When International Business Machines Corp (IBM) reported a higher profit margin for the second quarter 2012, experts started feeling that technology services sector is recovering and getting immune to the challenges posed by a weak economy.
Last month IBM reported its second quarter profit to be $3.88 billion and earnings per share to be $3.34 which is up from $3.66 billion and earnings per share of $3 in 2011 while other tech suppliers reported a decline owing to the slowdown in the economy. The net profit of IBM is up by 6% when compared to the last year. The high profit margin helped the company to raise their operating earnings from $3.09 per share to $3.51 share. The value of operating earnings per share exceeded the expectation of analysts who predicted it to be $3.42 per share.
However revenue was down by 3% from the previous year for the second quarter. Strong dollar currency resulted in lowering down of revenue of IBM which was $1 billion to reach $25.78 billion this year. Revenue from its hardware business dropped down to 9% for the quarter and has been showing a declining trend for three consecutive quarters.
Since IBM is one of the leaders in information technology services including hardware, software and business services, its results and progress have always been closely watched by the industry experts and the performance of this company is taken as a measure to understand the trends of the industry. The company earned a higher profit margin from its high end business process outsourcing (BPO) services which is the company’s largest arm that accounts for $ 60 billion in revenues an year.
The success of IBM over years can be attributed to its long term strategic plan to move up the value chain. It moved to the business of providing analytical services along with hardware and software services to various companies and governments. Gradually they geared up their outsourcing business to provide more challenging services such as traffic management services for cities across the world. According to IBM sources, moving up the value chain insulated them from the economic slowdown. IBM has been constantly investing in emerging markets like India, Brazil, Russia and China which helped them to boost their revenue from outsourcing services business.
IBM termed “industrialization of services” as the key to success of their outsourcing business. It means the automation of outsourcing process with different software’s, pairing up of the similar tasks to standardized and repeating task as well as sharing the work around the globe where it can be done at a low cost and more efficiently.
IBM earned higher profit margins from outsourcing projects where the tasks were automated with software’s. They have engaged their research scientists with the objective of automating their outsourcing process considering the wage rise for skilled workers in emerging markets. IBM is looking forward to include more technology to improve the processes in their outsourcing business to further improve their profit margin.