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July 19, 2012

IBM earnings hold steady, despite weak revenue

Here's a take on IBM's quarter earnings report by the AP with a Rochester angle added.

Were there any other Rochester-specific aspects to this report that I missed?

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Technology business worldwide is sputtering, affecting the bottom line for many suppliers. But Big Blue is holding steady, despite weak revenue.

IBM delivered solid quarterly profits on Wednesday that easily surpassed Wall Street's expectations, even though it reported lower revenue because of economic troubles in some markets, lower hardware sales and the impact of a strengthening dollar.

6a00d83451cc8269e2010535c75537970b-800wiNet income increased 6 percent to $3.9 billion, and revenue dropped 3 percent to $25.8 billion.

IBM was sufficiently encouraged by the results to slightly lift its guidance for the full year to "at least $15.10 a share," from $15 a share previously.

Success was partly fueled by several of the projects in which IBM's Rochester facility was a key player. That includes the Blue Gene super computing program that created Sequoia, which was recently ranked as the fastest computer in the world. In addition, revenue from the Smarter Planet initiative, which hopes to create interconnected, efficient systems, is up more than 20 percent in the first half. Cloud revenue doubled in that time.

The introduction of the PureSystems family of machines, which were designed in Rochester and are being made here, did not affect this quarter's earnings. IBM expects volume shipments of PureSystems to begin in the fourth quarter.

The quarterly result, said A.M. Sacconaghi, an analyst at Sanford C. Bernstein, pointed to "fortress IBM," a company whose profit performance seems all but impervious to industry cycles.

The company, Sacconaghi noted, has raised its full-year guidance in 12 of the last 14 quarters and met or beat Wall Street's average earnings estimate for 29 consecutive quarters. "It's boringly predictable," he said.

IBM is the largest global supplier of information technology — hardware, software and services — to corporations and governments.

In a statement, Virginia Rometty, IBM's chief executive, said the strong profit performance reflected the success of the company's "long-term business model." That model combines focusing on higher-margin businesses and faster-growing markets abroad with aggressive cost-cutting. The strategy has served the company well, with earnings improving steadily throughout the recession and financial crisis.

But the second-quarter report was also the fourth straight quarter that IBM's revenue has fallen below Wall Street's estimates. "But revenue growth is the missing piece of the puzzle in the long term," said Steven Milunovich, an analyst at UBS.

IBM share rose. At mid-morning today, shares were up $7.79, or 4.14 percent, to $196.04 a share. Wednesday, the company's stock price closed up $4.60 at $188.25 a share.

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