If IBM’s (news, site) stock slid on Tuesday after it announced second quarter revenues that were a tad lower than market expectations, then no one at IBM appears particularly panicked as it still reported profits of US$ 3.4bn, up 9% on the same quarter last year and expects to finish off this year with revenues fully on target.
In fact, given the current climate and the adjustment taking place in the technology market as most tech sectors starting to pull out of recession, it was pretty good with Q2 profits up on the back of higher software and services revenues and strong growth in developing markets.
There is also the noteworthy fact that, according to Morningstar analyst Sunit Gogia, cited in the Wall Street Journal, if the sale of Big Blue’s Product Lifecycle Management operations are taken out of the equation, then software revenue growth was, in fact, 6%.
Not bad for the times we’re in. IBM blames a number of factors for the discrepancy between its actual second quarter revenues of US$ 23.7 billion and its expected revenues of US$ 24.17 billion.
Amongst the factors it says that need to be taken into account are currency costs and, more importantly from a technology perspective, the fact that some of the contracts that it expected to close in this quarter have pushed on to the third quarter.
On the latter it promises that moving into the third quarter there will be no more “Mr Niceguy” and that it intends to get more aggressive about acquisitions as the year progresses into 2011.
IBM in Q2
Overall, second-quarter net income was US$ 3.4 billion compared with US$ 3.1 billion in the second quarter of 2009, an increase of 9%.
Looking at its performance geographically should also provide some cheer for those disappointed with the Q2 figures, particularly as Europe/Middle East/Africa revenues were only US$ 7.4 billion, down 6 %.
While no one likes to be down that much, the fact that Europe produced such a poor showing is only to be expected given the economic chaos in many countries over the course of the past year.
However, with many EU countries now officially out of recession, IBM is expecting to make a major clawback here over the remaining six months of the year.
There was also good news outside of EMEA as revenues in Asia-Pacific increased 9% to US$ 5.4 billion. In fact, in the first half, revenue for the growth markets organization was as large as the total revenue of the Euro zone countries for the first time.
IBM Q2 Detailed Figures
There is also a lot here that bodes well for the rest of the year. Notable figures include:
- Revenues from software were US$ 5.3 billion, an increase of 2%
- Middleware revenues, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were US$ 3.3 billion, an increase of 9%
- Business Analytics operations within Global Business Services and Software increased 14%
- IBM signed services contracts totalling US$ 12.3 billion a decrease of 12%
- 15 services contracts greater than US$ 100 million were signed compared with 13 contracts in Q1.
- Revenue in the Americas, IBM's biggest market, increased 3%, while in the UK it increased by 11%.
- OEM revenues were US$ 677 million, up 26% compared with Q2 2009
- Outsourcing services decreased by 19% to US$ 6.5 billion. Signings of larger new-business outsourcing services contracts, which result in more immediate revenue than contract extensions, had strong growth.
- Signings in transactional services were US$ 5.8 billion, a decrease of 3%
Overall, net income for the six months ended June 30, 2010 was $6.0 billion compared with $5.4 billion in the year-ago period, an increase of 11 percent.
IBM and Middleware
OK, so the figures are probably not all that IBM would have like them to be, but coming out of 2009, no company’s figures will be.
But not to worry. Affirmation that IBM is looking into a positive second half came from IDC (news, site) in May when it ranked IBM as the leader in the middleware software market with 31.9% of the market, nearly twice that of its nearest competitor.
The study revealed that IBM's middleware business grew 4.7%, more than double the rate of the overall market last year, which grew at 2.2 percent to more than US$14.8 billion.
And while IBM holds the number one overall market share position, that is reflected in top positioning in key submarkets including application server software platforms and integration and process automation middleware.
There is little doubt that the rest of this year is going to be difficult for everyone, IBM included. But there’s a lot happening across its entire portfolio of software and services and there seems little on the horizon that might take from its predictions of hitting all 2010 targets by year end.