IBM rides new businesses to higher revenue, profit

International Business Machines Corp. lifted its revenue in the second quarter, helped by growth in new business lines that constituted more than half of overall sales for the period.

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Revenue rose 3.7% from a year earlier to $20 billion, the company's third consecutive quarter of revenue growth. Analysts polled by FactSet had expected $19.9 billion in revenue.

Chief Executive Ginni Rometty is trying to turn IBM around by pinning its future on a series of fast-growing businesses lumped under what the company calls strategic imperatives, including cloud computing, security and data analytics. Revenue from those offerings totaled $10.1 billion in the quarter, up 15% from a year earlier.

"We've done the work to reposition our company," finance chief James Kavanaugh said about the focus on the strategic imperatives markets. "We are seeing our investments in these high-value segments of the IT industry now paying off."

The Armonk, N.Y., company's second-quarter profit rose 3.1% to $2.4 billion. Excluding special items, IBM reported a profit of $3.08 a share. Analysts polled by FactSet were expecting an adjusted profit of $3.04 a share.

IBM shares rose 0.7% to $144.52 during Wednesday trading. In after-market trading, they were ahead 0.6%.

Despite reporting higher revenue and profit in the latest quarter, IBM still faces challenges on several fronts. In its Cognitive Solutions segment, which includes services tied to the Watson supercomputer, sales fell 1% after adjusting for currency moves to $4.6 billion.

Mr. Kavanaugh said the segment includes IBM's transaction-processing software business, which produces software that is a "critical component" to IBM because it produces high profits.

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Sales in Systems, a segment that includes the company's mainframe business, shot up 25% to $2.2 billion. Some observers believe the company will likely find it difficult to keep up with that pace when a purchasing cycle for its mainframe products starts to wind down.

IBM's margins, another concern for shareholders, fell in the latest quarter. The gross profit margin of 46% was slightly down from 46.5% in the year-earlier period.

IBM said it expects full-year earnings per share of at least $11.60, up 2 cents from its prior forecast. The company maintained its forecast for adjusted earnings of at least $13.80.