Mainframe Sales, Strong Overseas Market Buoy IBM Earnings

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IBM reported strong second-quarter earnings Thursday, beating analyst expectations and buoyed in part by sales of its new high-end mainframe computer and continued strong performance overseas.

Diluted earnings per share for the quarter were $1.98 on revenue of $26.8 billion, a 13 percent revenue increase over last year, or 6 percent when adjusted for currency valuations.

Analysts polled by Thomson Financial had on average predicted $1.82 per share and $25.9 billion in revenue.

Mark Loughridge, IBM's chief financial officer, crowed over the results during a conference call Thursday. "This is one of the best quarters I've ever seen. ... These are truly powerful results," he said.

Like that of its rivals Oracle and SAP, IBM's financial results are increasingly seen as a bellwether for the economy as the world goes through an economic slowdown.

Sales in the Americas region stood at $10.9 billion, an increase of 6 percent when adjusted for currency effects. Revenue from the Europe, Middle East and Africa region was $9.8 billion, up 7 percent, and Asia Pacific revenue was $5.3 billion, a 6 percent jump, both on a currency-adjusted basis.

IBM's System z mainframe sales grew by 32 percent over the previous year. System z "has been extremely well-received in the marketplace," Loughridge said. "We entered the quarter with a strong deal pipeline, and this quarter, frankly, we were sold out."

System p sales also grew, by 29 percent over last year.

It was a different story for IBM's other hardware lines, however: System x sales fell by 5 percent, and System i by 47 percent. Loughridge associated that decline with IBM's ongoing efforts to move its legacy System i customer base to the newer Power platform.

Another weak spot was the Systems and Technology segment, which fell 3 percent when adjusted for currency, on $5.2 billion in revenue.

Meanwhile, Global Technology Services revenue rose 8 percent on an adjusted basis to $10.1 billion; and Global Business Services sales were up 9 percent to $5.1 billion.

IBM raised its profit forecast for all of 2008 to at least $8.75 per share, up from $8.50. The company has a 2010 target of $10 to $11 per share.

Without naming any potential target areas, Loughridge suggested IBM is looking to make further acquisitions even as it comes off large deals, such as its purchase of BI (business intelligence) vendor Cognos. "At today's prices there are some very attractive candidates out there," he said.

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