Just more bad news for the incumbents. Aivars Lode avantce

Cost-Cutting Aids IBM's Profit, but Revenue Remains Soft

Computing Giant Continues to Struggle With Shifts in Market

International Business Machines Corp. failed for a ninth straight quarter to boost revenue, but the technology giant's bottom line benefited from recent cost-cutting.

On Thursday, it posted a 28% second-quarter net gain, partly reflecting a restructuring charge that held down its year-earlier results. Revenue declined 2.2%.

The company's flagship mainframe-computer business performed better than analysts expected. But revenue from another key line of server systems continued to slump, while IBM's software and services businesses didn't show the growth that some analysts had projected.

IBM shares were up nearly 3% since the beginning of the year. Following the after-hours earnings release, they fell about 2%.

Like many big hardware makers, IBM is struggling to respond to shifts in the market for business technology such as cloud computing. Getty Images

Like many big hardware makers, IBM is struggling to respond to shifts in the market, including the rise of low-priced commodity servers. Many customers also are outsourcing operations to so-called cloud services, reducing spending on both computers and software.

Chief Executive Virginia Rometty has ramped up IBM's investments in cloud computing and areas such as analytics software. To expand among business users of smartphones and tablets, IBM and Apple Inc. Tuesday agreed to team up in order to create simple-to-use business apps and sell iPhones and iPads to Big Blue's corporate customers.

IBM on Thursday highlighted gains in some of those areas, including a 50% increase in cloud computing revenue. But those businesses aren't yet large enough to offset struggles in the company's legacy business.

IBM, for example, said revenue from services—its largest business—declined 1%, though including the effect of a recent divestiture revenue was up 1%.

Toni Sacconaghi, an analyst at Bernstein Research, noted during a conference call that new signings of services deals were off substantially and that IBM has had nine straight quarters with revenue declines in services.

He also said IBM fell short of its executives' optimistic projections this spring about software revenue, which grew just 1%, while its operating-system revenue declined 13%. "They were very emphatic that software would improve this quarter," Mr. Sacconaghi said.

Martin Schroeter, IBM's chief financial officer, responded that he remains optimistic that both software and services will perform better in the second half of 2014.

Overall, IBM reported a profit of $4.14 billion, or $4.12 a share, up from $3.23 billion, or $2.91 a share, in a year-earlier quarter that included a restructuring charge of about $1 billion.

Revenue decreased to $24.36 billion from $24.9 billion.

IBM said its earnings excluding certain one-time costs came to $4.32 a share. Analysts polled by Thomson Reuters expected earnings on that basis of $4.29 a share on revenue of $24.13 billion.

Gross margin rose to 49.1% from 48.7%.

Revenue in IBM's systems-and-technology unit, which includes its hardware business, slid 9.8% to $3.52 billion, the 11th straight period of year-over-year declines. But the result marked an improvement from declines of more than 20% in the two preceding quarters.

Revenue for mainframe computers, which had fallen 40% in the first quarter, declined 1% in the second period. But the other key server line, IBM's Power systems, experienced a 28% revenue decline.

Mr. Schroeter noted that IBM has so far only delivered a low-end version of new Power hardware based on its latest microprocessor chip, with mid-range and high-end machines expected to aid revenue later this year.

IBM has announced plans to sell a line of systems that uses standard x86 chip technology, largely associated with Intel Corp., to Lenovo Group Ltd.That deal is still awaiting regulatory approval.