IBM Raises 2011 Expectations On Software, Power Hardware

IBM Raises 2011 Expectations On Software, Power Hardware

 By Joseph F. Kovar, CRN, October 18, 2011, 1115 hrs

Solid growth in services and software business, combined with a fast-growing business outside of North America and Europe, led IBM to both report a strong third quarter and raise its full-year estimates.

Strong growth in IBM's branded middleware business, nearly $250 million in Unix server takeaway business from Hewlett-Packard and Oracle, and a fast-increasing cloud business, all contributed to the company's success in the third quarter and in expectations for the year as a whole.

For its third quarter, which ended September 30, IBM reported revenue of $26.2 billion, up eight percent from the $24.3 billion it reported for the third quarter of 2010.

Big Blue, which earlier this month saw its market capitalization exceed that of Microsoft for the first time in 15 years, also reported earnings of $3.8 billion, up seven percent from the $3.6 billion it reported last year. The company also said its earnings reached $3.19 per share, up 13.1 percent over the $2.82 per share it reported last year.

The Americas were still IBM's largest market, accounting for $10.9 billion of its total $26.2 billion in revenue for the third quarter. However, said Mark Loughridge, CFO and Senior Vice President, Finance and Enterprise Transformation, the four-percent growth in U.S. revenue was far outpaced by a 19-percent rise in revenue in growth markets. Growth markets accounted for about 23 percent of IBM's total revenue.

Those growth markets included banking in China, telecom in India, and manufacturing in Asia, Loughridge said. "These are big iron markets," he said.

One new highlight for IBM is the cloud. Loughridge said IBM's total cloud business for the first three quarters is already exceeding the cloud revenue for all of 2010, although he did not provide revenue figures.

Revenue for IBM Global Services rose eight percent over last year, including a nine percent revenue growth for Global Technology Services and a six percent growth for Global Business Services. Together, they accounted for about $15.1 billion of IBM's total revenue.

IBM's software revenue was up 13 percent over last year to reach $5.8 billion, led by a 17-percent increase in IBM's middleware, including its WebSphere, Information Management, Tivoli, Lotus and Rational products. Leading the charge was WebSphere, which had a 52-percent revenue growth.

IBM's hardware business did fairly well, increasing four percent over last year to reach $4.5 billion. The star of IBM's hardware business was its Power series of Unix servers, which enjoyed a 15-percent growth over last year.

IBM has been able to capitalize on the long-running battle between Oracle and HP over Oracle's decision to stop supporting development of its software for the HP UX platform running on HP's Itanium-based servers.

Loughridge said IBM recorded over 250 competitive displacements worth a total of over $240 million in the Unix server market, which he said were due to wins split evenly between HP and Oracle.

As a result, IBM gained six points of market share for the Unix server market in the third quarter, and single-handedly accounted for overall growth of that market, Loughridge said.

"IBM once again in the third quarter drove all Unix market share growth," he said. "All of it."

Unlike several recent quarters of mainframe sales growth, IBM reported a five percent decrease in mainframe sales for the quarter which Loughridge blamed on the introduction of a new model. "This is really a fairly consistent mainframe cycle," he said.

IBM's storage business rose eight percent over last year, while its x86-based server business was essentially flat with a mere one-percent growth.

IBM also reported a two percent drop in its Global Financing Business.

The solid third-quarter results and expected growth in the fourth quarter led IBM to raise its expectations for full-year 2011 GAAP earnings per share to at least $12.95 compared to its previous estimate of at least $12.87. The company also raised its non-GAAP earnings per share estimate to at least $13.35. That is up about 10 cents from its estimate last quarter, and up 35 cents from its estimated early this year, Loughridge said.

Loughridge said fourth-quarter growth for most of IBM should be similar to third-quarter growth except for its hardware business, which saw especially strong growth last quarter, making it a hard quarter against which to compare.