IBM reported an increase in earnings during the second quarter of 2009 and said it expects strong earnings for the entire year despite a drop in revenue for the quarter.
A continuing shift away from product sales toward solution sales and ever-better control of expenses led to the earnings increase and a promise to make earnings for all of 2009 exceed the earnings reported for 2008.
IBM Thursday reported revenue for the second quarter of 2009 ended June 30 of $23.3 billion, down 13 percent compared with $26.8 billion in the second quarter of 2008.
However, IBM earned a total of $3.1 billion, up 12 percent over the $2.8 billion reported during the second quarter of 2008. The company earned $2.32 per share, up 18 percent compared with the $1.98 per share earnings it reported last year.
The second-quarter earnings caused IBM to revise its estimated earnings for all of 2009 to $9.70 per share, up 50 cents from IBM's previous guidance of $9.20 per share, said Mark Loughridge, senior vice president and CFO of IBM.
This compares with earnings per share of $8.93 recorded for all of 2008.
Loughridge said IBM's earnings performance, strong during the current economic downturn, will get stronger when IT spending rises.
"Our model delivered increased margins when revenue growth was a headwind," he said. "We expect margins to do better when revenue becomes a tailwind."
Revenue from the Americas was $9.9 billion, down 9 percent compared with last year.
Revenue fell across nearly all key industry segments except public sector, where revenue was flat, Loughridge said. Revenue in the communications sector fell 11 percent vs. the second quarter of 2008, while revenue from financial services was down 14 percent, general business was down 14 percent, distribution was down 16 percent and industrial was down 23 percent.
IBM reported $14.0 billion in global services revenue, down about 5 percent compared with last year.
Software revenue fell 7 percent over last year. While WebSphere sales were up 8 percent year-to-year, sales of information management software fell 4 percent, Tivoli sales fell 2 percent, Lotus sales fell 14 percent and Rational sales fell 2 percent.
However, Loughridge said, Tivoli storage software revenue rose 16 percent over last year thanks to strength in the virtualization market.
On the hardware side, IBM saw its server and storage revenue fall a combined 26 percent over last year. This included a 39 percent drop in System z revenue, a 13 percent drop in System p, a 22 percent drop in System x, a 20 percent drop in storage and a 41 percent drop in retail store solutions.
Loughridge said the year-to-year comparison was tough because of the strength of IBM's second-quarter 2008 sales.
However, he said IBM increased its market share for System p and System x servers and expects to maintain market share for storage going forward. He also said IBM expects both revenue and profit for its systems and technology segment to show year-to-year growth by the fourth quarter.