IBM surprised Wall Street analysts with its strong across-the-board financial report for the second quarter of 2011, including a 12 percent gain for Power Systems. As Mark Loughridge, senior vice president and CFO of IBM finance and enterprise transformation, noted in his report to investors yesterday, IBM's overall 12 percent revenue growth was driven by IBM's transactional businesses in hardware and software. Plus, software growth was driven by key branded middleware, which was up 21 percent, and systems revenue was up 20 percent, with "strong performance in System z, Power, and System x servers." 

I've pulled out a few of Loughridge's more relevant-to-our-industry statements to share:

"Systems and Technology had another great quarter, with 17 percent revenue growth. System z mainframes were up about 60 percent, System x up 15 percent, and Power systems were up 12 percent as we continue to displace competitive systems. Our software business also grew 17 percent. Once again, growth was led by our business analytics portfolio, storage management, and business integration.

Turning to gross profit, our operating gross profit margin improved 1.2 points. The largest contribution came from Systems and Technology which was up 5 points, driven by improvements in every systems brand, and an improving mix. We also expanded gross margin in Software and Global Business Services."

Later in the call, Loughridge dove into a bit more detail:

Systems and Technology revenue was $4.7 billion, up 17 percent year to year or 12 percent at constant currency. This performance was driven by double-digit growth in System z, Power, System x and Storage, and continued growth in Retail Store Solutions and Microelectronics. Growth Markets grew 24 percent at constant currency with double-digit growth in all brands, while Major Markets grew 7 percent at constant currency. Globally, Systems & Technology gained 3 points of market share in total Servers, driven by strong increases in System z and Power.

Gross profit margin expanded 5 points year to year to 41 percent, driven by margin expansion across the Server and Storage portfolio, and pre-tax margin increased 3.6 points.

Now let me take you through the brands.

System z revenue grew 61 percent year to year and MIPS were up 86 percent. Over the past 4 quarters revenue is up 49 percent year to year and MIPS up 59 percent. This has been the best 4 quarter period in the past 5 years. Since the z196 started shipping in the third quarter of 2010, we have added 68 new System z customers, with more than one-third in the growth markets. Last week we announced the zEnterprise 114 mid range server, which costs 25 percent less and delivers up to 25 percent more performance than the previous z10 business class system. It utilizes up to 14 processors running at 3.8 GHz, and can consolidate workloads from up to 300 competitive servers on a single z114.

Power Systems grew 12 percent, driven by strong growth in both entry and high- end systems. We again extended our market leadership this quarter, the thirteenth consecutive quarter of year-to-year share gain. IBM’s strong performance accounted for all of the UNIX industry’s 5 percent growth. We continued our success in competitive take outs. This quarter we had over 250 competitive displacements, which resulted in over $300 million of business. Roughly 60 percent of this came from Oracle and 30 percent from HP. Since the beginning of 2009, IBM drove nearly 2,300 competitive displacements for about $2.3 billion of business.

Storage hardware revenue grew 10 percent, driven by disk, which was up 13 percent.

System x revenue grew 15 percent year to year, with high-end growth of 26 percent. System x revenue in the growth markets was up 27 percent at constant currency."

IBM's software group, by the way, was up 17 percent with middleware up 21 percent and WebSphere knocking out 55 percent growth year to year.