Technology companies are on a winning streak this week. Intel, Google and IBM are beating analyst expectations and causing a rally on Wall Street.
IBM on Thursday reported earnings of $2.32 per share, compared with diluted earnings of $1.97 per share in the second quarter of 2008, an increase of 18 percent. The earnings-per-share results were the highest for any first, second or third quarter in the company's history, adjusted for stock splits.
Second-quarter net income was $3.1 billion, compared with $2.8 billion in the year-ago period, a 12 percent increase. Despite all the good news, total revenue for the second quarter was down 13 percent to $23.3 billion from the year-ago period. But there is plenty of room for optimism.
"As a result of our strategic transformation, we have a very strong business model that is delivering superior earnings, cash and client value," said Samuel J. Palmisano, IBM chairman, president and CEO. "We have continued our strategic investments in Smarter Planet solutions, business analytics, and next-generation data centers. As a result, we are optimistic about how IBM is positioned to make the most of current growth opportunities as well as those that emerge as the economy recovers."
Weathering the Storm
For the quarter, revenue from the software segment was $5.2 billion, a decrease of seven percent compared to the year-ago period. Revenues from IBM's key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3 billion, a two percent decrease from the second quarter of 2008. Looking at WebSphere as a solo product, though, revenues increased eight percent year over year.
IBM saw losses in the services as its Total Global Service revenue fell 12 percent. Global Technology Services revenue decreased 10 percent to $9.1 billion, while Global Business Services revenue decreased 15 percent to $4.3 billion. Big Blue also saw losses in its Systems and Technology segment. Revenues totaled $3.9 billion for the quarter, down 26 percent. Global Financing revenues also decreased 10 percent in the second quarter.
It's the big picture, however, that's causing Wall Street to rally. IBM ended the second quarter with $12.5 billion of cash on hand and generated free cash flow of $3.4 billion, excluding global financing receivables. The company returned $2.4 billion to shareholders through $732 million in dividends and $1.7 billion of share repurchases. Big Blue said its balance sheet remains strong, and the company is well positioned to take advantage of opportunities.
A Bright 2009
Palmisano said IBM is well ahead of pace for its 2010 road map of $10 to $11 per share. What's more, IBM has raised its expectations for 2009. Big Blue now expects full-year 2009 earnings of at least $9.70 per share, compared with its previous expectation of at least $9.20 per share. And the company expects full-year 2009 pre-tax income for its software segment to grow at a double-digit rate and reach approximately $8 billion.
"Overall, I think 'virtually bulletproof' is a reasonable was to describe the company's performance," said Charles King, principal analyst at Pund-IT. "During a quarter that boasted more doom and gloom than an average episode of True Blood, IBM appears to have shrugged off the malaise gripping the economy and showed the IT industry the way it's done."
That "way" is by leading with strong long-term services and software engagements, lessons Hewlett-Packard and Oracle hope to emulate, King said. The news there wasn't all good, but IBM has reduced its debt, increased its backlog of services business, and has a healthy cash position of $12-plus billion, he noted, all meaning that the company appears to be in a very solid position now and looking forward.
