Citing an increase in IT spending across all sectors of its business and all global geographies, IBM announced record revenue and earnings for the first quarter that exceeded analyst projections.
After the close of trading on Monday, IBM (NYSE: IBM) reported a first-quarter profit of $2.6 billion, or $1.97 per share, a 13 percent improvement from the $2.3 billion, or $1.70 per share, from the same quarter last year. Revenue rose 5 percent year-over-year to $22.9 billion.
Analysts on average had expected earnings per share of $1.93 on revenue of $22.7 billion, according to a consensus survey by Thomson Reuters.
The results are good news for an IT sector looking for signs that technology hardware, software and services spending are all on the rise. IBM's results are also a key indication that IT budgets are being loosened and spent on new, advanced projects like green tech and business analytics -- areas that both saw sizable growth in IBM's first quarter.
However, while IBM CFO Mark Loughridge was optimistic about the overall economic climate during a conference call with analysts, he pointed out some of the more near-term indicators of strength for his company.
"Whether we're back to normal IT spend is a long-term view," he said. "What I see in the IBM equation is we have a strong play going into the second quarter with the services business going into modest growth, software sales showing profitable growth, and hardware now taking advantage of improved transactional content and moving into a second half where we have substantial announcements coming up. So I think it's all good transactional performance."
Total Global Services revenues increased 4 percent with $12.3 billion in services contracts signed, including 13 contracts greater than $100 million. Consulting services signings were up 18 percent, with 25 percent of signings related to Smarter Planet and Business Analytics.
IBM now has a services backlog of $134 billion at actual rates, compared with $126 billion in the first-quarter 2009.
The one real area of services weakness came in IBM's Application Management Services group, where revenue fell 23 percent, or $700 million, over the same quarter last year. Loughridge's explanation is that AMS had enjoyed a particularly strong quarter last year, so it was hard for the group to match it.
The better news, in his view, was that there was an 18 percent year-over-year growth in revenue from outsourcing and consulting, a service that's often the first to be cut when belts are tightened.
"This is important because consulting has been a leading indicator and has the greatest impact on near term-performance," Loughridge said. "We expect our services business to return to modest growth in the second quarter."
Software revenues for IBM totaled $5.0 billion, an increase of 11 percent from a year ago. Among the best performers were Tivoli, up 23 percent, while WebSphere business was up 13 percent and information management was up 11 percent. Sales of ILOG software rose 30 percent from a year ago, thanks to its use in IBM's Smarter Planet program.
Systems and Technology, IBM's hardware business, delivered $3.4 billion of revenue for the quarter, up 5 percent year over year. It saw an 11 percent sequential improvement in hardware sales, in particular for storage, System x and the Power 7 mid-range. Loughridge said x86 blade sales rose 55 percent year-over year.
IBM continues to pursue HP and Sun customers, racking up another 170 competitive wins for $125 million in business for the quarter, Loughridge said. Most of that share came in low- to mid-range systems. He said that IBM will introduce the next-generation of its System z mainframes coming in the second half of the year as well as some new high-end System p computers running IBM's new Power 7 processor.
Big Blue's Global Financing segment revenues decreased 7 percent from last year to $537 million. Loughridge said that this quarter's economics were driven more by business opportunities than currency. "With a strong dollar, currency was less of a help," he said. Adjustments for the dollar only changed things by 5 percent instead of the usual 6 to 7 percent and impacted revenue by $250 million.
"So business was better than expected," Loughridge said.
IBM said it now expects to earn $11.20 a share in 2010, up from its prior projections of $11 per share. Analysts had projected an average FY2010 EPS of $11.12 a share.
The company also said it expects constant-currency revenue growth for IBM and for its total services, software and hardware businesses in the second quarter.