Big Blue’s Profitable, Middleware Year

IBM’s  software division continued surging in the fourth quarter of 2006,
helping the tech bellwether post a profit of $3.5 billion (diluted earnings per share of $2.26), up by 12 percent over the same time last year. Revenues were $26.3 billion, up by 7 percent from the same time last year.

Standout awards went to middleware sales, both IBM’s own and through a
buying spree in 2006. The results beat
expectations by 7 cents.

Just like it did in the third
quarter
of 2006, software kept up its brisk pace in the final quarter of 2006, with
sales jumping by 14 percent year-over-year to $5.6 billion (11 percent
adjusted for currency exchanges).

All the lines within the division grew, such as WebSphere, Tivoli and
Rational. IBM also wrote a lot of checks for software companies, including
enterprise content management provider FileNet
for $1.6 billion.

“We spent close to $4 billion this year on 13
acquisitions, including nine in the software segment,” said Mark Loughridge, chief financial officer for IBM, during a conference call today.

It paid off. All five of IBM’s middleware lines grew by double digits, or
roughly double the overall
market growth rate, helped in part by robust storage software sales across
the industry.

IBM’s WebSphere products, which help companies build Web-based
applications, grew by 22 percent (18 percent adjusted for currency
adjustments). “We’re continuing to invest in service oriented architecture
 technology, which allows us to bring advanced solutions to
the market,” Loughridge said.

Big Blue’s global services division rose to
$12.8 billion in revenues, up by 6.4 percent from the same, year-ago
quarter, thanks to better utilization rates within the consulting ranks.

By contrast, 4.3 percent growth in hardware sales year-over-year looked downright sluggish at $7.2 billion (3 percent for currency adjustments), compared to growth rates of the software and services divisions.

Within the hardware division, sales of blades were flat year over year,
but IBM said it held onto market share in its system x lines during the
quarter. Storage helped make the difference for the division, as did disk
sales, which rose 9 percent and 12 percent, respectively.

“Together with software and services, [and] encryption of large volumes
of information, overall storage hardware is strong as a result,” Loughridge
said. Gartner currently ranks IBM with the most hardware market share,
33 percent
.

IBM’s revenue for 2006 grew by 4 percent to $91.4 billion, not counting
its divested PC business. Profit came in at $9.4 billion for the year, up by
18 percent over 2005.

Full-year earnings per share grew by 14 percent to $6.06 (not counting
one-time charges). Loughridge said the outlook for the 2007 year would be
similar to 2006, with pension plan costs factoring into an expectation of 10
percent growth.

Look for middleware to continue its starring role in that equation.
Loughridge said its investments in software paid off. “We had a strong
fourth quarter and feel good about our momentum.”

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