Software and services drive IBM profits

IBM reported fourth-quarter revenues below analysts’ expectations, but still beat forecast profits because of strong margins in its software and services businesses.

Revenues were $29.5bn for the quarter, up 1.6 per cent from the same quarter last year, but missing Wall Street’s anticipated $29.73.

Net income was $5.6bn, or $4.71 per share, up 11 per cent from last year, and beating analysts’ expectations of $4.62.

For 2011, the company reported a 15 per cent increase in profits, at $13.44, on $106.9bn in revenues.

The year marks IBM’s ninth consecutive year of double-digit growth in earnings per share, said Mark Loughridge, IBM’s chief financial officer.

The quarter was the first that Virginia Rometty served as chief executive since taking the post last autumn, though she did not participate in the earnings call with investors.

As traditional hardware sectors suffer across the technology industry, IBM is relying more on higher-margin businesses in software and services.

Pre-tax income from IBM’s hardware business was down 33 per cent. Its global financing segment saw pre-tax income decrease 9 per cent.

Instead, the company’s software and services businesses drove overall profits. Software pre-tax income rose 12 per cent, to $3.7bn, while services pre-tax income rose 18 per cent for the quarter, to $1.9bn.

However, analysts questioned whether the good margins in the services business were due to labour migrations outside the US.

“We were very specific in our overall business model for the 2010 road map and 2015, of our intention to pull spend and drive productivity as a global corporation,” Mr Loughridge responded. “Services businesses are a big beneficiary of that large structural corporate take-out.”

Mr Loughridge said IBM will continue to expand its business model by investing in its new, growing business segments in cloud computing, business analytics and “smarter planet” software, which makes cars and appliances run more efficiently.

IBM is on track to reach $14.85 in earnings per share this year, and meet its projected $20 per share by 2015.