IBM delivers strong Q2, ups 2011 outlook

IBM handily topped expectations for the second quarter and upped its outlook for 2011.

The company reported second-quarter earnings of $3.7 billion, or $3 a share, on revenue of $26.7 billion, up 12 percent from a year ago. Big Blue got an assist from a weak dollar and accounting for currency fluctuations revenue would have been up 5 percent. Non-GAAP earnings were $3.09 a share. Wall Street was looking for earnings of $3.03 a share on revenue of $25.34 billion.

Big Blue also raised its 2011 non-GAAP earnings target to at least $13.25 a share. Wall Street was expecting $13.22 a share for 2011.

As expected, IBM's software and hardware businesses carried the quarters. Growth markets such as analytics were strong, and IBM predicted that its cloud computing revenue will double in 2011. In many respects, IBM's second quarter was about the mainframe upgrade cycle and solid software sales.

In a statement, IBM CEO Sam Palmisano touted the company's businesses and packages of hardware, software, and services. On a conference call with analysts, CFO Mark Loughridge said these integrated systems are setting the stage for future growth. Loughridge said:

Our growth is broad based from a segment perspective as well. This quarter we had 24% growth in hardware with great performance in all system brands. These are high value offerings, not low in content. For example, we have 24 new mainframe customers in growth market countries, just since the introduction of the Z enterprise last year. Think of it as planting the flag which provides a great base for future growth. Our software business supports growth markets buildout with WebSphere providing key underlying infrastructure capabilities.

By the numbers for the second quarter:

• Services revenue was up 10 percent overall with technology services sales up 11 percent to $10.2 billion. Business services revenue was up 9 percent to $4.9 billion. Services backlog checked in at $144 billion. Global services operating income checked in at $2.2 billion.


• Software revenue was $6.2 billion, up 17 percent from a year ago. Operating income for the unit was $2.3 billion. IBM said middleware sales--WebSphere, Tivoli, Lotus, and Rational--were $3.9 billion, up 21 percent from a year ago.


• Hardware revenue was $4.7 billion, up 17 percent, with operating income of $393 million. The unit was led by System z mainframe sales as well as Power systems.


• Gross margins for IBM were 46.4 percent.


• IBM reported Americas revenue of $11.2 billion, up 10 percent from a year ago. Europe/Middle East/Africa sales were $8.6 billion, up 16 percent. Asia Pacific revenue was up 14 percent to $6.2 billion. All sales gains were boosted by a weak dollar.


• Revenue in so-called BRIC countries--Brazil, Russia, India, and China--were up 27 percent.


• IBM ended the second quarter with $11.8 billion in cash and equivalents.


• Research and development spending was 5.9 percent of revenue, in line with historical norms.

Updated at 2:16 p.m. PT with more details

This story originally appeared on ZDNet's Between the Lines.