IBM rides software revenue to Q2 profit

Led by strong performance in its software business, IBM Corp. on Tuesday posted second quarter profits up nine percent from last year.

The company earned US$2.0 billion in the quarter ending June 30, compared to $1.9 billion in the second quarter of 2005.

Per share earnings were $1.30, which marked a 14 percent increase over $1.14 last year. The company also beat expectations from analysts polled by Thomson Financial, who had predicted earnings of $1.29 per share on revenue of $21.89 billion.

IBM reported revenue of $21.9 billion, down 2 percent from last year. When adjusted for the company's May 2005 sale of its PC business to China's Lenovo Group Ltd., the result was up one percent.

The most profitable business segments in the second quarter were software, microelectronics and IBM's System z mainframe computers, said Mark Loughridge, senior vice president and chief financial officer, during a conference call with analysts and reporters.

The strength of those areas offset losses in IBM's server segment, where problems in the supply chain left some orders unfulfilled, and in services, where short term orders were weaker than expected.

"While some areas of our business did well, others leave room for improvement," Loughridge said.

The company was able to compensate for its weaknesses through a renewed focus on its highest-margin businesses, IBM Chairman and CEO Samuel Palmisano said in a statement.

Under that process, IBM cited low margins as the main reason it jettisoned its PC line to Lenovo last year. Likewise, IBM has boosted its investment in high-margin segments like its software and services businesses.

Revenue from the company