Arik Hesseldahl

Recent Posts by Arik Hesseldahl

IBM Sees Strong International Growth, Swipes at Oracle

Shares in IBM surged in after-hours trading after the company reported quarterly results that were way ahead of analysts’ expectations. Here are some highlights:

  • Overall sales at $26.7 billion were $1 billion higher than the consensus and grew 12 percent.

  • Profits were $3.7 billion or $3.09 per share, up eight percent year over year.
  • Mainframe revenue grew 61 percent, including an 86 percent growth rate in the MIPS business and 12 percent growth in the Power Architecture business.
  • Hardware added three percentage points of market share. Here IBM takes a swipe at Oracle, saying that 60 percent of 250 competitive displacements — cases where IBM sells gear that replaces another vendor’s — came in places where old Sun Microsystems machines had been running. This confirms something that Chris Whitmore of Deutsche Bank mentioned in a research note to clients this morning. Expect Oracle to retort sometime soon.
  • Software sales grew 17 percent, or 10 percent after adjusting for currency.
  • Services revenue grew 10 percent, or two percent after adjusting for the effect of currency. The services backlog — which measures the current value of contracted work underway that will be recognized as revenue in the future — grew to $144 billion, up by $15 billion, or $2 billion after adjusting for currency.
  • Gross margin, a key measure of profitability, was 46.4 percent, up from 45.6 percent a year ago.
  • IBM got a big boost from foreign currencies which are currently strong against the U.S. dollar, making sales outside the U.S. more profitable than within. Sales in the Americas grew 10 percent while combined sales in Europe, the Middle East and Africa rose 16 percent and Asia sales grew 14 percent; though after adjusting for currency, sales in both of those regions grew only three percent. Overall, revenue got a seven percent boost from benefits from foreign currencies.
  • Sales in the BRIC countries — Brazil, Russia, India and China — increased 27 percent, or 21 percent after adjusting for currency.
  • Sales in the U.S. were up six percent and in Canada up 11 percent.
  • Another dig at Oracle came during the conference call, when CFO Mark Loughridge said that Netezza, the storage concern it bought last year for $1.7 billion, is winning business versus Oracle’s Exadata. Hardware was the one notable weakness in Oracle’s results when it last reported in June. Loughridge crowed that Netezza has an 80 percent win rate against competing hardware.

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