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July 18, 2012

IBM Releases Impressive Second-Quarter Earnings Amidst a Challenging Economy

By Amanda Ciccatelli, TMCnet Web Editor

IBM (News - Alert) Corp., the world’s largest technology-services company, has released its second-quarter 2012 earnings results today, with the uncertain global economy as a challenging backdrop to the usually stable technology bellwether.

IBM’s second-quarter earnings increased six percent despite a downturn in revenue amid Europe's economic jitters. Today’s announcement marks IBM’s 38th consecutive quarter that its earnings have increased from the previous year.

“Our results demonstrate the strength of IBMs business model,” said Mark Loughridge, senior vice president and chief financial officer, finance and enterprise transformation, IBM in the IBM 2Q12 Earnings Announcement. “This quarter again demonstrated the flexibility of our model.”

Businessweek reported that IBM's earnings often beat Wall Street's expectations, but revenue growth tends to be a focus for investors. Last quarter, the company fell short of revenue estimates. While software and services revenue increased, its hardware and financing segments saw a decline. Since, IBM has been focusing on its software and services, which have higher profit margins.

Credit Suisse analyst, Kulbinder Garcha said that the unsteady economy and challenging comparisons with last year are likely to constrained revenue growth for the quarter. IBM's shift to offering that provide a higher profit margin, along with moves like cost cuts aimed at making operations more efficient, "are likely to support IBM's earnings march."

“We entered the quarter with a currency headwind but it got even tougher over the past 90 days. Despite this headwind, we generated strong profit performance,” said Loughridge.

Total revenue for the second quarter of 2012 of $25.8 billion was down three percent from the second quarter of 2011.

IBM’s second-quarter 2012 diluted earnings were $3.34 per share, compared with diluted earnings of $3.00 per share in the second quarter of 2011, an increase of 11 percent. Operating (non-GAAP) diluted earnings were $3.51 per share, compared with operating diluted earnings of $3.09 per share in the second quarter of 2011, an increase of 14 percent.

Moreover, second-quarter net income was $3.9 billion compared with $3.7 billion in the second quarter of 2011, an increase of six percent. Operating (non-GAAP) net income was $4.1 billion compared with $3.8 billion in the second quarter of 2011, an increase of eight percent.

"In the second quarter, we delivered strong profit, earnings per share and free cash flow growth. This performance reflects continued strength in our growth initiatives and investments in higher value opportunities," said Ginni Rometty, IBM president and chief executive officer. "These are fundamental elements of our long-term business model.”

IBM raised its expectations for 2012 GAAP diluted earnings per share to at least $14.40 from $14.27 and operating (non-GAAP) diluted earnings per share to $15.10 from at least $15.00.

Revenue from the company's growth markets increased two percent and more than 30 countries had double-digit revenue growth, adjusting for currency. Revenue in the BRIC countries, Brazil, Russia, India and China increased five percent.

“We had particular strength in Russia and China. We’ve expanded the number of branch offices, 68 face to face and over 100 virtual branch offices across China. We are capturing the opportunity from these fast growing economies,” said Loughridge.

In the software segment, revenue was $6.2 billion, flat compared with the second quarter of 2011.

The company's total gross profit margin was 47.6 percent in the 2012 second quarter compared with 46.4 percent in the 2011 second-quarter period. Total operating (non-GAAP) gross profit margin was 48.2 percent in the 2012 second quarter compared with 46.8 percent in the 2011 second-quarter period, with increases in Global Technology (News - Alert) Services and Global Business Services.

IBM ended the second-quarter 2012 with $11.2 billion of cash on hand and generated free cash flow of $3.7 billion, excluding Global Financing receivables, up approximately $0.3 billion year over year. The company returned $4.0 billion to shareholders through $1.0 billion in dividends and $3.0 billion of share repurchases.

IBM’s net income for the six months ended June 30, 2012 was $6.9 billion compared with $6.5 billion in the year-ago period, an increase of six percent.

Romettey said, “Looking ahead, we are well positioned to deliver greater value to a wider range of clients and to our shareholders.”

To find out more about IBM visit the company at ITEXPO West 2012. To be held Oct. 2-5 at the Austin Convention Center in Austin, TX, ITEXPO (News - Alert) is the world’s premier IP communications event. Visit IBM in booth # 1324. For more information on ITEXPO West 2012 click here.

Edited by Brooke Neuman
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