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IBM Raises 2012 Outlook on Tepid Second Quarter Earnings

IBM is cautiously optimistic about its growth prospects for 2012. That’s the word out of IBM’s second quarter fiscal 2012 earnings call, after market close on Wednesday. For the quarter, IBM reported revenue of $25.8 billion for a three percent year-over-year decline. While revenue declined, Net Income rose by 6 percent on a yearly basis […]

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Sean Michael Kerner

Jul 19, 2012

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IBM is cautiously optimistic about its growth prospects for 2012. That’s the word out of IBM’s second quarter fiscal 2012 earnings call, after market close on Wednesday.

For the quarter, IBM reported revenue of $25.8 billion for a three percent year-over-year decline. While revenue declined, Net Income rose by 6 percent on a yearly basis to $3.9 billion for the quarter. Earnings Per Share came in at $3.34 for an 11 percent year-over-year gain.

IBM’s income performance is seen as a positive sign for the future by IBM’s Chief Financial Officer.

“When you look at it, our results demonstrate the strength of IBM’s business model, which is designed to deliver profit on a sustainable basis,” Mark Loughridge, Senior Vice President and Chief Financial Officer, Finance and Enterprise Transformation, said during IBM’s earnings call. “Consistent with this performance, we’re increasing our full-year 2012 expectation for operating EPS to at least $15.10. This is up $0.10 from our previous view of at least $15.”

China Leads

IBM’s prospects, however, are not the same everywhere in the world. Loughridge noted that revenue in IBM’s major market countries including the U.S. and into Europe was down 1 percent year-to-year. In contrast, the BRIC countries (Brazil, Russia, India, China) grew at a rapid clip of 12 percent.

“We had particular strength in Russia and China,” Loughridge said. “In fact, China was up over 20 percent this quarter again gaining share.”

Loughridge added that IBM has been busy expanding capabilities and branch offices in China this year. Overall, he noted that across 30 countries growth grew at a double-digit growth rate.

“We’re capturing the opportunity from these faster growing economies and importantly we’re taking share due in part to the acceleration of our market expansion initiatives,” Loughridge said.

Product Revenue

IBM reported software revenue of $6.2 billion, which was flat in contrast to the same period in 2011. The Systems and Technology group, which includes IBM’s hardware, did not do as well with revenue down by 9 percent for the quarter, coming in at $4.3 billion.

Despite the down financial results, Loughridge noted some strong highlights for IBM hardware during the quarter, particularly for the Power high performance computing solutions group.

“We continued our success in competitive displacements in the second quarter, with over 320 displacements that drove over $265 million of business,” Loughridge said. “As you would expect, these came from a combination of HP and Oracle/Sun. This initiative has helped drive our seventeenth consecutive quarter of share gains in Power.”

IBM machines also dominated the list of the TOP500 supercomputers in June, taking three of top four spots. The Linux-powered IBM Sequoia is the top computer in the world today, clocking an impressive 16.32 petaflops per second.

On the traditional data center and enterprise side of servers, IBM is also making progress. In April, IBM introduced its PureSystems portfolio, offering integrated hardware and software into a single chassis.

“In the third quarter, the PureApplication system will become available and we expect volume shipments in the fourth quarter,” Loughridge said. “PureApplication will do for software what PureFlex does for hardware, by driving application efficiency and rapid deployment, to enable faster time to value.”

Sean Michael Kerner is a senior editor at InternetNews.com, the news service of the IT Business Edge Network, the network for technology professionals Follow him on Twitter @TechJournalist.