IBM Defies Downturn With Solid Third QuarterIBM Defies Downturn With Solid Third Quarter

IBM continued to defy the economic downturn last week, reporting per-share earnings of 90 cents for the third quarter ended Sept. 30. While that represents a 17% drop from the same quarter last year, the news is positively bullish compared with recent results from rivals, some of which--including Sun Microsystems--recorded a loss during the period. IBM's third-quarter net income was off 19% to $1.59 billion, while revenue fell 6% to $20.43 billion.

Strong showings from the company's services, software, and mainframe groups girded the results, IBM chairman and CEO Lou Gerstner said in a statement. "Customers now allocate an increasing percentage of their spending to solutions, not boxes. The major beneficiary of this change ... has been IBM Global Services," Gerstner said. Software developers are increasingly recommending IBM middleware, and zSeries mainframe sales are picking up "as customers all over the world see the value of server consolidation," Gerstner said.

IBM landed a major contract last week with Wal-Mart Stores Inc. Sources familiar with the deal say the retailer has purchased 12 z900s and 20 Shark storage systems for $40 million. Wal-Mart officials declined to comment.

IBM also reiterated its goal to develop server technologies that enable systems capable of managing and maintaining themselves. The company revealed a grant program to fund university research in the area.

For the quarter, IBM Global Services revenue grew 5% to $8.68 billion, and software sales jumped 10% to $3.2 billion. IBM also said revenue from z900 sales "grew strongly," though it didn't provide a figure. But the vendor isn't immune to the slump in hardware sales: Overall, revenue from sales of PCs and servers fell 21% year over year to $7.48 billion.

Analysts say IBM's diversity is what's behind the vendor's apparent ability to withstand the downturn. Says Bob Sutherland, a Technology Business Research analyst, "Whenever they experience weakness in one area, there seems to be strength in another."