Emerging countries big contributors to IBM’s revenue

The emerging nations of Brazil, China, India, and Russia together represented five percent of IBM’s second-quarter revenue, and the vendor is looking for those revenue levels to double over the next four years.

“These emerging countries are among the fastest growing IT markets in world — and we’re investing to capture growth,” Mark Loughridge, IBM’s chief financial officer, told analysts during a Wednesday conference call to discuss the vendor’s latest financial results for the three months ended June 30.

IBM’s revenue in China and India grew over 30 percent in the second quarter of fiscal 2007 compared with the same period a year ago. In Brazil, IBM’s revenue rose nine percent, while the vendor’s revenue in Russia rocketed by 52 percent versus the year-ago quarter.

Asia-Pacific helped IBM’s global services operation continue the return to health it began to demonstrate in the first quarter. Previously, IBM’s overall services business had shown little or stagnant growth. Second-quarter revenue growth for the unit was up 10 percent to $13.1 billion on the year-ago quarter. Eleven deals signed in the quarter were larger than $100 million, according to Loughridge. IBM is also seeing more revenue growth from its existing customer base as it invests in the vendor’s services, he said.

In the area of strategic outsourcing, IBM saw particularly strong revenue growth in India with an increase of nearly 150 percent.

Looking at IBM’s services business as a whole in India, Loughridge was extremely bullish. “We’re beating the local competition on their own turf,” he said, citing deals with Delhi Airport and the Indian Tax Authority as well as an expansion of an existing agreement with mobile carrier Idea Cellular.

Elsewhere in the world, IBM’s global surveillance services business is performing strongly. Loughridge cited implementations of surveillance infrastructure at Chicago Transit Authority and the Unicredito Bank.

It wasn’t all good news. IBM’s systems and technology business took a hit from lower demand than had been expected for chips to power games consoles. “We do have opportunities in other high-growth segments, including wired and wireless communications,” Loughridge said. Sales of the vendor’s external disk storage were disappointingly flat.

On the plus side, IBM experienced very strong performance in its tape storage operation where revenue grew 19 percent. The vendor’s System z mainframe continued to do very well driven by customers looking to consolidate servers and embrace virtualization. It’s a trend, Loughridge said, that’s leading users to purchase enterprise-level hardware. “This [z] box saves customers a lot of money; it’s a strong economic proposition,” he added.

IBM’s System i servers again performed poorly, but Loughridge hoped that situation will change once IBM refreshes the family with its Power6 processors, which recently made their debut in the vendor’s System p midrange servers.

On the software side, IBM experienced another “very strong quarter,” Loughridge said, with the vendor’s WebSphere middleware and its Tivoli systems, storage and security management products all performing very well.

Overall, Loughridge was a happy man. “This was a really great quarter,” he said. “I think every CFO waits for a quarter like this.”