IBM net income jumps 9 percent

Big Blue also raised its full-year outlook to $11.25 per share

IBM's second-quarter profits were up 9 percent from a year earlier, the company announced on Monday, with increased sales in the U.S. and Asia helping to offset weaker spending in Europe.

Net profit for the quarter ended June 30 was US$3.4 billion, or $2.61 per share, up from $3.1 billion, or $2.32 per share, in the same quarter last year, IBM said. Revenue was $23.7 billion, up 2 percent year over year.

IBM also raised its earnings outlook for the year to at least $11.25 per share, up $.05 from its previous guidance.

Big Blue expects to achieve that through a shift to selling more high-value products and the rollout of new mainframes and Power-based systems later this year, among other factors, CEO Samuel Palmisano said in a statement.

Second-quarter software revenue was up 2 percent, or 6 percent when taking into account the recent divestiture of IBM's project lifecycle management business, the company said.

Global services revenue also increased by 2 percent, but the segment contained one notable weak spot: Contract signings in the quarter fell 12 percent to $12.3 billion, an indication that companies could be slowing down on new IT projects amid fresh uncertainties in the global economy, such as the European debt crisis.

However, IBM also signed 15 services pacts during the quarter worth more than $100 million, up from 13 in the previous quarter.

Revenue from IBM's Systems & Technology segment, including its server hardware, increased by 3 percent. Sales of its industry-standard System x servers jumped 30 percent, but revenue from Power systems was down 10 percent, and System z mainframe sales fell 24 percent.

IBM is facing a fresh challenge in hardware from Oracle, which entered the business via its acquisition of Sun Microsystems.

Sales of some hardware products may have fallen because customers are waiting for upcoming product releases, Chief Financial Officer Mark Loughridge said during a conference call.

For example, its next System Z mainframe is "not just a new Z," according to Loughridge. "It's a Z in a 'system of systems' implementation."

IBM has scheduled a press conference on Thursday in New York City, where it's expected to provide details about its next mainframe.

The results were mixed on a geographic basis. Revenue increased by 3 percent in the Americas to $10.2 billion, and by 9 percent in the Asia-Pacific to $5.4 billion, but sales were down 6 percent in Europe, the Middle East and Africa, to $7.4 billion, IBM said.

IBM's shares ended the normal day's trading at $129.79 ahead of the earnings announcement, up slightly from their previous close. They slipped about 4 percent in after-hours trading, however, to $124.40 at the time of this report.

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com

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