IBM Reports Flat Q1 Sales, Competitive Wins Against HP And Oracle

IBM reported a slowdown in its hardware sales for its first quarter, but the company still claims it's taking market share away from rivals Hewlett-Packard and Oracle.

Those gains came during a decidedly mixed quarter that saw sales gains in software and some key areas such as cloud computing, but little growth in services and decreased hardware sales.

IBM reported revenue of $24.7 billion for the fiscal 2012 first quarter ended March 31, up less than 1 percent from the $24.6 billion in sales the company reported in the same period one year ago. But the IT giant still managed to grow its bottom line by 7.1 percent to nearly $3.1 billion from $2.9 billion one year earlier.

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Sales of hardware products from IBM's Systems and Technology segment were down 6.7 percent to $3.7 billion. That decrease was expected given the segment's 19 percent growth in the same period last year, said Mark Loughridge, senior vice president and CFO, finance and enterprise transformation, said in a conference call with financial analysts Tuesday.

Sales of Power Systems and System x servers were both flat compared to one year ago while System z mainframe revenue was down 25 percent, Loughridge said. System storage product sales were down 4 percent.

Despite the flat Power System sales, the CFO said IBM won 250 "competitive displacements" worth about $200 million with those products. About 50 percent of those competitive wins were against HP, according to Loughridge, while "most of the balance" came against Oracle's Sun hardware products.

Loughridge also touted the sales potential of IBM's new PureSystems converged infrastructure servers the company debuted last week. He said those new products, in which IBM invested some $2 billion in research and development, should start contributing to IBM's revenue stream in the second half of 2012.

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Software sales in the quarter rose 5.5 percent to $5.6 billion in the quarter. Sales of WebSphere middleware products grew 16 percent year-over-year while revenue from information management products were up 5 percent, as were sales of Tivoli software. Sales of Lotus software were flat, however, while Rational software sales increased just 1 percent.

"With this performance, software was a strong contributor to our growth initiatives," said IBM's CFO Loughridge.

IBM reported hefty sales increases in some key initiatives including Smarter Planet (up 25 percent), business analytics (up 14 percent), growth markets such as India and Brazil (up 9 percent), and cloud technology and services (double the 2011 first-quarter sales).

Revenue from IBM's services operations was also lackluster, however. Global Technology Services revenue was $10.0 billion, up 1.7 percent from one year ago, while Global Business Services revenue was down 1.5 percent to $4.6 billion. Loughridge said part of the GBS revenue decrease was due to slower sales in Japan, particularly relating to two delayed contracts.

IBM on Tuesday also disclosed a deal to sell its retail store point-of-sale business to Toshiba for approximately $850 million. The companies expect to complete the transaction late in the second quarter or early in the third quarter of 2012. Under the agreement Toshiba will become a partner in IBM's Smarter Commerce initiative, combining Toshiba's retail IT systems with IBM's retail analysis software and services.