IBM Profits From Huge Mainframe Sales Rise

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IBM continues to see strong demand for big iron, after sales of System z mainframes rose nearly 70 percent

IBM continues to grow thanks to the strong performance of its systems and software.

IBM said fourth-quarter net income was $5.3 billion (£3.3 billion) compared with $4.8 billion (£3 billion) in the fourth quarter of 2009, an increase of 9 percent. Total revenues were $29 billion (£18 billion), an increase of 7 percent from the fourth quarter of 2009.

“We completed an outstanding year, with record profit and free cash flow, and exceeded the high end of our 2010 earnings per share roadmap objective,” said Samuel J. Palmisano, IBM chairman, president and chief executive officer, in a statement. “We also capped a decade in which our shift to high-value businesses, our global integration of IBM, our investment in research and development of almost $60 billion (£37 billion) and our acquisition of 116 companies have helped us to nearly triple our EPS and return more than $100 billion (£62 billion) to shareholders.

Mainframe Growth

“As IBM enters its second century, we will continue to focus on our long-term strategic initiatives – growth markets, Smarter Planet Solutions, cloud and business analytics – as we drive to achieve our new roadmap target of operating earnings per share of at least $20 (£12.51) in 2015.”

During a call with analysts to discuss IBM’s earnings, Mark Loughridge, Senior vp and CFO, Finance and Enterprise Transformation, said, “Systems and Technology had fantastic performance, with 21 percent growth. We had growth in every platform, but the most impressive growth was in our System z mainframes, which were up almost 70 percent.”

Revenues from the Systems and Technology segment totalled $6.3 billion (£3.9 billion) for the quarter.

Loughridge added that “Systems and Technology was up 22 percent at constant currency, with growth in every platform, and particularly strong performance in our System z mainframe. Our software revenue was up 12 percent at constant currency without the divested PLM [Product Lifecycle Management] operations.”

Moreover, from a geographic perspective IBM’s major market revenue growth was 5 percent at constant currency, led by the US, France and Italy, Loughridge said. Yet, “Our growth markets revenue was up 13 percent at constant currency. Business analytics, another of our key growth initiatives, was up 19 percent.”

For his part, Loughridge said for the full year of 2010, the growth markets were up 11 percent, and outpaced the major markets by 10 points, faster than the company saw in both 2008 and 2009. “The combined revenue in the BRICs [Brazil, Russia, India and China] was up 17 percent, with growth in each of the four countries, and particularly strong growth in China which was up 25 percent and Russia, up 46 percent, Loughridge said. “Our growth markets performance was broad-based; with double-digit growth in 50 growth market countries, up from 32 last quarter.”

Software

Meanwhile, in the software arena, IBM saw strong performance in its key middleware brands, Loughridge said. WebSphere was up 32 percent year to year; Tivoli was up 12 percent; Rational was up 10 percent, and Information Management was up 10 percent. Lotus revenues decreased 3 percent. Overall, revenues from IBM’s key middleware products were $4.7 billion (£2.9 billion).

“And we continue to add to IBM’s capabilities,” Loughridge said on the call with analysts. “With the acquisition of Netezza, we can extend the value of business analytics to both large enterprises and smaller clients, with a system that’s simple, economical and offers quick time-to-value.

Also on the analytics side of things, IBM’s Global Business Services unit saw its Business Analytics revenue rise over 40 percent. “We’ve now added over 4,000 consultants in 2010, and now have over 7,800 dedicated consultants in our business analytics practice,” Loughridge said.

Revenues from the company’s business analytics operations across services and software segments increased 19 percent, IBM said.

On a year to year basis, overall net income for the year ended December 31, 2010 was $14.8 billion (£9.6 billion) compared with $13.4 billion (£8.3 billion) in the year-ago period, an increase of 10 percent.

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