Despite figures that show increase profits for IBM in Q2, the general consensus seems to be that while it performed well, it could have done a lot better.
Given the recent, renewed economic problems in one of the world’s major consumers of IT products — namely Europe — the results do seem quite positive especially when you see net profits of US$ 3.88 billion.
But the fact that the figures were below experts’ estimates seem to be the one single fact that has really caught attention. The figures, they say, augur badly for coming quarters when the full impact of Europe’s economic problems are really expected to hit home — home in this case being the US.
In fact, at face value, all is well with Big Blue with the current set of figures showing increases for the 38th consecutive quarter. So why the nervousness?
The first thing that has to be said is that this is important because IBM is generally considered one of the weather vanes of the IT industry, and if Big Blue is feeling a bit gloomy then the rest of the industry needs to watch out.
Indeed, companies like Advanced Micro Devices, Informatica and Lexmark have all blamed rising fears about a recession, particularly in Europe, for disappointing performance in their most recent quarters. Intel also warned that the weak global economy is slowing its growth for the current quarter.
One of the interesting facts that have emerged from this set of figures is that IBM’s strategy of slowly moving across to software sales and technology services and away from hardware seems to be paying off. As an aside — there must be some people in HP nodding their head and wishing for the days of Leo Apotheker and his plans to take HP out of hardware.
IBM and Software
Already, IBM says, 42% of its total profit is coming from software sales and by 2015 it expects this figure to reach more than 50%.
This was underlined by the fact that it was the only area of its business that did not register a decline over the quarter, although neither did it record an increase, remaining flat at US$ 6.2 billion.
IBM has also said that it plans to employ up to 300 software sales specialists a month throughout the rest of the year, even if it is cutting jobs in other areas. Unsurprisingly, at least half of that recruitment will be in the US. A more detailed look at the software numbers shows that:
- The Americas’ second-quarter revenues were US$ 11.1 billion, a decrease of 1 percent but up 1 percent, adjusting for currency from the same period a year ago.
- Asia-Pacific revenues increased 2% (up 4 percent, adjusting for currency) to US$ 6.3 billion.
- Revenues from Europe/Middle East/Africa were US$ 7.9 billion, down 9 percent (flat, adjusting for currency).
- The markets in the developing regions grew by 2% with more than 30 countries showing double digit revenues.
Its key middleware products, including WebSphere, Information Management, Tivoli, Lotus and Rational products, were also flat at US$ 3.9 billion, flat (up 4 percent, adjusting for currency) versus the second quarter of 2011. Operating systems revenues were also flat at US$ 628 million
But IBM is not forgetting about the world outside of the US. Revenues in many other regions performed well. A point worth noting in this respect is that because of the weakness of world currencies against the dollar, all figures have to take this into account in this set of figures.
It would be tempting to read all kinds of bad things into the results here, but this is only one quarter — and a traditionally quiet one at from April to June — so shouldn’t be taken out of context.
The real lesson here is how IBM, and the wider IT market, is behaving with the threat of a new world recession hanging over their heads.
It seems for the moment that it hasn’t had a huge impact yet. IBM is still expecting a reasonable year in 2012, even if it doesn’t achieve the heady heights of the boom years.