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IBM's Q2 strongest revenue growth in 6 years, says CEO

IBM's Q2 strongest revenue growth in 6 years, says CEO

IBM announced strong second-quarter results, with good news for both its Americas and services businesses, which previously had underperformed

IBM's Chairman, CEO and President Sam Palmisano declared the vendor's second-quarter fiscal 2007 financial results the company's best growth performance in six years.

This quarter's strong revenue growth -- "our best since 2001" -- shows IBM's global reach and the value customers are placing on the company's expanded software line and services, he said in a statement. Palmisano added that IBM is well on its way to achieving its goals for growth through 2010, making "solid progress" on its road map for the next three years.

For the second quarter of fiscal 2007, which ended June 30, IBM reported a rise in net income of 11.8 percent over the year-ago quarter to US$2.3 billion on revenue up 9 percent to US$23.8 billion. Earnings per share (EPS) grew 19 percent to US$1.55, compared to the same quarter a year ago.

The results included a pre-tax gain of US$81 million related to IBM's sale of its printing systems division to Ricoh. Excluding that gain, income from continuing operations was US$2.2 billion, up 8 percent on the second quarter of fiscal 2006.

A consensus estimate of Thomson Financial analysts, which didn't include the pre-tax gain, was that IBM would report revenue of US$23.1 billion on an EPS of US$1.47.

IBM's revenue from the Americas rebounded during the quarter to grow 6 percent on the year-ago quarter to US$10.1 billion, while revenue from Europe, the Middle East and Africa rose 13 percent to US$8.2 billion and Asia-Pacific revenue was up 10 percent to US$4.6 billion.

Back in April, when discussing IBM's first-quarter results, Mark Loughridge, the company's chief financial officer, identified a slowdown in the vendor's U.S. enterprise business, particularly in the industrial, financial services and communications sectors, in March. He didn't provide a satisfactory answer as to why the slowdown had occurred, but dismissed it as more of a blip than an indicator that something serious was wrong. Loughridge predicted modest growth for IBM's overall Americas business in the second quarter.

There was also good news in the most recent quarterly report about IBM's services business, which, though large, has been a stumbling block in terms of growth. Total global services revenue rose 10 percent in the second quarter, led by growth in Asia-Pacific. IBM cut costs by making two rounds of job cuts in its services division in May, affecting more than 2,800 employees.

IBM's systems and technology division saw revenue growth of just 2 percent to reach US$5.1 billion, while the vendor's software business increased revenue by 13 percent to US$4.8 billion.

Significant events for IBM occurring in the second quarter included Amazon.com Inc. paying the vendor an undisclosed amount of money to settle all outstanding patent lawsuits between the two companies. They also signed a long-term patent cross-licensing agreement to end a dispute that began in 2002 and made it to the courts last year when IBM sued Amazon.com and then the online retailer countersued, with both parties alleging that the other had infringed on its patents.

IBM also began shipping its new dual-core Power6 microprocessor on a new midrange server, the System p 570, and started talking up blade and mainframe offerings for small to midsize businesses. The vendor also put the next major release of its DB2 database, currently known as Viper 2 and due to ship before the end of the year, into open beta testing

On the acquisitions front, IBM made two purchases in June to add functionality to its Rational development tools family. The vendor first acquired Web application security vendor Watchfire for an undisclosed sum and then announced plans to buy Swedish software development tools company Telelogic for US$745 million.

In other IBM news, the company announced Wednesday the retirement of Paul Horn, the current head of IBM Research. Taking over his role is John Kelly, previously senior vice president, technology and intellectual property at IBM.


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