IBM's Q4 Profits Up 9 Percent

IBM announced its fourth quarter 2009 earnings showing diluted earnings up 10 percent, net income up 9 percent and revenues up 1 percent over the same period a year ago.

IBM announced its fourth quarter 2009 earnings showing diluted earnings up 10 percent, net income up 9 percent and revenues up 1 percent over the same period a year ago.

On January 19 IBM said that its fourth-quarter net income of $4.8 billion compared with $4.4 billion in the fourth quarter of 2008, while total revenues for the fourth quarter of 2009 were $27.2 billion, an increase of 1 percent over the fourth quarter of 2008.

"We concluded a strong year with a solid performance in the fourth quarter in which we again delivered growth in margins, profit and earnings," said Samuel Palmisano, IBM chairman, president and chief executive officer, in a statement. "IBM continued to benefit from our strategic transformation, offerings that our clients value in this economy, and our commitment to developing countries around the world."

Alan Krans, an analyst with Technology Business Research (TBR), said IBM Software is emerging from the recession more profitable and primed for growth. Added Krans:

""Even prior to the recession, IBM Software maintained a stable, steady growth strategy that proved its worth during the recession in 2009. IBM's Software business was not the fastest growing company prior to the recession, but its stability was an asset as revenue slowed during 2009. The segment's high proportion of annuity-based maintenance contracts limited revenue declines to single digits, while layoffs and spending constraint caused operating margins to increase even as revenue declined.""

Revenues from IBM's Software segment were $6.6 billion, an increase of 2 percent compared with the fourth quarter of 2008. Revenues from IBM's key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $4.1 billion, an increase of 6 percent versus the fourth quarter of 2008. Operating systems revenues of $621 million was flat compared with the prior-year quarter.

More specifically, revenues from the WebSphere family of software products increased 13 percent year over year, revenues from Information Management software increased 7 percent, and revenues from Tivoli software increased 7 percent. Meanwhile, revenues from Lotus software decreased 5 percent, and revenues from Rational software decreased 4 percent.

On January 12, Steve Mills, senior vice president and group executive for IBM Software, issued a memo to IBM Software Group employees detailing the company's move to split the IBM Software Group into two primary components: the IBM Software Solutions Group and IBM Software Middleware Group.

"In 2009, we invested in opportunities such as Smarter Planet solutions, cloud computing and advanced analytics," Palmisano said in a statement. "These new capabilities position IBM to grow as the economy recovers. The increased operational leverage we have established by creating a globally integrated enterprise will enable us to drive greater profits as revenue growth returns. We are confident about 2010 and our ability to achieve the high end of our long-term roadmap."

On the services front, total IBM Global Services revenues increased 2 percent. The company's Global Technology Services segment revenues increased 4 percent to $10.1 billion, and IBM's Global Business Services segment revenues decreased 3 percent.

Meanwhile, TBR's Krans said he believes acquisitions will lead IBM out of the recession. "Acquisitions will play a large part in IBM's increased level of investment and growth during 2010," Krans said in a statement. "Over the past five years, IBM Software fine-tuned its expansion strategy, which is based in large part on the new revenue contributions from acquired companies. TBR estimates that more than half of IBM Software's growth over the past five years can be attribute to acquisitions, as the legacy base of software revenue is much larger and more difficult to grow significantly."

In that regard, IBM on January 20 announced its acquisition of to acquire National Interest Security Company (NISC) to further strengthen IBM's ability to deliver advanced analytics and IT solutions to the public sector.

For his part, Brian Marshall, an analyst with Broadpoint AmTech, said, "Despite its global footprint, IBM has remained nimble and has kept its -feet moving' by changing with technology trends. Instead of remaining stagnant with historical industry standards (e.g. mainframe-based client/server architectures), IBM has invested its $6 billion annual research and development budget wisely and is a leading innovator within the constantly changing technology industry."