Big Blue beats forecasts, thumps chest

James Riley
Friday, 17 July 2009 04:50

IT Industry - Market

Deep in the grip of a global recession, IBM has again surprised analysts with better than expected second quarter results, with net profit up 12 per cent to US$3.1 billion (A$3.85 billion).

In fact, Big Blue has revised an already bullish full-year earnings per share forecast upwards to $9.70 – putting it well within reach of the $10-$11 per share target for 2010, a figure largely scoffed at when the company unveiled transformation plans as the recession took hold.

More remarkable is that IBM earnings per share for the quarter were higher than any first, second or third quarter in the company’s history.

Still, the company has been squeezed like the rest of the world. Revenue for the quarter of US$23.3 billion was down 13 per cent. But the high margin businesses were up: Software revenues rose 24 per cent and its services income was up 23 per cent.

“As a result of our strategic transformation, we have a very strong business model that is delivering superior earnings, cash and client value,” IBM chairman and chief executive Sam Palmisano.

“We have continued our strategic investments in Smarter Planet solutions, business analytics and next generation data centers. We are optimistic about how IBM is positioned to make the most of current growth opportunities as well as those that emerge as the economy recovers,” Mr Palmisano said.

While IBM has used large share buy-back schemes to boost earnings, the company said it would not need to accelerate its re-purchases in order to meet the new $9.70 target, and that the company would continue to benefit from strong sales in software and services.

But while IBM is a bell-weather stock, its better-than-expected results do not signal a return to the good times for the tech sector – or even a return to spending among corporate buyers. Hardware sales for the second quarter were down 26 per cent year on year – signalling corporate buyers have yet to reach for their wallets.

One hightlight was in revenues from the company’s WebSphere family of software, which help customers manage a variety of business processes using open standards to interconnect applications, data and operating systems, which increased 8 percent year over year.