Services, Software Propel IBM To 13 Percent Q2 Growth

As in previous quarters, much of the growth came from the vendor's software and services offerings. Systems and technology turned in a mixed performance with System z mainframes and System p servers showing hefty growth while sale of System i and System x servers declined year-over-year.

IBM's sales pipeline remains full and the company sees no signs of a downturn. "I think we're very well positioned," said senior vice president and CFO Mark Loughridge in a conference call with Wall Street analysts.

IBM reported sales increases across all geographies, including an 8 percent gain in the Americas and 21 percent growth from the company's growth markets organization that targets rapidly growing countries like Brazil and China. In developed countries sales were driven by such trends as converging data and voice communications and the growing adoption of "green" data centers, Loughridge said.

Sales to SMB customers increased 13 percent to $5.1 billion in the quarter. Even sales to companies in the turbulent financial services market segment grew 15 percent.

Total revenue from global services, which the CFO described as IBM's "growth engine," increased 16 percent to $15.2 billion. Global Technology Services revenue grew 15 percent to $10.1 billion while Global Business Services revenue increased 18 percent to $5.1 billion. During the quarter the company signed services deals worth $14.7 billion, a 12 percent gain from the same period one year earlier.

Software sales were up 17 percent to $5.6 billion. While the company reported growth across all its software brands, most impressive were the gains in sales of Rational software products (up 37 percent) and information management products (up 30 percent). Loughridge said about 7 points of software revenue growth came through acquisitions such as Telelogic and Cognos while 10 points of the gain was the result of organic growth.

On the hardware side, IBM's System z mainframes recorded the biggest sales gains, up 32 percent year-over-year, while sales of System p servers increased 29 percent. But revenue from sales of System i servers dropped 47 percent and sales of System x servers slipped 5 percent.

The CFO said there is "continued softness in the low end of the server market." Storage technology sales, however were up 12 percent. Overall the Systems and Technology operation reported sales of $5.2 billion, up 2 percent (up 5 percent when excluding the sold-off Printing Systems Division).

For the first six months of 2008 IBM reported total sales of $51.3 billion, up 12.1 percent from the first half of 2007.