Tech Leaders Report Strong Earnings

IBM Corp., Sybase Inc., and VMware, Inc. reported positive second quarter earnings while Wipro Ltd. announced strong first quarter financial results. Meanwhile, Microsoft Corp. announced solid fourth quarter and full year financial results.

Focal Points:

• IBM reported second-quarter revenue of $23.7 billion, an increase of two percent over the same period last year, primarily as a result of strong sales in the Americas and Asia Pacific. Financial services accounted for the most revenue at $6.7 billion, with the public sector accounting for $3.9 billion, IBM added. Software revenue increased two percent year-over-year to $5.27 billion, while revenue from systems and technology rose three percent to $3.98 billion. IBM also announced that revenue from global technology services was $9.23 billion, up from $9.1 billion a year ago, and that revenue from global business services increased three percent to $4.48 billion. Net income for the second quarter also rose nine percent to $3.4 billion from $2.6 billion. In related news, an internal memo from IBM CEO Samuel J. Palmisano stated that there would be a consolidation in executive management structure at the company. The software and hardware organizations have been combined under a single executive and the two global services arms have been consolidated at the top as well.
• Microsoft announced strong results for the fourth quarter and fiscal year ending June 30. The company reported that the release of Office 2010, as well as continued strong sales of Windows 7, helped lift these numbers. Net income for the quarter increased 49 percent year-over-year to $5.93 billion. Revenue for the quarter rose 22 percent over the same period last year to $16.04 billion, Microsoft added. For the fiscal year, Microsoft announced that net income grew 29 percent over last year to $18.76 billion, while revenue increased seven percent to $62.48 billion. Meanwhile, Sybase reported that total revenue for the second quarter grew nine percent year-over-year to $302 million. Revenue from licenses increased six percent over last year to $100.1 million, while revenue from services rose five percent to $147.2 million, said Sybase. Messaging revenue also grew 24 percent compared to the same quarter last year to $54.8 million. Sybase added that net income for the quarter grew 20 percent year-over-year to $45.3 million.
• VMware reported a 48 percent increase in revenue for the second quarter to $674 million. Revenue from new software licenses increased 42 percent to $324 million, while revenue from services, including maintenance fees, rose to $350 million, VMware added. According to the company, net income also doubled over last year to $75 million. Separately, Wipro announced strong financials for the first quarter ending June 30. Net income grew 31 percent over the same quarter last year to $284 million, while total revenues rose by 16 percent to $1.56 billion, said Wipro. The company also announced that it added 4,854 employees this quarter even though the voluntary attrition rate increased to just shy of 16 percent.

Experton Group believes the IT sector did relatively well over the second quarter of 2010 but troubling signs exist for the second half of the year. A potential global economic slowing may adversely affect most vendors and user organizations. Companies such as Microsoft, with its new Office and Windows lines, may not feel the impact but those without new products with strong drag may see a slowdown. Since this will most likely impact all sectors (including governments), IT executives should push for more aggressive discounts or value propositions and constrain spending, except for projects that will have rapid paybacks and/or reduce expenditures over the long-term.