IBM reports strong software, services results for Q4

IBM provided more details of its robust fourth-quarter and 2007 financial performance on Thursday following an early preview of the figures on Monday.

IBM expects its overall growth to continue significantly in 2008 with earnings per share rising to between $8.20 and $8.30 this year, and between $10 and $11 by 2010. That would compare to $7.18 per share reported for 2007.

"I realize this is a challenging environment with economic uncertainty, but I think there are still opportunities for growth," Mark Loughridge, IBM's CFO, said during a conference call.

IBM is in good position even in the event of a downturn, Loughridge argued, because of its global reach, its status as a "proven infrastructure provider," and the capital it has for investments. The company ended 2007 with $16.1 billion in cash on hand.

IBM's pending acquisitions of Telelogic and Cognos will add further to the bottom line in 2008, he said. "We expect to provide synergies not only in software but [also in] services, servers, and storage," Loughridge said of the Cognos deal.

IBM's fourth-quarter growth was especially strong in emerging markets and in its services and software groups, Loughridge said, though the company's System z mainframe business didn't perform as well.

As reported on Monday, IBM's fourth-quarter revenue, aided by exchange rates and sales outside the U.S., stood at $28.9 billion, an increase of 10 percent over the same period in 2006. The figure beat the forecast of $27.82 billion from analysts polled by Thomson First Call, and was aided by the ongoing weakness in the dollar.

Earnings per share for the quarter was $2.80, topping the analysts' forecast of $2.60 per share. The results represent a 24 percent increase over the same period in 2006, when IBM earned $2.26 per share.

IBM's services and software divisions showed particular strength in the quarter. Revenue from Global Technology Services grew 16 percent to $10 billion, reflecting strength around the globe and in various industries, IBM said. Global Business Services rose 17 percent to $4.9 billion, the company said.

IBM's Software Group had fourth-quarter revenue of $6.3 billion, an increase of 12 percent compared to 2006. WebSphere revenue climbed by 23 percent; Information Management sales, 11 percent; Tivoli software, 19 percent; Lotus, 7 percent; and Rational, 22 percent, compared with the same quarter in 2006.

Revenue from the Systems and Technology segment totaled $6.8 billion for the quarter, down 4 percent. System p UNIX server products grew by 9 percent from a year earlier, and System x server revenue increased 6 percent. But System z revenue fell by 15 percent.

The drop in System z sales will be mitigated by the upcoming launch in February of IBM's next-generation mainframe, according to Loughridge. "We expect the first quarter to be a period of product transition, with growth coming in the second quarter."

The Americas generated $11.7 billion in revenue, up 5 percent over 2006. Revenue from Europe/Middle East/Africa was $10.8 billion, up 16 percent. Asia-Pacific revenue increased 15 percent to $5.5 billion. OEM revenues were $894 million, a drop of 13 percent compared to the same period in 2006.

In some developing countries, including Malaysia and Ecuador, IBM is seeing "insatiable demand" due to strong economies powered by a growing middle class, Loughridge said.

"To me, this is a virtual gold rush in these rapidly emerging economies," he said. "In the past, IBM built much of the infrastructure for the developed world. We see a new area of growth in these emerging markets."

For the full year, total 2007 revenue was $98.8 billion, an 8 percent increase from 2006. The overall earnings for 2007, at $7.18 per share, marked an increase of 18 percent over 2006, IBM said. Net income for the year stood at $10.4 billion, up from $9.5 billion in 2006.

IBM's stock was up $5.60 in after-hours trading to $106.50.