IBM Reports Solid Growth In Q4 Sales and Profitability

IBM Thursday reported strong sales and profit growth for its fourth quarter ended Dec. 31, but the company's biggest gains came in its services operations and in product sales outside the U.S.

For the quarter IBM reported total revenue of $28.9 billion across all its businesses, a 10 percent gain over sales in the same quarter one year earlier. Net income grew nearly 12 percent in the quarter to $4.0 billion or earnings per share of $2.80.

"This turned out to be a great quarter. In fact, the strongest revenue [and] profit performance in almost a decade," said Mark Loughridge, IBM senior vice president and CFO, in a teleconference. He pointed to the hefty improvements in IBM's profit margins as particularly significant and called the results for the period "a great close to '07, but an even better start to '08."

For all of 2007 IBM reported sales of $98.8 billion, up 8 percent from 2006. Net income for the year increased nearly 10 percent to $10.4 billion or $7.18 per share.

Revenue from IBM's Systems and Technology Group was down 4 percent during the fourth quarter to $6.8 billion, although revenue was flat when factoring out the company's printer business that was sold in June. Sales of System z mainframe servers were down 15 percent in the quarter, a drop Loughridge attributed to slower sales in anticipation of a new System z model that's due to hit the market next month.

But sales of IBM's storage systems were up 11 percent in the quarter, according to the company, while sales of System i, x and p servers grew 2, 6 and 9 percent, respectively. Loughridge said blade server sales were up 31 percent.

Earlier this month IBM announced a plan to reorganize the Systems and Technology Group around customer sets, such as large and mid-size customers, rather than server platforms. The new structure is designed to provide channel partners and customers with more consistent business practices and policies when assembling solutions made up of multiple IBM products.

Software sales grew 12 percent in the fourth quarter to $6.3 billion. Particularly strong were sales of WebSphere products (up 23 percent), Rational development tools (up 22 percent) and Tivoli management software (up 19 percent).

Revenue generated by IBM's Global Technology Services operation grew 10 percent to $10.0 billion while sales by the Global Business Services organization also grew 10 percent to $4.9 billion, the company said.

Sales in the Americas grew only 2 percent (in constant currency) during the quarter while sales increased 6 percent in Europe and 9 percent in Asia. Nearly two-thirds of IBM's sales are outside the U.S. and Loughridge said countries with sales growth rates of 10 percent or more represented 22 percent of IBM's fourth-quarter sales.

Loughridge maintained that IBM is well positioned in the event of an economic downturn in the U.S. given its strong geographic mix of sales and a large base of customers that provide a recurring revenue stream.

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