IBM's Very Good Year

Maybe IBM should change its name to IBS, as in International Business Services. Today, company officials couldn't contain their enthusiasm and issued preliminary revenue numbers that buoyed IBM, the technology market and (in a welcome whiff of good news) the stock market in general. While much of the tech world has

Maybe IBM should change its name to IBS, as in International Business Services. Today, company officials couldn't contain their enthusiasm and issued preliminary revenue numbers that buoyed IBM, the technology market and (in a welcome whiff of good news) the stock market in general.

While much of the tech world has remained fixated on Google and Yahoo, IBM under Sam Palmisano has gone about its work transforming the company from a hardware, big box company with much of its business and growth prospects in the U.S. to a very international services-focused organization, which is quite willing to move resources to India, China and beyond.

First, a couple quick hits from the IBM release:

The company's fourth quarter earnings (for the quarter ended 2007) were up 24 percent as compared to the comparable quarter a year earlier to $2.80 per share. Meanwhile, revenues increased 10 percent to $28.9 billion.

For the year, comparing 2006 to 2007, the company enjoyed an 18 percent increase in earnings (to $7.18 per share), revenues nearing $100 billion at $98.8 billion and a cash balance of $16 billion.

While the company won't be releasing complete financial details until Jan. 17, in a press release accompanying the preliminary financials, Palmisano stated, "The broad scope of IBM's global business--led by strong operational performance in Asia, Europe and emerging countries--drove these outstanding results. IBM is well-positioned as we begin 2008 as a result of our global business reach, solid recurring revenue stream and strong financial position. We are on track to achieve our long-term earnings-per-share roadmap objective in 2010."

For those analysts that like to parse prepared statements, the emphasis on strong performance in Asia, Europe and emerging countries and the added comment on global business reach is a strong indicator that even if tech heads south in the U.S. this year, IBM has lots of other geographic areas to take up the slack. The solid recurring revenue stream is a good place to look for service contracts that get renewed.

Palmisano, who has not been a very visible presence in the press, has been busy moving the business out of the lower performing hardware streams and has been hiring overseas in the emerging technology markets of India, China and Brazil at a feverish pace. IBM has claimed to have more than 5,700 SOA (service-oriented architecture) engagements worldwide.

Here's my speculation on why IBM is poised to have a very good 2008. First, the company with its services focus has started realigning towards vertical markets, and through its own direct force and channel partners is well positioned to quickly capitalize on successful business applications created for one customer to future customers.

The company has continued assembling a strong middleware offering and has shown that it is more than willing to buy what it needs to for further offerings. The early January purchase of Israel-based storage management firm XIV is one recent, and very good, example. The company has stayed true in not offering applications that compete with channel and service provider partners.

While the company has shed some high profile hardware businesses such as laptops, the firm has strong offerings in the management of hardware infrastructure and is at the leading edge of cooling and power management offerings for the server room.

The global service reach and the renewed comfort of feeling that a CIO won't be fired for picking IBM as opposed to a start-up looks good to continue those recurring service revenues.

One of the more overlooked aspects of IBM has been their continue focus on research and development. The R and D labs has been restructured towards developing technologies with more immediate benefits. IBM continues to be one of the few big companies able to spend on research rather than simply worry about what international competitors will do to their bottom line.