IBM's Q2 Software Revenues Jump, Hardware Declines

IBM's second quarter saw strong gains in software revenues, but those gains were partially offset by a slowdown in hardware revenues, led by a double-digit decline in UNIX servers.

For the period ended June 30, IBM said software revenues reached $4.2 billion, a 5 percent increase over the year earlier period. IBM's WebSphere family of software lead the way with a 17 percent increase in year-over-year sales, while Tivoli grew 12 percent and Lotus sales increased by 6 percent.

Hardware revenue for the Systems and Technology Group, which includes servers, dropped by 7 percent to $5.1 billion compared to $5.6 billion for second quarter 2005. System p UNIX server sales declined by 7 percent while System I revenues dropped 7 percent compared to the year-earlier quarter. System x sales were flat.

Bruce Geier, president and CEO of Technology Integration Group, a $285 million solution provider in San Diego said he had a slow quarter, but said his second quarter for IBM sales is generally weak. "But we have huge deals in the pipeline for both x (System x) and p (System p)," he said.

Mark Loughridge, IBM's senior vice president and CFO said that enterprise sales cycles during the quarter stretched out, pushing some deals into the third quarter. "Growth in SMB remains solid," he said.He noted that hardware revenues overall would have increased by 3 percent if PC sales were dropped from the mix. One month of PC sales were included in second quarter 2005, prior to IBM's sale of its PC business to Lenovo last year.

Additionally, he said that supply chain issues primarily related to the European Union's requirement that hazardous materials be removed from servers, meant that IBM was unable to fill System I and System x orders. He said that System I revenues would have been flat if IBM could have filled all orders and System x would have been up 6 percent.