IBM Q4 2012 Profits Up 6 Percent on Software, Hardware

IBM announced a 6 percent increase in net income for its fourth quarter of 2012, driven by software, hardware and growth initiatives.

IBM announced fourth-quarter 2012 net income of $5.8 billion compared with $5.5 billion in the fourth quarter of 2011, an increase of 6 percent.

Big Blue's total revenues for the fourth quarter of 2012 were $29.3 billion, a decrease of 1 percent from the fourth quarter of 2011. However, without the impact of IBM’s divested Retail Store Solutions (RSS) business, revenue increased 1 percent, the company reported.

Net income for the year ending Dec. 31, 2012, was $16.6 billion compared with $15.9 billion in the prior year, an increase of 5 percent. And revenues for 2012 totaled $104.5 billion, a decrease of 2 percent, compared with $106.9 billion in 2011.

IBM's fourth-quarter profits were driven by software, hardware and sales to growth markets. Services income was basically flat.

"We achieved record profit, earnings per share and free cash flow in 2012," said Ginni Rometty, IBM chairman, president and chief executive officer, in a statement. "Our performance in the fourth quarter and for the full year was driven by our strategic growth initiatives—growth markets, analytics, cloud computing, Smarter Planet solutions—which support our continued shift to higher-value businesses. Looking ahead, we continue to invest to deliver innovations for the enterprise in key areas such as big data, mobile solutions, social business and security, while expanding into new markets and reaching new clients. We are well on track toward our long-term road map for operating EPS [earnings per share] of at least $20 in 2015."

Analysts indicated that IBM performed as expected over the quarter. "I'm not surprised by the revenues or profits," said Chris Ambrose, a research vice president at Gartner who follows IBM. "Seems that services revenues will be an area to watch in 2013. But despite some slowdown in revenues for services, they do seem to be doing a good job on margin, which does seem to be where their focus is—restructuring deals, driving toward more cost-effective deals."

IBM revenue from its software segment was $7.9 billion, an increase of 3 percent from the fourth quarter of 2011. Revenue from IBM's key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, was $5.5 billion, an increase of 5 percent versus the fourth quarter of 2011. Operating systems revenue of $709 million was flat compared with the prior-year quarter.

"We saw software growth across the portfolio," said Mark Loughridge, senior vice president and chief financial officer for finance and enterprise transformation at IBM, in a call with analysts.

Revenue from the WebSphere family of software products increased 11 percent year over year. Information Management software revenue increased 2 percent. Revenue from Tivoli software increased 4 percent, that of Lotus software rose 9 percent, and revenue for Rational software grew 12 percent, Loughridge said.

Moreover, growth in IBM's software segment was driven by demand for IBM's growth initiatives, which include Smarter Planet, cloud and business analytics—all software-intensive areas. Business analytics grew 13 percent, Smarter Planet rose 25 percent and IBM's cloud business increased 80 percent, Loughridge said.

Revenue from the Systems and Technology segment totaled $5.8 billion for the quarter, down 1 percent from the fourth quarter of 2011. Excluding Retail Store Solutions (RSS), revenue was up 4 percent. Revenue from System z mainframe server products increased 56 percent compared with the year-ago period; revenue in the growth markets increased 68 percent. Systems and Technology revenue growth came primarily from sales of IBM’s new System z mainframe, Loughridge said.

Total delivery of System z computing power, as measured in millions of instructions per second (MIPS), increased 66 percent versus the prior year and represented the largest MIPS shipment quarter in the company's history. New workload specialty engines, including Linux, represented one-half of the MIPS shipped, Loughridge said.
Revenue from Power Systems decreased 19 percent compared with the 2011 period. Revenue from System x decreased 2 percent, and that of System Storage decreased 5 percent. Revenue from Retail Store Solutions dropped $239 million year over year as a result of the divestiture in the third quarter, and revenue from Microelectronics OEM increased 4 percent.

Meanwhile, revenue from the company's growth markets increased 7 percent. Revenues in Brazil, Russia, India and China—the BRIC countries—increased 11 percent, Loughridge said.

Meanwhile, IBM's Global Technology Services segment revenue decreased 2 percent to $10.3 billion, and IBM's Global Business Services segment revenue was down 3 percent at $4.7 billion. The estimated services backlog as of Dec. 31 was $140 billion.