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IBM Reports Moderate Q2 Sales Growth

New high-end Power Systems and System z servers are expected to boost hardware sales in the third and fourth quarters

“This quarter we continued the trend of improving business performance,” said IBM chief financial officer Mark Loughridge in a conference call Monday afternoon. He cited the company’s double-digit (13 percent to $2.61) gains in earnings-per-share, expanded market shares in key markets and increased revenue in constant currencies.

IBM reported revenue of $23.7 billion for the quarter ended June 30, up 2 percent from the $23.3 billion reported in the second quarter of 2009. Net income increased 9 percent to $3.4 billion from $3.1 billion one year earlier.

Changes in currency rates, primarily the strengthening U.S. Dollar and weakening Euro, reduced revenue by approximately $500 million in the second quarter, IBM said. “This quarter we dealt with a significant currency headwind, caused by the sharp strengthening of the dollar,” Loughridge said.

On the hardware side IBM reported $4 billion in revenue from the Systems and Technology Group, up 3 percent from the second quarter in 2009. But while System x sales grew 30 percent in the quarter, year over year, sales of Power Systems servers were down 10 percent and sales of System z mainframes were off 24 percent.

IBM is close to announcing new System z and high-end Power System products for delivery later this year and Loughridge said anticipation of those products depressed sales of existing System z and Power System hardware in the second quarter. The CFO said the introduction of those new products should boost hardware sales in the third quarter and beyond.

IBM’s software business generated $5.3 billion in sales, up 2 percent from last year. Sales of WebSphere and Tivoli product lines were especially robust, up 17 and 18 percent, respectively. But sales of the company’s Lotus branded software were down 6 percent. Information management software sales were up 7 percent year-over-year while Rational software sales were up 1 percent.

Loughridge said sales of software for storage management, business integration and business analytics were particularly strong with sales of the latter up 14 percent.

Revenue growth was also impacted by IBM’s sale of its product lifecycle management (PLM) software and consulting operation to Dassault Systemes at the end of the first quarter. Loughridge said that divestiture cut four points from IBM’s software revenue growth rate in the second quarter and one point from the company’s revenue growth overall.

On the services front, revenue from IBM Global Services increased 2 percent to more than $13.7 billion. Global Technology Services revenue grew 1 percent to $9.2 billion while revenue from Global Business Services increased 3 percent to $4.5 billion.

While Loughridge emphasized that new business contract signings were up in the quarter, he acknowledged there was “a significant decline” in contract extensions. But in response to an analyst’s question he did not take those delays as a sign of any significant slowdown in IT spending.

Sales in the Americas grew 3 percent to $10.2 billion and Loughridge said U.S. sales grew for the first time in seven quarters. Asia-Pacific sales were up 9 percent to $5.4 billion, but sales in Europe/MiddleEast Africa were down 6 percent to $7.4 billion. Sales in emerging markets, in contrast, were up 14 percent and in the first six months of the year exceeded sales in the European Union.

Sales for the first six months of 2010 were $46.6 billion, up 4 percent from $45.0 billion in the first half of 2009. Net income for the period was up 11 percent to $6 billion from $5.4 billion one year ago.

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