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IBM's Q4 Profits Rise 6%; Rometty Sees Data Analysis, Business Software As Future Wave

For the last quarter of the year, IBM has announced a set of results that should keep investors happy, if not ecstatic. This is the end of Ginni Rometty's first year at the helm, a year in which IBM made record earnings and in which the first step of a five year transition plan has been put into place.

IBM, Technology Market

IBM’s results are always closely watched by both the financial markets and the IT markets alike, with its performance being a fairly good indicator of how things are going in the technology sector generally. If IBM isn't performing, than there's a pretty good chance that smaller vendors are finding the going difficult, although it doesn't necessarily follow that when things are good for IBM they are good for everyone else.

In this respect, and particularly in this set of results, a good showing in particular technology areas like analytics, for example, is probably as much a reflection of aggressive marketing positions taken by IBM as much as it is a sign of abundant times ahead.

That said, this time around, it looks like the pressure on IT companies is going to ease up a little bit for the first time since the financial meltdown of 2008, with IBM already predicting a considerable upturn for its services business as contracts start maturing.

IBM Q4

But we’re jumping the gun here, let’s take a quick look at the figures. Overall, for the entire calendar year 2012, IBM reported net profits of US$ 16.6 billion compared with US $15.9 billion for the previous year — up 5% — which would seem to indicate that the turnaround is already underway and that this year will be a profitable one.

However, looking at the figures in a little bit more detail, things are not entirely as the IT industry would like. While the company showed solid profits over the quarter, revenues remained flat, which would seem to indicate that the profits are more to do with IBM strategy rather than a wider reprise in the technology sector.

Net profits for the fourth quarter rose by 6% to US$ 5.8 billion, but revenues came in at US$ 29.3 billion as opposed to US$ 29. 5 billion, a difference so slight it wouldn't even be worth fighting over and even included the sale of its computerized cash register business, which it sold to Toshiba.

So with flat revenues, it would be normal to expect slow, or even no growth in some of its business sectors. There were indeed some low spots:

  • Global Technology Services segment revenues decreased 2% to US$ 10.3 billion.
  • Global Business Services revenues were down 3% at US$ 4.7 billion
  • Systems and Technology segment totaled US$ 5.8 billion, down 1 percent

But there were more positives than negatives particularly in the software segment which grew 3.5% to US$ 7.9 billion, a fortunate portent for the immediate future. Investment in analytics is also paying off with increases in the data analytics unit of 13%, and its Smarter Planet group of more than 25 percent.

But mainframe sales also had an exceptional run despite an overall decline in hardware with growth of 56% on the back of the new mainframe line, the zEnterprise EC12, which began shipping in September.

IBM Annual Performance

Overall, Rometty must be feeling quite happy with the performance of IBM over the last year, particularly given external factors that must have been weighing heavily on the minds of those who make the buying decisions in enterprises.

In all other business sectors, for example, there is evidence that many enterprises were holding off on making investments until the American elections and issues around the fiscal cliff were put to bed — something that ultimately only officially ended this week — and there is no reason to think the IT industry is any different.

China, one of the big markets of all kinds of technologies was also showing signs of financial strain, while Europe is still trying to muddle its way out of an economic crisis that has seen thousands of technology-buying companies — albeit SMBs — go to the wall.

The success is being interpreted by many as the success of IBM’s move out of unprofitable business areas into more profitable businesses. This has resulted in the shedding of some of its hardware interests and the building of more profitable IT spaces like analytics and big data, or its business intelligence offerings. It is also expecting to really start seeing the money rolling in from global services too, even if incomes fell-off by 4% this quarter.

 

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