IBM services organisation takes a hammering

IBM has caused concern on Wall Street after revealing that new services contract signings for its fiscal Q2 were down 12% to $12.3bn at actual rates, indicative of a trend picked up on in Big Blue's Q1 numbers in April.

IBM has caused concern on Wall Street after revealing that new services contract signings for its fiscal Q2 were down 12% to $12.3bn at actual rates, indicative of a trend picked up on in Big Blue's Q1 numbers in April.

Speaking on a conference call CFO Mark Loughridge remarked that this trend had been due to an unusually high number of contract extensions and renegotiations precipitated by the recession, and said "we believe the bulk of that trend is in the rearview mirror".

IBM stock slipped a little after the announcement as it missed predicted total topline sales of $24.17bn (£15.82bn) for its second quarter, banking $23.72bn a 2% year-on-year raise, with EPS coming in at $2.61, 3 cents above analyst expectations.

However, all told things looked healthy, as IBM booked net profit of $3.4bn for the three months to the end of June, up 9% year-on-year and 30% sequentially.

Chairman, president and chief executive Sam Palmisano was in bullish mood as he unveiled the numbers last night, saying: "We again delivered double-digit earnings-per-share growth, increased margins, as well as improving constant-currency revenue performance in our ongoing software, services and hardware business."

Palmisano added that growth investments, a mix of higher-value business and the launch of new System z and Power Systems stood the IT behemoth in good stead for the rest of the year.

Broken out, IBM made sales of $10.2bn in the Americas, up 3% on the year-ago-period. APAC sales were up 9% to $5.4bn, while EMEA sales fell 6% to $7.4bn.

Big Blue was particularly hurt by the European debt crisis of recent months, which meant deals done in euros were worth less to it than deals done in dollars, and growing fears of a double-dip recession did not help matters.

However, growth of 22% in the emerging BRIC (Brazil, Russia, India, China) economies helped offset this somewhat.

Divisionally, Global Technology Services sales rose 1% to $9.2bn and Global Business Services sales were up 3% to $4.5bn.

IBM's Software segment also saw a 2% rise to $5.3bn, 6% when the Q2 divestiture of its PLM ops was taken into account.

Systems and Technology sales totalled $4bn for the quarter, up 3% on Q2'09. System revenues grew 1% and System x 30%. Power Systems sales were down 10% and revenues from System z server products fell 24%.

Finally, Global Financing sales were down 4% to $544m.



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