IBM delivers strong second quarter, ups 2009 earnings outlook

IBM delivered a strong second quarter and upped its earnings outlook for 2009.Big Blue on Thursday reported second quarter net income of $3.
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 $3.1 billion, or $2.32 a share, up from $2.8 billion, or $1.97 a share, a year ago. Revenue was $23.3 billion, down 13 percent from a year ago. Wall Street was expecting earnings of $2.02 a share on revenue of $23.58 billion.

The real story, however, was IBM's outlook. The company projected earnings of $9.70 a share for 2009, well ahead of estimates of $9.15 a share. IBM's previous guidance was for earnings of $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 (statement, presentation, slides).

IBM has been aiming for earnings of $10 a share to $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 $8 billion for 2009.
  • IBM inked 17 services deals worth more than $100 million.
  • By region, IBM said Americas revenue for the second quarter was $9.9 billion, down 9 percent. Europe, Middle East and Africa sales were $7.9 billion, down 20 percent. Asia-Pacific sales were down 7 percent to $4.9 billion.
  • Across verticals only the public sector held up.

  • The revenue tally by product line (note that hardware was crushed).

  • And the deep dive:

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.

And a look at services, IBM's cash cow:

Also see: IBM: Fuddy duddy as competitive edge

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