RealTime IT News

As Goes IBM Software...

Now that tech bellwether IBM has beat estimates for earnings by 3 cents for the first quarter of 2005, what do the bellwether's results point to for the tech industry?

Merrill Lynch, for one, sees solid results for enterprise software in general, based on the financial tallies from IBM's software division.

In a note today, Analyst Kash Rangan also looked at how database and tools providers may be doing alongside IBM's software division results, which were strong compared to other Big Blue divisions.

IBM's software sales rose by 2 percent to $3.9 billion, compared with the first quarter of 2005, when the unit took in $3.8 billion.

Middleware was the key seller. IBM said revenues from IBM's middleware brands, which include WebSphere, DB2, Tivoli, Lotus and Rational products, were $3 billion, up 6 percent versus the first quarter of 2005.

Those lines represented 47 percent of the total revenue in that division, Merrill's Rangan noted. In his view, WebSphere is likely growing faster than rival BEA Systems' WebLogic application server products.

WebSphere saw 26 percent year over year growth, he noted, up from 11 percent in the first quarter of 2005.

This growth rate was comparable to Oracle's third quarter [February, 2006] growth of 24 percent (license only), though higher than BEA's fourth quarter [January, 2006] growth of 12 percent (license only) or 17 percent (license and maintenance), he wrote.

"This double-digit growth indicates strong uptake by customers of middleware solutions, with IBM and Oracle potentially taking share from BEA," Rangan wrote.

Rangan also pointed out that IBM saw flat revenues on its Lotus lines of collaboration software and that it might be losing share to Microsoft in this software sector.

Overall for IBM, earnings per share came in at $1.08 from continuing operations, up 27 percent year to year and 3 cents above analysts' expectations, compared with diluted earnings of $.85 per share ($1.40 billion) in the first quarter of 2005.

Net income from continuing operations was $1.7 billion, up 21 percent from the same time last year.

Total revenues for the first quarter of 2006 tallied $20.7 billion, decreasing 10 percent from the first quarter of 2005, which includes revenue from the divested PC business.

Take out the PC revenue and sales inched up by 4 percent when accounting for currency compared with the same time a year ago.

Hardware revenues fell 32 percent (or 31 percent, adjusting for currency) to $4.6 billion in the first-quarter 2006 compared to $6.8 billion in the year-ago period.

This included revenue from IBM's divested PC business, which it sold to Chinese PC maker Lenovo for $1.25 billion in 2004.

But revenues from Global Services, which brings in more than half of IBM's revenues, decreased by 1 percent to $11.6 billion in the quarter. If you adjust for currency exchange, however, IBM said it was up by 4 percent.

During a conference call Tuesday, IBM CFO Mark Loughridge said revenue continued to be impacted to signing declines in the third and fourth quarter of last year.

But IBM did see a reversal of those recent signing trends during the first quarter, he added.