IBM Profits Drop by One Percent

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Middleware and software development are bright spots, despite revenue going down by ten percent overall

IBM’s profits went down by one percent in the first quarter compared with a year ago. Total revenues at the company – seen as an IT bellwether – went down by eleven percent.

IBM, making a cycle of job-cuts which will affect the UK, announced its first-quarter earnings on 20 April, reporting net income of $2.3 billion compared with $2.32 billion in the first quarter of 2008, a decrease of 1 percent. Total revenues for the first quarter of 2009 of $21.7 billion decreased 11 percent from the first quarter of 2008.

“IBM continued to perform well in a very difficult economic environment,” Samuel Palmisano, IBM chairman, president and CEO, said in a statement. “This was due to our long-term strategic focus: shifting into software and services, divesting of commodity businesses, and creating solutions that help clients reduce cost and conserve capital. At the same time we have a disciplined approach to cost and expense management giving us a strong financial position.”

From a geographic perspective, IBM’s first-quarter revenues in the Americas were $9.3 billion, down 7 percent from the 2008 period. Revenues from Europe/Middle East/Africa region were $7.2 billion, down 18 percent, and Asia-Pacific revenues decreased 6 percent to $4.8 billion. In addition, revenues from the company’s growth markets organisation decreased 12 percent, representing 17 percent of geographic revenues.

During a conference call detailing the company’s earning’s, Mark Loughridge, IBM senior vice president and chief financial officer, said IBM’s services organisation had 16 services deals greater than $100 million. However, total IBM Global Services revenues decreased 10 percent, Loughridge said. Global Technology Services segment revenues decreased 10 percent to $8.8 billion and Global Business Services segment revenues decreased 10 percent to $4.4 billion.

Meanwhile, revenues from IBM’s Software segment were $4.5 billion, a decrease of 6 percent compared with the first quarter of 2008, and revenues from IBM’s middleware products, primarily WebSphere, Information Management, Tivoli, Lotus and Rational products, were $3.6 billion, a decrease of 5 percent. But for the WebSphere family of products alone, revenues increased 5 percent year over year, while revenues from Rational software, IBM’s integrated software development tools, increased 9 percent.

Moreover, Loughridge said as IBM adjusts following its drop in first-quarter results the company will be making a “transition toward higher-value software and services.” This will include moves such as IBM’s Smarter Planet initiative, business analytics and new computing models such as cloud computing. Loughridge also said he expects more positive results from IBM’s Cognos and Ilog product lines, which performed well in the first quarter.

“Information management is a key component of our new IBM Business Analytics and Optimization Services,” Loughridge said, speaking of the new consulting practice IBM announced this month.

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