IBM sees big drop in EMEA and mainframe sales

IBM's server business saw mixed results

IBM has announced its second-quarter financials, including the news that European revenues are falling.

The company said that its second-quarter income was $3.4bn (£2.23bn), a rise against the $3.1bn (£2.03bn) reported in the same period last year. Total revenues grew by just two per cent, rising over the year to $23.7bn (£15.5bn).

Revenues in the Americas were $10.2bn (£6.7bn), a rise of three per cent, but falls were seen in the European market. Revenues in EMEA dropped by six per cent to $5.4bn (£3.5bn).

IBM said that its Global Services revenues increased by just one per cent to $9.2bn (£6.02bn). In fact, overall, the firm signed services contracts to the tune of $12.3bn (£8.08bn), a decrease of 12 per cent. This was despite signing more high-value contracts, 15 greater than $100m (£65m), compared to 13 in the first quarter.

The firm's outsourcing services business also slowed, and IBM said that signings decreased by 19 per cent to $6.5bn (£4.3bn). Transactional services, which include services and application management systems integration, fell by three per cent to $5.8bn (£3.8bn).

Software, though, increased slightly, growing by two per cent to $5.3bn (£3.5bn). IBM's middleware business, which includes WebSphere, Tivoli and Lotus, grew by nine per cent to $3.3bn (£2.2bn). Its operating systems business grew by three per cent to $544m (£357m).

Individually, the WebSphere roster grew by 17 per cent, the Tivoli business by 18 per cent and Lotus by six per cent.

The server market was mixed, though. Revenues from System x increased by 30 per cent, while the Power Systems business decreased by 10 per cent compared with the 2009 period.

Worse still, revenues from System z mainframe server products decreased by 24 per cent when compared against the year before.

Net income for the six months ended 30 June 2010 was $6bn (£3.9bn) compared with $5.4bn (£3.5bn) at the same time last year, an increase of 11 per cent.

IBM blamed currency rates and exchanges for much of the revenue drops, and was bullish about its future prospects.

"With the benefit of our strategic growth investments, our mix of higher-value business and the introduction of new System z and Power Systems, we are confident of our ability in the second half of the year to continue our strong business performance, grow profit and drive shareholder returns," said Sam Palmisano, IBM chairman, president and chief executive.

As a result of these gains, he added, IBM is predicting continued growth.

Revenues for the two quarters were $46.6bn (£30.6bn), an increase of four per cent compared against the same period last year.

Carl Claunch, vice president and distinguished analyst at Gartner, said that the results were in tune with IBM's strategies, as well as its financial performance over the last few years.

He explained that the firm was focusing on increasing the mix of software and services it offers, and was less concerned with its revenues. However, he added that the firm did attempt to keep its shareholders happy.

Claunch said that how the firm performs going forward may be more revealing, explaining that the outsourcing market, where IBM may be faltering, could possibly be the most telling.

“Outsourcing is a variable market, some of the reduction could be random fluctuations but the rate of extensions/renewals of existing deals seems unusually low while new deals appear on track,” he told V3.co.uk.

“We will need another quarter of results to know whether the outsourcing downturn is significant.”