results last month, and Hewlett-Packard Co., which has been through a difficult CEO transition. The company said it won $300 million in business from 250 "competitive displacements" in the period.

Rod Adkins, senior vice president of IBM's systems and technology group, said Oracle has struggled to integrate its acquisition of Sun Microsystems, while H-P is facing uncertainty about its servers that use an Intel Corp. chip called Itanium.

"We continue to gain share at the expense of what I would call a failed Sun acquisition," Mr. Adkins said. "We've actually seen quite a bit of acceleration...And we're beginning to see the same thing on the H-P side given challenges with the Itanium roadmap."

Oracle wasn't immediately available to comment. H-P declined to comment.

IBM's revenue from business analytics—which involves hardware and software to crunch massive amounts of data—gained 20% in the first half.

Revenue from what the company calls growth markets—which include Brazil, Russia, India and China—rose 23% and accounted for 22% of total geographic revenue. IBM aims to get that to near 30% by the end of 2015.

Revenue in the Americas—IBM's biggest market—grew 10%. Sales also rose in Europe, Asia, the Middle East and Africa.

IBM said full-year operating earnings would rise to at least $13.25 a share, 10 cents higher than its January estimate. Analysts polled by Thomson Reuters had forecast full-year earnings of $13.22 per share.‹