IBM delivers strong Q2, ups 2009 earnings outlook

Big Blue reports year-on-year net income increase and is set to hit its earnings per share target of US$11 next year, according to CEO Sam Palmisano.
Written by Larry Dignan, Contributor

IBM delivered a strong second quarter and upped its earnings outlook for 2009.

Big Blue on Thursday reported second quarter net income of US$3.1 billion, or US$2.32 a share, up from US$2.8 billion, or US$1.97 a share, a year ago. Revenue was US$23.3 billion, down 13 percent from a year ago. Wall Street was expecting earnings of US$2.02 a share on revenue of US$23.58 billion.

The real story, however, was IBM's outlook. The company projected earnings of US$9.70 a share for 2009, well ahead of estimates of US$9.15 a share. IBM's previous guidance was for earnings of US$9.20 a share. On a conference call, IBM CFO Mark Loughridge said: "We have operating leverage even when revenue is a headwind."

Loughridge added that IBM is reloading for future growth and investing in cloud computing and business analytics. As usual, software and services paced IBM.

IBM has been aiming for earnings of US$10 a share to US$11 and is well on its way to hit that 2010 target, according to CEO Sam Palmisano.

    By the numbers:

  • Gross profit margins were 45.5 percent compared to estimates of 44.05 percent. "Rebalancing" the workforce and distributing work across the globe helped IBM improve margins, said Loughridge.
  • Revenue for the second quarter would have been down 7 percent adjusting for currency.
  • Software pre-tax income expected to hit US$8 billion for 2009.
  • IBM inked 17 services deals worth more than US$100 million.
  • By region, IBM said Americas revenue for the second quarter was US$9.9 billion, down 9 percent. Europe, Middle East and Africa sales were US$7.9 billion, down 20 percent. Asia-Pacific sales were down 7 percent to US$4.9 billion.
  • Across verticals only the public sector held up.

In a nutshell, IBM's positioning in software and services and away from hardware has been a boon in the downturn. Loughridge noted that IBM's decision to exit commodity products such as PCs and printers has allowed it to transform its business. In addition, IBM has acquired 100 companies, including the likes of Cognos.

This article was first published as a blog post on ZDNet.com.

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