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7/19/2011
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IBM's Q2 Sales Spike On Cloud, BI Demand

Cloud computing, business intelligence, and efficient infrastructure technologies run hot for Big Blue as enterprises look to weather economic uncertainty.

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IBM's 12% jump in second-quarter revenue indicates that, despite doubts about the economy, businesses will continue to invest in technologies that can help them operate more efficiently, compete for new customers, and expand their geographic reach.

IBM, whose results are seen by most analysts as a bellwether for the broader tech industry, posted strong gains in sales of cloud computing platforms, energy and space-saving servers, business intelligence and data mining tools, and global services. All of those products represent offerings that customers appear willing to invest in to boost their competitive posture, even while streamlining and automating IT operations.

For Big Blue, the numbers validate a strategy in which it has chosen to develop or acquire products and services that help customers differentiate themselves in the marketplace while trimming price-sensitive commodity offerings like PCs and printers from its lineup.

"As growth markets continue to mature, IBM's investments in key areas such as cloud, and BI, and analytics will continue to drive growth across its portfolio," said Allan Krans, senior analyst at Technology Business Research, in a note Tuesday.

IBM saw revenue from mainframes jump a whopping 61% year-over-year. The company said businesses are discovering that the big iron is no longer just for research institutions or Wall Street trading floors--it can benefit any organization that is looking to consolidate its server footprint and reduce data center costs by hosting numerous virtual machines on a single piece of hardware.

In a conference call after the company reported earnings Monday, CFO Mark Loughridge noted that IBM's new zEnterprise 114 midrange server, unveiled last week, "can consolidate workloads from up to 300 competitive servers."

Sales of Netezza data warehousing platforms, which IBM acquired for $1.8 billion last year, and other information management systems designed to help customers store and interpret so-called big data from mushrooming sources like mobile devices, websites, contact centers, and smart sensors, jumped 18%.

"In business analytics, we're helping customers optimize the massive amounts of data they're dealing with," said Loughridge, who noted that IBM's revenue from business analytics products was up 20% through the first six months of 2011.

IBM's cloud offerings comprise numerous individual products, from hardware to virtualization technologies embedded in key software packages such as Websphere middleware, sales of which were up 55% year over year, and Tivoli management software, revenue from which jumped 9%. More and more businesses are eyeing cloud architectures, hosted or in-house, as a means to lower infrastructure costs, quickly scale capacity as required, and standardize IT across offices and divisions.

"In cloud, we had over 2000 wins year to date. In private cloud, our average transaction size has tripled from a year ago," Loughridge said. IBM does not break out a specific revenue number for cloud computing sales, but Loughridge said the company is on pace to double sales it attributes to cloud installations from a year ago.

Big Blue's global technology services outsourcing arm, meanwhile, also enjoyed solid gains, with revenue up 12%, or 3% excluding currency benefits. IBM has established a strong services footprint in emerging markets like Brazil, Russia, India, and China, with an eye to providing local assistance to Western companies looking to tap new markets or lower-cost labor forces in those regions. It's also looking to sell services to domestic firms in emerging markets that need modern IT infrastructures.

Earlier this year, IBM announced a partnership with Bharti Airtel under which it will deploy and manage apps to support Airtel's rollout of mobile services in Africa. Services growth "was led by our performance in the growth markets," with revenue from those regions up 10% at constant currency, Loughridge said.

Overall, IBM beat estimates for its second quarter Monday, as earnings per share (EPS) increased 18% year-over-year to $3.09, while revenue climbed 5%, excluding currency gains, to $26.7 billion. Net income rose 11%, to $3.8 billion. Wall Street analysts were, on average, expecting Big Blue to post quarterly earnings of $3.03 on revenue of $25.35 billion.

IBM raised its full-year 2011 guidance for operating EPS to $13.25. The company has said publicly that it's targeting EPS of $20 by the year 2015.

IT is caught in a squeeze between requests for new applications, services, and device support and demands from upper management to keep budgets lean, staffing light, and operations tight. These are irreconcilable objectives as long as we spend the vast majority of our resources on legacy services. Read our report now. (Free registration required.)

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