IBM Strong Q4 to Spur 2008 Growth

IBM is finding money to be made in Asia, Europe and emerging markets as business sags in the United States.

IBM announced strong fourth quarter earnings led by its global business, particularly in Asia, Europe and emerging markets, signaling a bright outlook for the systems giant despite a potential slowdown in the United States.

For its fourth quarter of 2007, which ended Dec. 31, 2007, IBM announced earnings of $28.9 billion, a 10 percent increase over the same period in 2006. Moreover, the financial results announced on Jan. 17 showed record revenues for software. IBM had software revenues of $6.3 billion, an increase of 12 percent over the same period in 2006.

However, although overall revenues were up 10 percent, revenue in the United States was up only 2 percent, Europe/Middle East/Africa was up 16 percent to $10.8 billion, and Asia revenues were up 15 percent to $5.5 billion. In Asia, Japan had a particularly strong showing, with revenue growth of 20 percent over the same period a year ago.

"IBM had a terrific fourth quarter and full year with record revenue, profit and cash," said Samuel J. Palmisano, IBM chairman, president and chief executive officer, in a statement. "The broad scope of our global business -- led by strong operational performance in Asia, Europe and emerging countries -- as well as continued growth in services and software drove these outstanding results."

With overall software revenues up 12 percent, revenues from IBM's middleware products, which primarily include IBM's WebSphere, Information Management, Tivoli, Lotus and Rational products, were $5 billion, up 13 percent versus the fourth quarter of 2006, the company said. WebSphere revenues grew by 23 percent, Tivoli grew 19 percent, IBM's Information Management solutions grew 11 percent, and Lotus solutions for collaboration, messaging, real-time communications and knowledge management grew 7 percent. In addition, revenue from IBM's developer tools group, the Rational division, grew 22 percent, said Mark Loughridge, IBM's chief financial officer, during a call with analysts.

Allan Krans, an analyst with TBR (Technology Business Research), said IBM remains the second-largest software vendor, but faces mounting threats in an increasingly competitive market. "The greatest threat to IBM's position in the enterprise software market is Oracle, which is rapidly growing revenue through acquisitions and cross-selling middleware, database and business application products."

Krans said Oracle surpassed IBM Software in terms of revenue during 2007, reporting total revenue of $20.08 billion compared with IBM Software's total annual revenue of $19.98 billion. Yet, "IBM retains a significant advantage in terms of software-only revenue, however, as Oracle's total revenue for 2007 drops to $15.9 billion when professional services are excluded."

Moreover, Krans said IBM is becoming increasingly dependent on software for both growth and profitability, "and significant investments have been made in the software business in order to ensure the positive contributions to corporatewide results continue. IBM may not be able to match the acquisition and applications-fueled growth rates reported by Oracle, but TBR believes the targeted R&D investments in SOA [service oriented architecture], combined with acquisitions to solidify its software portfolio."