IBM Q4 Profits Rise on the Strength of Software, Services

IBM continued on its course of steady growth, reporting fourth-quarter 2011 net income of $5.3 billion for a 4 percent increase over the same period a year ago.

Mark Loughridge, IBM's chief financial officer, said software and services led the way in the fourth quarter, with software revenue up 9 percent and both Global Technology Services and Global Business Services up 3 percent.

Total revenue for the fourth quarter of 2011 was $29.5 billion, an increase of 2 percent.

Loughridge said IBM focused heavily on its target areas of Smarter Planet, business analytics, cloud computing and its Growth markets Unit. "The construct behind these areas is that one-half of that revenue is from software," he said. "We get more than half of the revenue from these segments from software.

"Looking at the fourth quarter by segment, we continued to build our momentum in software, our performance reflecting both strong demand for our offerings and leadership sales execution," Loughridge said. "Our software revenue was up 9 percent, driven by aggressive growth in our focus areas like Smarter Commerce, business analytics and storage solutions. Our software profit was up 12 percent.”

"We had a strong fourth-quarter performance, capping a year of record earnings per share, revenue, profit and free cash flow," said Ginni Rometty, IBM president and CEO, in a statement. "We delivered outstanding results in all four of our strategic initiatives for the quarter and the year, as we continued to realize the benefit of our long-term investments in growth markets, business analytics, Smarter Planet solutions and cloud. We are well on track toward our long-term roadmap for operating earnings per share of at least $20 in 2015.""

Revenue from IBM's growth markets increased 7 percent. Revenue in the BRIC countries—Brazil, Russia, India and China—increased 10 percent.

"Our growth markets outpaced the major markets by 8 points of revenue growth," Loughridge said. "The BRICs had another good quarter; combined they were up 11 percent and with nearly two-thirds of our growth markets business outside the BRICs, all together, we had double-digit growth in 40 growth market countries. So our performance was broad-based. We're continuing to expand into new countries and territories, to build out IT infrastructures in support of economic growth and to take a leadership position in key industries. This year, to drive market expansion, we opened 92 new branches and we added over 1,500 new sales reps. We gained 4 points of share this quarter and 4 points for the year."

Moreover, "In 2011, our growth markets grew 11 percent, which outpaced the majors by 10 points," Loughridge added. "Growth markets now make up 22 percent of our geographic revenue."

Revenue from software for Q4 2011 was $7.6 billion. Revenue from IBM's key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, was $5.2 billion, an increase of 11 percent versus the fourth quarter of 2010. Operating systems revenue of $710 million increased 3 percent compared with the prior-year quarter.

Revenue from the WebSphere family of software products increased 21 percent year over year. Information Management software revenue increased 9 percent. Revenue from Tivoli software increased 14 percent. Revenue from Lotus software decreased 2 percent, and Rational software increased 4 percent, IBM said.

Meanwhile, revenue from the Systems and Technology segment totaled $5.8 billion for the quarter, down 8 percent from the fourth quarter of 2010. Total systems revenue decreased 7 percent. However, revenue from Power Systems increased 6 percent compared with the 2010 period. Revenue from System z mainframe server products decreased 31 percent compared with the year-ago period, which was the first full quarter after a new product introduction. Total delivery of System z computing power, as measured in MIPS (millions of instructions per second), decreased 4 percent, IBM said.

Loughridge said every key category of IBM technology either gained or held share except the mainframe. "The only place we lost share was the mainframe," he said. "Now who do you think we lost share to? We lost share to Poser series—our own product.

"Within hardware, Power Systems was up 6 percent, as we continued to drive competitive displacements," Loughridge said. "We've now had 15 consecutive quarters of share gain in Unix. In fact, with the exception of mainframe, which was coming off of the biggest quarter in its history last year, each of our 16 brands across the company gained or held share."

In addition, in the hardware space, Loughridge said IBM continues to displace competitors' products.

"We continued our success in competitive takeouts," Loughridge said. "In the fourth quarter, we had over 350 competitive displacements, which resulted in over $350 million of business. This is our strongest quarter in terms of competitive displacements since we started tracking this in 2006. Roughly 60 percent of this business came from HP, with most of the balance from Oracle/Sun. 2011 was the second year in a row we had over 1,000 competitive displacements, which this year generated over $1 billion of business."

Looking at the year in total, IBM's net income for the year ended Dec. 31, 2011, was $15.9 billion, compared with $14.8 billion in the year-ago period, an increase of 7 percent.