IBM Puts up Fantastic Second-Quarter Results
International Business Machines (IBM) posted strong second-quarter results Monday. The firm’s top-line increased 12% (5% adjusting for currency), while net income advanced 8% from the same period a year ago. The firm indicated that hardware, software and services revenue grew at a double-digit pace, and the company raised its full year 2011 operating earnings per share guidance to at least $13.25 from at least $13.15 previously.
Revenue from markets IBM categorizes as growth now represent about 22% of its top line, with particular strength from the BRIC countries – Brazil, Russia, India, and China – which advanced over 20% in the period. The firm’s services revenue continued at a nice pace of expansion, with backlog jumping $15 billion from the prior-year quarter to $144 billion. Management noted that its services backlog in growth markets is up about 50% over the past two years. The executive suite also expects these markets to generate as much as 30% of IBM’s geographic revenue by 2015, accounting for half of IBM’s revenue growth along the way. We view this goal as achievable.
Software also performed quite well, jumping 17% in the quarter thanks to strength from key middleware products (Websphere, Information Management, Lotus, etc.). Impressively, revenue from its Websphere family of products increased 55% from the same period a year ago. Hardware had a nice showing, too, with sales in its Systems and Technology segment jumping 17% from the same period last year. The company noted that revenue from System z mainframe server products jumped over 60% compared with last year’s quarter.
In all, we like that IBM has its revenue engines revving again and believe the firm is having little difficulty taking share from Oracle (ORCL), which is struggling to integrate its Sun acquisition, and Hewlett-Packard (HPQ), which is facing some concerns regarding its adoption of Intel’s (INTC) Itanium chip. We also view IBM as very shareholder-friendly, having returned almost $5 billion in share repurchases and dividends in the second quarter and almost $19 billion over the last year. The future’s outlook remains bright with cloud computing, as well, with the firm garnering 2,000 wins year to date, and we expect cloud revenue to double in 2011 versus last year’s performance. We’d look to pick up IBM’s shares at the right price, which after factoring in a margin of safety, rests just below $160 per share.
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