IBM Announces 2Q2009 Earnings

IBM's CFO Mark Loughridge announced that the company had another strong quarter and is raising earnings guidance for the full year.

System z hardware had a tough quarter for comparison, though (as was expected). The second quarter of 2008 was the first full quarter of System z10 EC shipments, and that was a blockbuster quarter for mainframe hardware. Globally System z hardware revenue was down 39 percent year to year (35 percent at constant currency). However, IBM's so-called "growth markets" (which include Asia-Pacific ex-Japan, Eastern Europe, the Middle East, Africa, and Latin America) demonstrated excellent strength, with mainframe hardware revenues up 17 percent. Clearly System z is increasing its global penetration. (You may recall a recent quarter when IBM announced the first System z sold in Vietnam, for example.)

Also, mainframe hardware profitability (i.e. margin) increased by 3 percentage points. Yet MIPS prices continued to decline because MIPS shipments were only down 20 percent year to year. All that is great news for customers (i.e. ever-lower prices) and for ongoing System z investment.

Unfortunately IBM does not break out System z software or System z-related services separately in their financial reports. Therefore it's difficult to get a complete picture of IBM's System z business because so much of it relates to software and services. However, Mr. Loughridge cited both ILOG and Cognos product lines as particularly strong. One of IBM ILOG's flagship products is Rules for COBOL, software which helps System z customers with COBOL application assets extract, modify, add, run, and manage business rules more flexibly and quickly, reducing code maintenance costs and complexity. Also (and I sure hope I won't get in trouble for revealing this fact), I am aware that IBM sold Cognos 8 Business Intelligence for System z here in my own little part of the world (Japan).

Thanks everybody.

UPDATE: Mr. Loughridge broke some news about new System z solutions that IBM will announce. Here's the relevant section from the earnings call transcript:

Mark Moskowitz - J.P. Morgan
....Mark, you mentioned in your comments about incremental workload [offerings?] introduced here shortly. Could you maybe give us some context in terms of how the workload engines in the mainframe business the last couple of years have boosted the annuity block in your software business? Has that helped leverage and can we see it be even more leverage with these new blocks coming out?

Mark Loughridge
Yeah, I mean, when you look at the z Series platform, that new workload approach is really to draw a new customer content and new customer adoption into the platform, and we’ve been quite happy with our new workload performance over time.

I think what is interesting about this now is it really does expand the aperture of the workload opportunities that we apply that approach to, so that’s why we are going to implement this new data warehouse offerings that enables real-time business analytics, consistent with our emphasis on business analytics. The enterprise disaster recovery solution enabling multi-location platforms for disaster recovery. Enterprise security hubs, the WebSphere application server, the enhanced SAP solutions — I mean, you put all five of those together, it substantially increases the aperture of opportunities that we now apply that new workload content to, and it has actually worked very, very well and we are quite optimistic about it going into the second half.

UPDATE 2: CA reported its quarterly earnings, and they were solid. About half of CA's revenues come from mainframe software, and CA's CEO said that mainframe-related revenues grew substantially faster than distributed server-related revenues. He also talked about the company's "Mainframe 2.0" initiative.

by Timothy Sipples July 16, 2009 in Economics
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