Big Blue posts a good quarter, IBM remains on track for the year

August 2012

Old Big Blue’s second quarter earnings in 2012 were better than expected, but the company took a hit on currency fluctuations that led to lower-than-expected sales.  Greentec Systems has been partnering with IBM hardware record breaking IBM sales and exports of their server and disk array line for 2012

The software, services and integrated hardware giant reported second quarter earnings of $3.9 billion, or $3.34 a share, on revenue of $25.8 billion, down 3 percent from a year ago. Currency shaved about $1 billion from IBM’s revenue. Non-GAAP earnings were $3.51 a share.

Wall Street was expecting International Business Machines to report second quarter earnings of $3.42 a share on revenue of $26.27 billion.

As for the outlook, IBM said it is on track for delivering operating earnings of at least $15.10 a share for 2012.

In a nutshell, IBM is hitting earnings targets with solid expense management, but the currency fluctuations are hampering revenue growth. Companies with sales in the U.S. dollar show more growth when the greenback is weak.

Aside from cloud, analytics and smarter planet revenue, IBM delivered sluggish to lower sales growth. In a statement, IBM CEO Ginni Rometty said the company was upbeat about “strength in our growth initiatives and investments in higher value opportunities.”

• IBM’s hardware business is slowing due to where it stands in the product cycle. “We continue to extend our share leadership in our two high end server brands,” he said.
• Currency fluctuations became harder to manage. “We entered the quarter with a currency head wind, but it got even tougher over the last 90 days,” said Loughridge.
• The global economy is mixed. Loughridge said:

Margin expansion was the largest contributor to growth, as our continued focus on productivity and mix to higher value drove improvements in gross pretax and net margins year to year. And our ongoing share repurchase program contributed the balance, at

a level fairly consistent with last quarter…Another important and unique aspect of our model is the balance between annuity business and transaction businesses. Our annuity businesses, which make up the majority of services and software, reflect our long-term relationships with our clients and provide a solid base of

revenue profit and cash. We have had underway for sometime a

series of initiatives to drive productivity. These are real structural changes that improve our business and margins over time.

The big takeaway from IBM’s quarter is that the global economy is lumpy—even excluding currency fluctuations—but the company has a lot of earnings leverage in its business model. As a result, IBM shares moved higher in afterhours trading.

But IBM’s hardware unit saw revenue declines across the board.