IBM Beats Street but Hardware Woes Continue

IBM (IBM) delivered unexpectedly solid Q2 1014 earnings, showing some signs, despite a ninth consecutive quarter of declining revenue, that its makeover toward Big Data analytics, cloud computing, software and mobility may be slowly taking root.

For the quarter, IBM’s net earnings rose 28 percent over last year to $4.1 billion, or $4.12 per share, on a 2 percent revenue slide to $24.4 billion. Non-GAAP earnings were $4.32 a share, a 34 percent increase from the year earlier period. Analysts were expecting Q2 non-GAAP earnings of $4.29 a share on revenue of $24.1 billion. IBM said its Q2 results include a $1 billion workforce rebalancing charge it took last year. The vendor ended the period with $9.7 billion of cash on hand and reaffirmed its $18 a share non-GAAP 2014 target.

IBM said its Q2 produced some evidence that its strategic blueprint is yielding better results, as the company reported a 50 percent uptick in cloud revenue, with cloud services’ run rate up nearly 100 percent to $2.8 billion year over year; a 100 percent increase in mobile revenue; a 20 percent climb in security sales; and, a 7 percent climb in business analytics.

“In the second quarter, we made further progress on our transformation,” said Ginni Rometty, IBM chairman, president and chief executive. “We performed well in our strategic imperatives around cloud, Big Data and analytics, security and mobile,” she said. “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.”

Among business units, IBM’s software revenue rose 1 percent to $6.5 billion for the quarter with its key middleware business also up 1 percent. Hardware was another matter, however, with the vendor again posting significant sales downturns in every sub-segment amid an 11 percent overall sales topple. System z mainframe sales slipped 1 percent, System x fell 3 percent and System Storage rolled back 12 percent but the big loser was Power Systems at a 28 percent tumble.

IBM said its flash storage sales grew more than 100 percent.

By geography, IBM growth market sales slid 7 percent with revenue in Brazil, China, India and Russia as a group down 2 percent.