IBM's remarkable second quarter results revealed that growth markets still exist-if you know where to look for them and are positioned to take advantage. Big Blue under Sam Palmisano has both those boxes checked.IBM last week blew away analysts' estimates for Q2, reporting a 12% rise in net income and raising full year earnings guidance. Most observers attributed the company's recession-defying performance to aggressive cost-cutting. True enough, IBM trimmed expenses by about $1 billion during the period, but that's only part of the story.

Palmisano has IBM well positioned to be among the tech vendors best able to take advantage of so-called green shoots-fed chairman Ben Bernanke's earthy metaphor for small pockets of growth within the otherwise barren economy.

One such sprout is government spending. IBM reported that revenues from the public sector, including the feds, increased 7% year-over-year at constant currency in the second quarter.

It's a sign that the federal stimulus program may be kicking in. It also shows that Palmisano's effort to position IBM not simply as another government contractor with an army of lobbyists (though make no mistake, it has those) but as a strategic advisor to Washington's top policymakers and bureaucrats is paying off.

Davos regular Palmisano was whispering directly into President Barack Obama's ear just one week after Obama was sworn in, urging that the best way to spur the economy is to spend billions on smart infrastructure technology. That makes a lot more sense than turtle tunnels, and it happens to be the sort of work in which IBM specializes.

It's no coincidence that IBM is leading the nascent smart grid market with its Intelligent Utility Network and is spearheading five of the largest smart grid deployments in North America.

Ditto for healthcare, a market in which IBM boosted revenue by 11% in the second quarter. IBM is no longer content to hawk powerful data-crunching tools to research institutions and life sciences companies. The man in the blue suit is now deeply involved with helping the guy in the white lab coat determine which numbers to crunch in the first place.

Among other things, IBM for the past several years has worked closely with the Mayo Clinic to develop new data mining techniques that could help researchers better understand how pathogens spread or spot outbreaks while they can be contained. All this work has left IBM well positioned to be a key player in the roll out of e-health records, which Obama wants in place by 2014.

And while the recession is worldwide, IBM is nonetheless enjoying some growth abroad. Sales in India increased "modestly" in the second quarter, according to company CFO Mark Loughridge.

That shows that the subcontinent is more than just a source of cheap labor for IBM-it's a potential growth engine. IBM now employs more than 70,000 workers in the country, a headcount that makes it a legitimate contender for a big chunk of the billions of dollars in domestic IT spending that India's emerging economy will generate over the next decade in sectors ranging from manufacturing to mobile communications.

It's already begun: IBM last week beat out local competitors to ink a deal under which it will help the Delhi Stock Exchange relaunch after a six year trading hiatus.

Cost cutting? Sure, that was a big part of IBM's boffo second quarter performance. But focusing on expense reductions-which are inherently limited-misses the larger point. The company under Palmisano is currently enjoying a healthy diet of green shoots and should be ready to gorge when the economy gets back into full bloom.

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