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Even if the announcements of IBM’s (newssite) earnings were subtle -- compared to what we are used to with Larry Ellison and Oracle -- the figures that were published this week for the end of the fourth quarter were nonetheless dramatic.

IBM has once again taken its place as the darling of Wall Street. With revenues of US$ 29 billion and net income for the quarter up 9.2% to US$ 5.26bn from US$ 4.81bn, IBM is well above market expectations.

While the company’s mainframe product, System Z, boosted revenues by 69% in this sector -- making it the key performer -- business analytics and outsourcing also put in excellent performances with growth of 19% and 24% respectively.

On both these counts, the figures come as a relief to both IBM and outside investors, firstly because the outsourcing figures are on the back of substantial new contracts gained in Q4, after declines in this area for three previous quarters, and secondly due to the acquisition of 15 companies over the past year at a cost of US$ 6 billion, many of which were purchased to continue building this space.

IBM and Analytics

Little needs to be said about analytics in this respect, as even earlier this week, IBM was predicting a general rebound in the IT sector -- based on growth in analytics and cloud computing.

At this week’s earnings call, Mark Loughridge, IBM's chief financial officer, said that IBM intends to continue building in the analytics space in a similar vein to the Netezza acquisition earlier this year, which bought analytics that could be applied to large enterprises or small businesses, and could be up and running in a matter of hours.

While he didn’t outline how much or how well Netezza performed in Q4, he did say that it had got off to a running start and that they expected it to perform well over the coming year.

Overall, the analytics business on its own saw revenue growth of 40%, while services and software segments increased by 19%. And just to keep the ball rolling, it has added 4,000 consultants over the course of the year to bring the total number of employees to 7,800.

It is expected that IBM will use analytics in software and services to help promote its systems offerings through cloud offerings and in attempt to reach enterprise areas it hasn’t been present in before.

. . .we will continue to focus on our long-term strategic initiatives -- growth markets, Smarter Planet Solutions, cloud and business analytics - as we drive to achieve our new roadmap target of operating earnings per share of at least $20 in 2015,” Loughridge said.

IBM’s Outsourcing Business

Outsourcing is another area where IBM makes it money. The results from this quarter must have provided some comfort after the three poor quarters at the beginning of the year.

The poor performance was the result of nerves about signing multi-year contracts for outsourcing, as companies were uncertain about revenues and, consequently, their ability to pay.

The fact that this area has rebounded in Q4 is a sure sign of recovery not just for IBM, but in the industry in general. The result is that outsourcing contracts signed in the quarter rose 24%.

Software in Q4

Software performance was also healthy, with many familiar names performing well. Overall revenue was US$ 7.0 billion, an increase of 7% or 11% excluding the first-quarter 2010 divestiture of the Product Lifecycle Management operations (PLM), compared with the fourth quarter of 2009. 

Increases in key middleware products -- including WebSphere, Information Management, Tivoli, Lotus and Rational products -- were US$ 4.7 billion, an increase of 13% over Q4 in 2009, while operating systems revenues of US$ 690 million increased 11%.

Other significant results include:

  • Revenues from the WebSphere family of software products increased 32%
  • Information Management software revenues increased 10%
  • Tivoli software increased 12%
  • Lotus software decreased 3%
  • Rational software increased 10%

With these kinds of figures and the stated intention of spending US$ 20 billion on acquisitions by 2015, this year should provide some interesting milestones for IBM, not least of which will be its 100th birthday in June, just in time for the Q2 earnings call.