IBM's hardware declines narrow; cash flow still trails earnings

|By:, SA News Editor

With the help of easier comps, IBM's hardware/chip sales fell 11% Y/Y in Q2, a notable improvement from Q1's 23% and Q4's 26%. Mainframe sales -1%, Power servers (UNIX-focused) -28%, x86 servers (due to be sold to Lenovo) -3%, storage -12%, chips (reportedly on the block) -18%.

Global Technology Services -1% vs. -3% in Q1. Global Business Services -2% vs. flat Q1 growth. The services backlog stood at $136B, -1% Y/Y after backing out the sale of IBM's customer care outsourcing ops to Synnex.

Software revenue +1% vs. +2%. OS sales (hurt by server weakness) fell 13%, while key branded middleware rose 1%. Global financing +4% vs. +3%.

Big Blue spent $3.7B on buybacks, less than the whopping $8.2B spent in Q1. Gross margin rose 40 bps Y/Y to 49.1%. Q2 free cash flow was $3B, less than net income of $4.3B (continuing a recent trend).

Americas revenue -1%, EMEA +1%, Asia-Pac (weak in recent quarters) -9%. "Growth markets" -7%, and BRIC countries -2%.

Tax rate was 20%, even with Q1 but down from 22% a year ago. IBM ended Q2 with $9.7B in cash, and $17.1B in non-Global Financing debt.

IBM now -1.1% AH. Q2 results, PR.