IBM Sees Growth In Software, Services

Big Blue's fourth quarter results indicate key parts of the tech sector are poised for a rebound in 2010.
Solid fourth quarter results posted Tuesday by bellwether IBM are the latest sign that growth in the tech industry has resumed.

The company reported a slight year-over-year gain of .8% in overall sales, but key lines like software and tech services enjoyed more robust increases.

"We concluded a strong year with a solid performance in the fourth quarter in which we again delivered growth in margins, profits, and earnings," said IBM CEO Sam Palmisano, in a statement.

IBM saw the strongest gains in sales of middleware, which is software that allows business systems to talk to each other and which provides a foundation for advanced IT architectures like cloud computing and software-as-a-service.

Sales of IBM's Websphere middleware product rose 13%, the company said, while its overall software sales climbed 2.4%.

IBM also enjoyed a return to growth in its outsourcing business, which had stalled due to the economic downturn. Big Blue's Global Technology Services unit saw a 4.4% jump in sales during the fourth quarter.

The outsourcing industry overall appears to be rebounding from 2009, when sales of tech services were the lowest in a decade. The total contract value of all outsourcing deals signed in the fourth quarter was 8% higher than in the fourth quarter of 2008, according to market watcher TPI.

IBM didn't fare as well on the hardware side, where sales continued to suffer in the face of the downturn and commoditization.

The company's Systems & Technology group reported a 4.3% decline in revenue, with sales of System p Unix and Linux servers off 14% and sales of System z mainframes down 27%. Sales of x86-based System x servers, however, enjoyed a 37% increase.

Palmisano last week moved long-time software executive Ambuj Goyal to hardware in an effort to shake up the group.

IBM's overall net income for the fourth quarter rose 8.7%, to $4.8 billion, while earnings per share increased 9.8%, to $3.59. Total revenue was up .8%, to $27.2 billion.

For the full-year 2009, IBM reported revenue of $95.7 billion, down 7.6% from 2008. Net income jumped 8.8%, to $13.4 billion, while EPS rose 12.6%, to $10.01. IBM said it expects EPS for 2010 to come in at $11.00.

IBM shares were off 2.74%, to $130.46, in late afternoon trading Wednesday as markets traded sharply lower.

Attend our virtual event on modernizing IT governance, risk, and compliance to accelerate flexibility and visibility. It happens Feb. 10. Find out more (registration required).