IBM's 3Q2010 Earnings: Mainframe Up Big

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IBM's 3Q2010 Earnings: Mainframe Up Big

Here's what IBM's CFO said:

System z revenue grew 15 percent year to year and gained share. MIPS grew 54 percent, the highest growth in six years. Late in the third quarter we shipped the zEnterprise 196 server which delivers 40 percent more performance than the z10. This performance is driven by the world’s fastest processor, which operates at more than five gigahertz. In the fourth quarter we will begin shipping the zBX, IBM’s first System of Systems. zBX extends mainframe governance to select Power7 and System x blades.

IBM's 2010 third quarter was the first in which the new zEnterprise mainframe shipped (in September). The z196 is off to a great start.

In the Q&A part of the earnings call, Kathryn Huberty from Morgan Stanley asked Mark Loughridge, IBM's CFO, to characterize the System z and System p product introductions. Here's what Loughridge said (in part, as transcribed by Seeking Alpha and with all typos intact):

Okay, well let’s talk about the Z series and P series content. You know Z series had a really strong quarter I mean Z was up 17% mix were up 54% that’s the highest level of mix growth we’ve had in six years out of our mainframe business, so very strong performance and I say as we look at the fourth we should have another very strong quarter for our Z series content, now we would have an entire quarter of availability.

In addition we are going to announce the new system or systems of Z series get that gives you the ability to use mainframe governance and apply it to other technologies which will really position us for market leadership. So I think we’ve got a very exciting play on a Z series a basis and if you look at that to your later part of your question on a longest term kind of cycle they are really parts of the cycle on a Z series business the first four or five quarters are more structured around you know volume growth in base placement and then the ladder half of that cycle with micro code upgrades, less revenue but much higher profitability. So we should have to be able to exploit this over a longer period of time. We are quite excited about it I thought the results were really terrific.

"Mix" obviously means "MIPS." Chris Whitmore from Deutsche Bank then followed up with a question about the effect of hardware on software and services. Loughridge replied:

Well if you look at the pull through, there is a relationship as you establish more platforms for the software business and in some respects there is some relationship directly going into the fourth because in the fourth quarter as we look at the pipeline that deals in opportunity we see an acceleration in our software business going into the fourth. So I think there is a relationship, it’s a longer term kind of a relationship, but we will start to see improvements in our software business coming out of the third quarter which I frankly felt was pretty good at 6%. We said it was going to be 6%.When we closed out the second quarter we came in right on target and I expect the fourth to be a pretty good acceleration of that base.

by Timothy Sipples October 18, 2010 in Current Affairs


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The question that lingers is how much of this growth is due to new customers.?

Posted by: Jeff | Oct 19, 2010 10:39:11 AM

Loughridge noted that IBM's (and System z's) performance was especially good in their "growth markets," which is ex-North America/Western Europe/Japan. The growth markets are also where most of the new (and newer) mainframe customers are.

Posted by: Timothy | Oct 19, 2010 7:57:41 PM

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