IBM Sees Cloud And Analytics Driving Growth

IBM has posted an impressive set of financial results for the third quarter after a strong performance in growth markets, software and services.

IBM reported that net income in the third quarter grew seven percent to $3.8 billion (£2.4bn) from $3.6 billion (£2.3bn), while revenue also rose a healthy eight percent to $26.2 billion (£16.7bn).

“In the third quarter, we drove revenue growth, margin expansion and increased earnings as a result of our innovation-based strategy and continued investment in growth initiatives,” Samuel J. Palmisano, IBM chairman, president and CEO, said in a statement. “Growth markets delivered outstanding revenue performance across software, hardware and services, and contributed to the company’s expanded margins. We also achieved strong results in Smarter Planet, business analytics and cloud.”

Growth Markets

IBM’s third-quarter results were led by software, which saw revenue growth of 13 percent. Services revenue grew nine percent, and IBM’s Systems and Technology Group’s revenue rose four percent. In addition, IBM experienced solid gains in its growth initiatives. Growth markets revenue was up 19 percent; business analytics revenue was also up 19 percent; IBM Smarter Planet revenue rose 50 percent; and cloud revenue year-to-date is already double IBM’s cloud revenue for all of 2010.

“Consistent with our model, growth markets, along with our other key growth initiatives, are driving our revenue performance,” Mark Loughridge, IBM’s senior vice president and chief financial officer of finance and enterprise transformation, said during an 17 October call with analysts.

Revenue from the company’s growth markets increased 19 percent. Revenue in the BRIC countries – Brazil, Russia, India and China – increased 17 percent. Growth markets revenue represents 23 percent of IBM’s total geographic revenue for the third quarter.

“We did well in the BRIC countries, but two-thirds of our growth market business lies outside of the BRIC countries,” Loughridge said. “We’re seeing significant growth in 40 growth-market countries, not just these BRIC countries. We have 36 other countries driving revenue” as part of IBM’s growth markets strategy.

In addition, Loughridge said revenue from growth markets has been increasing several points more – and faster – than IBM’s major markets over the last few years. What’s more, he said, “The growth markets have a lot of margin capability.” For instance, big banks in Africa and Asia are looking to rebuild infrastructure, which means new mainframe deals, he said, adding that the continued telecom boom in Asia represents a key opportunity.

“We see expanding potential there,” Loughridge said of the growth markets. “It’s not just a matter of capitalising on expanding growth into these new markets.”

Middleware Performance

The Americas’ third-quarter revenue was $10.9 billion (£6.9bn), an increase of seven percent from the comparable 2010 period. Revenue from Europe/Middle East/Africa was $8 billion (£5bn), up nine percent. Asia-Pacific revenue increased 10 percent to $6.5 billion (£4.1bn).

Meanwhile, revenue from the software segment totalled $5.8 billion (£3.7bn), an increase of 13 percent. Revenue from IBM’s key middleware products, which include its WebSphere, information management, Tivoli, Lotus and Rational products, was $3.6 billion (£2.3bn), an increase of 17 percent, versus the third quarter of 2010. Operating systems revenue of $598 million (£381m) increased 9 percent from the prior-year quarter.

Specifically, revenue from the WebSphere family of software products increased 52 percent year over year. Information management software revenue increased 12 percent. Revenue from Tivoli software increased eight percent. Revenue from Lotus software increased six percent, and Rational software increased seven percent.

In the information management space, IBM’s Netezza grew 36 percent over last year. “Since its introduction in 2009, the Netezza appliance has won over 80 percent of the head-to-head proof of concepts against the competition,” Loughridge said.