Services, software boost IBM Q1 earnings

IBM's first-quarter earnings per share of $US1.55 beat expectations by 14 cents and were boosted primarily by strong sales in services and software, the company said yesterday.

A consensus of 20 analysts polled by First Call predicted IBM would report first-quarter earnings per share of $1.41.

For the quarter ended March 31, the company posted earnings of $1.5 billion on revenue of $20.3 billion, compared with earnings of $1 billion or $1.06 per share, and revenue of $17.6 billion for the same quarter a year ago. Earnings per share and revenue grew 46 percent and 15 percent, respectively, over last year.

IBM saw significant improvement in its business in Asia and double-digit revenue growth in Europe and the Americas. Excluding revenues from IBM's original equipment manufacturer (OEM) business worldwide, first-quarter revenues increased 20 percent to $3.5 billion in Asia-Pacific; increased 20 percent to $6.3 billion in Europe, the Middle East and Africa; and increased 13 percent to $8.8 billion in the Americas. OEM revenues totaled $1.8 billion, a 5 percent increase over a year ago, according to a company statement.

Services and software, representing 60 percent of IBM's gross profits, led the operating results, with services being the largest and fastest-growing business for IBM. Revenues from IBM Global Services grew 19 percent to $7.6 billion including maintenance. Excluding maintenance, services revenues grew 24 percent to $6.3 billion.

Software revenues grew 10 percent to $2.9 billion, with DB2, Lotus Development workgroup software and transaction processing applications being the highlights, executives said in a conference call. In operating systems, sales of System 390 were strong while revenues from RS/6000 and AS/400 declined.

Results were mixed for the Technology Group, with storage revenue increasing while revenue for microelectronics was down. Meanwhile, sales were strong in the PC business, the company said.

"DRAM pricing is still a drag on gross margins, but that was offset by PC margins" which were high, said Doug Maine, senior vice president and chief financial officer. "There was a strong recovery of the PC business versus last year."

Total hardware revenues were $8.6 billion, up 17 percent from the first quarter of last year. Sales of IBM's mobile PCs and Netfinity servers continued to be strong, Maine said.

IBM's overall gross profit margin was 35.7 percent, compared with 36.6 percent in the same quarter last year. The company's expense-to-revenue ratio improved 2.6 points to 25.4 percent.

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