IBM Unveils Q2 Results

IBM Corp. (NYSE: IBM) reported its second-quarter results today, with services and high-end zSeries mainframes helping drive revenues for continuing operations up to $23.2 billion, a 7 percent increase on the second quarter of 2003.

Speaking just after market close yesterday, Big Blue chief financial officer Mark Loughridge said that overall revenues from IBMs Systems & Technology division were $4.2 billion, up 10 percent on the same period last year.

Within the division, zSeries led the way, notching up revenue growth of 44 percent. IBM's xSeries servers registered 18 percent growth in the quarter.

2004 marks the 40-year anniversary of the mainframe, and the zSeries platform has been a major focus for IBM over the last few months. In April, for example, IBM unveiled a scaled-down mainframe, the z890 (see IBM Celebrates a Birthday and IBM Unveils Mid-Sized Mainframe).

But it has not been all plain sailing in the hardware space. Loughridge explained that IBM’s plans to converge its iSeries and pSeries server lines around Power5 processors had a negative affect on sales. In May, IBM launched its first Power5-based servers, the i5 models 520 and 570 (see IBM Launches Power5 Server).Then, earlier this week, the company took the wraps off its new range of pSeries Unix servers, as well as a new 16-way i5 570 iSeries box, that shares the same design as the pSeries machines (see IBM Pushes Server Partitioning).

According to Loughridge, this resulted in a 28 percent revenue drop for iSeries servers and a 3 percent drop for the pSeries range, as users await the launch of the new Power5-based machines. “A large number of transactions were deferred late in the quarter, prior to the launch of Power5,” he says.

Like many other vendors, IBM has experienced limited demand for its software products, and Loughridge admitted that it had been a "challenging" quarter. The company’s revenues from software were $3.5 billion, essentially flat, compared to the second quarter of 2003. Revenues from the firm’s middleware brands, which include IBM Tivoli, WebSphere, DB2, Rational, and Lotus products, were $2.7 billion, the same as in the second quarter of 2003.

In response to a question from an analyst, Loughridge said that he expects to see some software revenue growth in the third quarter of this year but “at modest levels.”

In after-hours trading on Thursday, IBM shares rose 37 cents to $84.39— James Rogers, Site Editor, Next-Gen Data Center Forum