Software // Enterprise Applications
05:13 PM

IBM's First Quarter Reveals Slow Growth In Crucial Services Business

While earnings posted a 21% gain over a year ago, sales of business and technology services fell 1.2% to $11.6 billion.

IBM on Tuesday reported 2006 first-quarter results that indicate it's having a tough time achieving sales growth in an area where it has staked much of its future--services.

For the period ending March 31, IBM's sales of business and technology services fell 1.2% year-over-year to $11.6 billion. The company's services backlog--a number that represents future customer commitments not yet booked as revenue--stood at $111 billion, essentially flat with the previous year.

IBM's total first quarter revenue came in at $20.7 billion, roughly equal to its fiscal 2005 first-quarter sales when revenue from its now divested PC business isn't included. Earnings increased 21% year-over-year to $1.7 billion, while earnings per share climbed 27% to $1.08. In a statement, IBM CEO Sam Palmisano said IBM's first-quarter performance "underscores the strength of our business model across a balanced portfolio of software, services and hardware."

IBM's revenue from software sales in the first quarter increased a modest 2.4% to $3.9 billion. Within the software group, middleware sales rose 6% to $3 billion, while operating system revenues fell 12% to $520 million. Hardware sales managed a 3% gain to $4.6 billion. IBM's sales of Windows- and Linux-based xSeries servers increased 10%, while sales of Unix-based pSeries servers fell 9%.

With services revenue now accounting for more than half of IBM's total sales, the company needs to find a way to spark growth in that area. That won't be easy, as low-priced Indian competitors are maturing and now pose fierce competition for both customer wins and employees. In recent days, indigenous Indian services vendors Infosys and TCS reported quarterly sales gains of 28% and 36%, respectively. Rivals Wipro, which reports quarterly earnings on Wednesday, and Satyam, expected to report on Friday, are widely expected to post similarly impressive gains, even as IBM's services business stagnates.

Comment  | 
Print  | 
More Insights
Newest First  |  Oldest First  |  Threaded View
Building A Mobile Business Mindset
Building A Mobile Business Mindset
Among 688 respondents, 46% have deployed mobile apps, with an additional 24% planning to in the next year. Soon all apps will look like mobile apps and it's past time for those with no plans to get cracking.
Register for InformationWeek Newsletters
White Papers
Current Issue
Top IT Trends to Watch in Financial Services
IT pros at banks, investment houses, insurance companies, and other financial services organizations are focused on a range of issues, from peer-to-peer lending to cybersecurity to performance, agility, and compliance. It all matters.
Twitter Feed
InformationWeek Radio
Archived InformationWeek Radio
Join us for a roundup of the top stories on for the week of September 25, 2016. We'll be talking with the editors and correspondents who brought you the top stories of the week to get the "story behind the story."
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.