IBM Beat Buoys Hope

IBM said Global Services revenue, including maintenance, fell 1% to $11.9 billion in the second quarter. The company signed services contracts totaling $9.6 billion, which seemed to disappoint both the company and investors.

"The signings were weaker than we would have liked," Caughey said.

Djurdjevic agreed that IBM is still having trouble growing its services and said the reorganization of the division a year ago has not worked. He suggested that the company should break it into smaller segments to be more nimble.

In a conference call with analysts after the bell, IBM Chief Financial Officer Mark Loughridge admitted that services was not up to par.

"In services, our short-term business were weak," Loughridge said, adding that the integrated technology-services business has been in transition as it is rearranged to focus on higher-value and higher-growth segments. The transition has taken longer than expected, however.

"In global business services, though our business grew in the Americas, we underperformed in some key countries in Europe and Asia," he added.

Hardware revenue fell 7% (8%, adjusting for currency) to $5.1 billion, which includes revenue from the divested PC business. Hardware revenue without the PC business increased 3% (2%, adjusting for currency).

Software revenue rose 5% to $4.2 billion. The company said revenue from IBM's middleware brands, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.2 billion, up 4% from a year earlier.