IBM Marks Centennial with Modest Gains

Closing out its 100 year, Big Blue's revenues were up two percent to $29.5 billion and net income was up four percent to $5.4 billion for Q4.

By Thor Olavsrud | Posted Jan 20, 2012
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IBM posted a modest fourth quarter 2011 increase in revenue of two percent (one percent adjusted for currency) to $29.5 billion as it closed out its centennial year.

Big Blue's net income was up 4 percent, from $5.3 billion in the fourth quarter of 2010 to $5.4 billion in the fourth quarter of 2011. Diluted earnings per share for the quarter came in at $4.62, up 11 percent from the $4.18 per share it posted in the year-ago quarter.

For the full year, revenues were up seven percent to $106.9 billion and net income was up seven percent from $14.8 billion in 2010 to $15.9 billion in 2011. Operating net income for 2011 was up nine percent to $16.3 billion. Diluted earnings per share were up 13 percent to $13.06 per share and operating (non-GAAP) diluted earnings were up 15 percent to $13.44 per share.

IBM said this was its ninth consecutive year of double-digit EPS growth.

"We had a strong fourth-quarter performance, capping a year of record earnings per share, revenue, profit and free cash flow," said Ginni Rometty, who took the helm at IBM as president and CEO on Jan. 1 following the retirement of long-time President and CEO Sam Palmisano. Palmisano remains chairman of IBM's board.

"We delivered outstanding results in all four of our strategic initiatives for the quarter and the year, as we continued to realize the benefit of our long-term investments in growth markets, business analytics, Smarter Planet solutions and cloud. We are well on track toward our long-term roadmap for operating earnings per share of at least $20 in 2015."

IBM said it expects to deliver full-year 2012 GAAP earnings per share of at least $14.16, and operating (non-GAAP) earnings per share of at least $14.85; excluding $0.69 per chare of charges for amortization of purchased intangible assets, other acquisition-related charges and retirement-related items.

In a research note Friday, Brian Marshall, IT hardware and data networking analyst with International Strategy & Investment Group (ISI), compared Big Blue to the mail man, delivering as expected quarter after quarter and year after year.

"Consistent execution has become a hallmark of IBM management, and we saw no signs of disruption as former CEO Sam Palmisano passed on the reigns to long-time IBM veteran Ginni Rometty," Marshall wrote. "IBM saw at least 40 growth markets achieve 10 percent plus growth for the fifth straight quarter, gained share across major product categories (e.g., ~$350 million in business from competitive displacement in Systems) and is seeing strong visibility in its services business (e.g., ~3 percent growth for 70 percent of service sales coming from backlog). 

"Despite growing revenue at a modest ~3 percent CAGR over the last five years, gross and operating profits have risen at ~6 percent and ~10 percent CAGRs respectively as IBM has increased its software mix and focused on high margin services. The Dec-11 quarter followed a similar pattern (sales up 2 percent year-over-year, gross profit up 4 percent year-over-year and operating income up 6 percent year-over-year)."

On the earnings call Thursday evening, Mark Loughridge, IBM’s senior vice president and CFO, Finance and Enterprise Transformation, broke down the quarter by segment. He noted that software momentum continued to build, with software revenue up nine percent to $7.6 billion, which he said was driven by focus areas like Smarter Commerce, business analytics and storage solutions. Software profit was up 12 percent year-over-year to $3.7 billion.

Big Blue said sales of its key middleware products, including WebSphere, Information Management, Tivoli, Lotus and Rational product lines, were an important factor. Together they came in at $5.2 billion, an increase of 11 percent from the fourth quarter of 2010. Operating systems revenue was up three percent to $710 million compared with the year-ago quarter. WebSphere showed the highest overall growth with its revenue increased 21 percent year-over-year. Information Management software revenues increased nine percent. Revenues from Tivoli software were up 14 percent. Revenues from Rational software were up four percent. Lotus software revenues slid a bit; they were down two percent.

On the Services side, Loughridge said combined pre-tax income of Global Technology Services and Global Business Services was up 17 percent (Technology Services increased 18 percent while Business Services was up 14 percent). Global Technology Services revenue was up three percent to $10.5 billion, while Global Business Services revenues were up three percent (two percent adjusting for currency) at $4.9 billion.

"Services revenue growth was again led by growth markets, which were up 13 percent at constant currency," Loughridge told investors. "Our total services backlog ended the year at $141 billion. At constant currency, that's flat year to year and up $5 billion since September."

The Hardware and Financing segments fared worse.

While Power Systems revenues were up six percent compared with the 2010 period, total revenues from the Systems and Technology segment were $5.8 billion for the quarter, down eight percent from the year-ago quarter. Pre-tax income for the segment dropped 33 percent to $790 million.

Breaking it down further, total systems revenues were down seven percent, with System z mainframe server products revenues falling 31 percent compared with the fourth quarter of 2010, though IBM noted that the year-ago quarter was the first full quarter after a new product introduction, and it constituted the biggest quarter in the product line's history. System x revenues were down two percent and revenues from System Storage were down one percent. Revenues from Microelectronics OEM were down 11 percent.

Retail Store Solutions were another bright spot in the segment. Its revenues were up nine percent year-over-year.

Meanwhile, the Global Financing segment's revenues fell 13 percent to $548 million. Pre-tax income for the segment was down 9 percent to $514 million.

On a geographical basis, the BRIC countries (Brazil, Russia, India and China) and other growth markets led the way.

"Our growth markets outpaced the major markets by 8 points of revenue growth," Loughridge said. "The BRICs had another good quarter; combined they were up 11 percent and with nearly two-thirds of our growth markets business outside the BRICs, all together, we had double-digit growth in 40 growth market countries. So our performance was broad-based. We're continuing to expand into new countries and territories, to build out IT infrastructures in support of economic growth and to take a leadership position in key industries. This year, to drive market expansion, we opened 92 new branches and we added over 1,500 new sales reps. We gained 4 points of share this quarter and 4 points for the year."

In the Americas, Canada also shone. IBM said Canadian revenue was up 13 percent. The U.S. grew by only one percent, coming off strong growth of 10 percent a year ago.

Loughridge also said Europe looked stronger in the fourth quarter compared with the third quarter. He said Germany returned to growth, up four percent, and the UK and Spain both grew revenues by nine percent.

Thor Olavsrud is a contributor to <A HREF="http://www.internetnews.com">InternetNews.com</A>, the news service of the <A HREF="http://www.itbusinessedge.com/">IT Business Edge Network</A>, the network for technology professionals.

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