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IBM's first quarter shines, 2011 outlook raised

IBM reported strong first quarter earnings as most of its businesses and product lines delivered solid growth. Big Blue also raised its outlook for 2011.
Written by Larry Dignan, Contributor

IBM reported strong first quarter earnings as most of its businesses and product lines delivered solid growth. Big Blue also raised its outlook for 2011.

The company reported earnings of $2.9 billion, or $2.31 a share, on revenue of $24.6 billion, up 8 percent from a year ago. Non-GAAP earnings were $3 billion, or $2.41 a share. Wall Street was looking for IBM to report first quarter earnings of $2.30 a share on revenue of $24.02 billion.

As for the outlook, IBM projected 2011 non-GAAP earnings of at least $13.15 a share. Wall Street was expecting earnings of $13.08 a share. CFO Mark Loughridge said on a conference call:

We once again had a very strong quarter in the growth markets, up 12% at constant currency, with almost 40 countries up double digits. Business Analytics revenue was up 20% with strong contribution from both software offerings and our consulting business. Cloud revenue was up by a factor of 5% and Smarter Planet was up about 20%. Along with IBM's strong revenue growth, we had great margin performance. We expanded operating gross margin by 80 basis points. The improvement was broad-based, with particularly strong performance in Systems and Technology.

The combined revenue in the BRICs was up 22% with growth in each of the four countries, and particularly strong growth in China, which was up 33%, and Russia up 53%. We are continuing expansion into new markets. This quarter, we had double-digit growth in almost 40 growth market countries. We are leveraging our high-end systems and our software portfolio and implementing transformational services projects.

Loughridge added that IBM was able to manage through the Japan earthquake because much of its revenue is annuity based.

We have 11% of our revenue in Japan with the bulk of our business in services, which is predominately annuity-based, and so it tends to be more stable through various market conditions. Looking at the dynamics in the quarter, we had some deterioration in March, but it really wasn't that different than we saw through February, so we didn't see a big change in the trajectory of the business.

By the numbers, IBM saw solid performance across its businesses.

  • Global services revenue was up 6 percent in the first quarter to $9.9 billion. Global Business Services revenue was $4.7 billion, up 7 percent. Operating income was $1.9 billion, up 34 percent from a year ago.
  • Software revenue was $5.3 billion, up 6 percent. Operating income was $1.7 billion, down 18 percent. IBM divested its Product Lifecycle Management operations so the comparison with a year ago is off. Middleware products revenue was $3.3 billion, up 16 percent from a year ago. By product line, Websphere revenue was up 51 percent.

  • Systems and technology---also known as IBM's hardware business, delivered revenue of $4 billion, up 19 percent from a year ago. Operating income was $132 million. The unit was led by System z mainframes, which saw sales jump 41 percent. IBM saw double digit growth in storage and servers.

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