IBM Q1 profit jumps 16 percent

Services and software sales are looking stronger

IBM on Monday reported first-quarter earnings of US$1.97 per share on $22.9 billion in revenue, a rise of 16 percent and 5 percent, respectively, over the same period last year.

Net income was $2.6 billion, a jump of 13 percent.

The company also raised its full-year earnings guidance for fiscal 2010 to at least $11.20 per share.

Software license sales, a key sign of business health, grew 11 percent to $5 billion in the first quarter.

Some software categories performed better than others. Revenue from IBM's WebSphere middleware products grew 13 percent, and sales of Tivoli management software jumped 23 percent, IBM said. But sales of its Lotus collaboration software increased by only 1 percent. Revenue from Rational development tools climbed 7 percent.

In an indication more customers are embarking on large-scale projects as the global recession eases, IBM also said it had signed 13 services contracts greater than $100 million in value. Total services revenues rose 4 percent to $13.7 billion.

But Big Blue's hardware business had mixed results. Revenue for the Systems and Technology division was up 5 percent to $3.4 billion, helped by a 36 percent jump in System x sales. But System z and Power system revenues both fell 17 percent.

The company's performance in Q1 can be attributed partly to improved efficiency, Chief Financial Officer Mark Loughridge said during a conference call with analysts Monday.

IBM incurred $560 million in expenses during the quarter for "workforce rebalancing," a phrase it uses to refer to job cuts. That was up significantly from $265 million in the same period last year. The most recent cuts will yield "substantial" savings for IBM in later quarters, Loughridge said.

The company hopes to see a boost in its hardware sales later this year with the release of its next System z mainframe platform, he added.

IBM's size and scope make it a bellwether for the health of IT spending and the economy overall. There are signs that both are on the rebound, according to Loughridge.

IBM's growth this quarter was fairly uniform across geographies, and the company is seeing customers take on "transformational" projects, he said.

However, "as to whether we're back to normal IT spend, that's a longer-term view of the world," he said.

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