IBM Sees Strategic Shift In IT Spending

"We're seeing a transition in the kinds of deals in the IT spend-mix that our customers are looking for," said Mark Loughridge, IBM senior vice president and CFO during a conference call Monday to detail the company's first quarter financial results.

IBM reported sales of $22.9 billion for the first quarter ended March 31, up 5 percent from $21.7 billion in the first quarter of 2009. (But revenue was flat when adjusted for currency fluctuations.) Net income was up more than 13 percent to $2.6 billion from $2.3 billion one year earlier.

First-quarter earnings were $1.97 per share compared to $1.70 last year. The company is now predicting earnings per share of $11.20 for all of 2010.

"We had a very good start to the year," Loughridge said. "I feel like we've got a good hand going into the second quarter."

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Sales from IBM's Systems & Technology operation, which includes servers and storage hardware, was up 5 percent to $3.4 billion in the first quarter. Sales of System x servers were up 36 percent and storage system sales grew 11 percent.

But sales of System z mainframes and Power System servers were each down 17 percent in the quarter, according to the company. Loughridge was confident that new products set for debut later this year would spur sales.

Software product sales grew 11 percent to $5 billion in the quarter with sales of process integration, analytics and storage management products showing particular strength, Loughridge said.

"Business analytics continues to be a key growth area for us," he said, referring to the company's business intelligence software the company acquired when it bought Cognos in 2008.

IBM's WebSphere, Tivoli and Information Management product lines all had double-digit sales growth in the quarter, while the company's Rational and Lotus product lines grew by single digits.

Revenue from services grew 4 percent overall in the quarter with revenue from Global Technology Services up 6 percent to $9.3 billion.

Revenue from Global Business Services, however, was flat at $4.4 billion. Loughridge said contract signings for consulting services within GBS were up 18 percent, but application management service bookings in the quarter dropped 23 percent. "This is where we came up short versus our expectations in the quarter," the CFO said.