IBM Q2: Beats On Estimates, Turnaround Struggles Remain

IBM reported better-than-expected second-quarter revenue thanks to strong services and software sales that helped offset double-digit declines in its hardware and processor divisions.

Big Blue reported that its second-quarter earnings jumped 28 percent from the year-ago period to $4.1 billion, or $4.12 a share.

Revenue for the quarter was off 2 percent from a year earlier to $24.4 billion and marks the ninth consecutive quarter of revenue declines. Wall Street investors expected revenue of $24.13 billion for the quarter.

Lagging performance continues to haunt Big Blue as it looks to execute on a transformation strategy to propel the company into an industry leader in cloud, big data and analytics, security and mobile under a plan set out by Ginni Rometty, IBM chairman, president and CEO.

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’We will continue to extend and leverage our unique strengths to address the emerging trends in enterprise IT and transform our business, positioning ourselves for growth over the long term,’ Rometty said in a prepared statement.

Hardware was a drag on the company's business during the quarter with the division's revenue plunging 11 percent to $3.3 billion. IBM blamed cyclical pressure on its Power System servers, with its Power8 systems shipping later this year. Other cyclical challenges, IBM said, come from its System z mainframe business.

IBM’s microprocessor business unit's revenue dropped 18 percent. There was no mention of a reported potential sale of that part of the business on the company's conference call Thursday following the earnings release. IBM officials instead said they were redoubling efforts in microelectronics with a $3 billion investment in semiconductor research that seeks to shrink circuitry and develop alternative chip materials.

The company also said strategic initiatives set out over the last quarter around big data, cloud computing and security and mobile services have seen signs of positive momentum.

Its SoftLayer cloud service is now at an annual run rate of $2.8 billion, up from $2.3 billion during the first quarter. While storage revenue fell 12 percent, its flash systems revenue grew more than 100 percent.

IBM's business analytics revenue rose 7 percent year-to-date and its security revenue was up more than 20 percent year-to-date.