IBM Sees Cloud Computing Growth, Weakening Public Sector Sales In Q1

But IBM, reporting its first quarter earnings, saw some weakness in sales to the public sector as federal, state and local governments cut back on IT spending as government budgets are squeezed.

IBM said sales for the first quarter ended March 31 were $24.6 billion, up 7.7 percent from $22.9 billion in the same quarter one year earlier. Net income was $2.9 billion, up 10 percent from $2.6 billion one year ago.

The public sector accounts for about 15 percent of IBM sales and CFO Mark Loughridge, in a conference call with financial analysts, said public sector IT sales grew an anemic 1 percent during the first quarter. Loughridge did not provide specific dollar figures.

But the CFO said cloud-related sales in the first quarter grew by a factor of five, year-over-year, and he expected them to double for all of 2011. IBM has set itself the goal of making $7 billion in cloud-related sales by 2015 and Loughridge said the latest numbers keep IBM on track to meet that goal.

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Cloud computing is one of IBM's strategic initiatives, along with business analytics (first-quarter sales growth of 20 percent), growth market countries (sales up 12 percent) and "smarter planet" contracts (also up 20 percent).

"We had fantastic performance across our growth initiatives," Loughridge said. "We're exiting the first quarter with a lot going for us."

Last week IBM unveiled new financing and equipment rental options to help channel partners develop cloud-related businesses. And in early April the company launched a cloud deployment platform for developing cloud IT production systems.

Software sales grew 10 percent in the quarter to $5.3 billion, IBM reported. Sales of WebSphere middleware products surged 51 percent while Information Management software sales grew 13 percent. Sales of Tivoli software rose 8 percent, Rational software sales were up 5 percent and Lotus software sales were up 1 percent.

Systems and Technology sales grew 18 percent in the quarter to $4.0 billion. System z mainframe sales jumped 41 percent while Power system sales were up 19 percent. System x server sales grew 13 percent and storage hardware sales increased 10 percent.

Revenue from Global Technology Services increased 6 percent to $9.9 billion while Global Business Services sales grew 7 percent to $4.7 billion in the quarter.

While Japan accounts for 11 percent of IBM's revenue, with about three-quarters of that coming from services, Loughridge said the disastrous earthquake and Tsunami that hit that country last month would not have a major impact on IBM's overall business. He also said the disaster has not impacted IBM's supply chains because most components IBM uses in manufacturing are dual-sourced.