IBM Beats Second-Quarter Estimates on Higher-Margin Strategy

IBM's sales fell 2% in the second quarter, but earnings surged 34% higher as a newfound focus on high-margin software and services takes hold.

Anders Bylund
Anders Bylund
Jul 17, 2014 at 6:02PM
Technology and Telecom

IBM (NYSE:IBM) just reported results for the second quarter of 2014. In after-market trading, IBM shares rose 2% at first, but then reversed course to a 1.6% drop.

In the second quarter, revenue fell 2% year over year to land at $24.4 billion. On the other hand, adjusted earnings rose 34%, to $4.32 per diluted share. Both figures were slightly ahead of analyst projections.

Sales held steady year over year in the software and services divisions. Hardware sales declined 11%, while financing revenues increased by 4%. Within the hardware segment, System Z mainframe sales fell 1%, while Power-based server revenue plunged 28% lower. IBM's gross margin increased 40 basis points, to 49.3%, as the revenue mix shifted into higher-margin segments.

In a prepared statement, IBM CEO Ginni Rometty highlighted the progress on her company's transforming business model. "We performed well in our strategic imperatives around cloud, big data and analytics, security and mobile," Rometty said.

Looking ahead, IBM continued to expect non-GAAP full-year earnings of at least $18.00 per diluted share, unchanged from projections made in the first-quarter report.