IBM posted net income of $1.7bn for its second financial quarter, ending 30 June. Revenue came in at $21.6bn, topping the $21.4bn forecast by analysts.
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IBM's Global Services group accounted for nearly half of the company's revenue for the quarter, bringing in $10.6bn, a 23% increase over 2002's $8.7bn second-quarter total. The addition of PwC Consulting, bought by IBM late last year, helped drive the growth.
Revenue from IBM's software unit rose to $3.5bn, up 6%, while revenue from IBM's WebSphere middleware line grew 14%, and its DB2 database revenue increased 16%.
Revenue from IBM's Lotus information management and collaboration software unit fell 3% year on year. IBM is repositioning Lotus' focus away from the mature Notes/Domino software market and towards new product areas, such as the new Workplace Messaging low-cost e-mail system IBM recently began shipping.
Rational, now a unit of IBM's software group, is exceeding profit expectations, with licence revenue up 17% year on year.
However, IBM's total hardware revenue declined 1% to $6.6bn, although some areas showed gains. IBM's Systems Group revenue from servers and storage systems increased 10%. Pricing pressure on IBM for servers and storage sales is starting to ease on a quarter-to-quarter basis.
The company's Personal Systems group revenue dropped 3% as PC sales revenue continued its down trend, and IBM's Technology Group revenue fell 34%, partially through IBM's divestiture of low-margin businesses.
Growth in the small- to medium-sized business sector picked up to 17 percent from the first quarter. Continuing that momentum will be a key priority for IBM in the second half of the year. The public sector was another strong market for IBM, driven by government spending.
Sales in the retail and financial services markets eased up during the quarter. In the financial services sector, customers have delayed purchases as they await encryption features scheduled to be added by the end of the third quarter to IBM's eServer zSeries 990, codenamed T-Rex.
Stacy Cowley writes for IDG News Service