Services, Software Drive Healthy IBM Q4 Revenue, Profit

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A huge jump in software revenue and substantial growth in its services business helped IBM overcome a big drop in hardware revenue to report an overall revenue growth of 2 percent for its fourth fiscal 2011 quarter.

That modest fourth quarter growth was a drag on IBM's full year 2011 revenue, which grew 7 percent for the year. But when combined with a positive outlook for 2012, it impressed investors who drove the company's shares up nearly 3 percent in after-hours trading.

For its fourth quarter of 2011, which ended December 31, IBM on Thursday reported revenue of $29.5 billion, up 2 percent over the fourth quarter of 2010. Big Blue also reported income of $5.5 billion, up 4 percent over last year, and earnings per share of $4.62, up 11 percent.

For all of 2011, IBM's revenue rose 7 percent over 2010 to reach $106.9 billion. The company also reported full year income of $15.9 billion, up 7 percent, and earnings per share of $13.06, up 13 percent.

Mark Loughridge, IBM's senior vice president and CFO for finance and enterprise transformation, said his company's financial results from 2011 kept IBM on track to reach its earnings per share goal of $20 by 2015.

"We just delivered a great quarter to cap off what I thought was a great year," Loughridge said.

Boosting IBM's fourth quarter and full year 2011 results was a 9-percent increase in revenue and 12-percent increase in profit for its software business, plus a huge 17 percent jump in profit for its services business.

Despite the economic downturn, IBM did very well in the Americas, with a 1-percent rise in fourth quarter U.S. revenue topped by a 13-percent rise in revenue from Canada. Overall, IBM's Americas revenue grew 3 percent over the fourth quarter over last year, compared to a 1 percent rise in EMEA (Europe, Mideast, and Africa) and a 2-percent rise in Asia Pacific. The Asia Pacific results were held back by a 9-percent shortfall in revenue from Japan.

IBM's global technology services revenue for the fourth quarter hit $10.5 billion, while its global business services revenue hit $4.9 billion. Both figures were up 3 percent over last year. Gross margins for global technology services rose 2.1 points to reach 36.6 percent, while gross margins for global business services rose 1.3 points to 29.3 percent, IBM reported. IBM exited the quarter with a $141 billion backlog in services.

IBM's services business was strongly impacted by slowdowns in the Japan and the public sector markets. If those two were not included, total services revenue would have risen 8 percent over last year, Loughridge said.

IBM's fourth quarter software revenue rose 9 percent over last year to reach $7.6 billion, and gave the company a gross margin of just under 90 percent. The key drivers were growth in business intelligence and storage solutions, Loughridge said.

Software revenue was up 21 percent for its WebSphere family, 9 percent for information management software, 14 percent for Tivoli, and 4 percent for Rational. However, its Lotus revenue fell 2 percent during the same period. Storage software sales rose 30 percent over last year, he said.

A real bright spot for IBM was its distributed database business, which reaped the benefits of a 70 percent increase in revenue from IBM's Netezza data warehouse business, which it acquired in late 2010. About 40 percent of Netezza's customers were new to IBM during the quarter, Loughridge said.

Next: Hardware Business Down, But From A Very Strong 4Q 2010

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