Software continues to be a key driver of growth for IBM as software profits rise 12% on software revenue of $5.6 billion in Q1 of 2012.
IBM announced Q1 2012 profits of $3.1 billion, supported by increases in software, services and growth markets.
IBM's Q1 net income of $3.1 billion when compared with $2.9 billion in the Q1 of 2011 represents an increase of 7%. The total revenue for Q1 of 2012 of $24.7 billion was flat compared with Q1 of 2011.
"In the first quarter, we drove strong profit and earnings per share growth," said Ginni Rometty, IBM president and CEO, in a statement. "We delivered another excellent software performance, expanded services margins, and continued the momentum in our growth initiatives. Our investments in growth market countries continued to generate strong revenue growth across software, hardware and services while contributing to the company's ongoing margin expansion. Based on this performance, we are raising our 2012 full-year operating earnings per share expectations to at least $15.00."
Revenue from the company's growth markets increased 9%, and 40 countries had double-digit revenue growth. Revenue in the BRIC countries--Brazil, Russia, India and China continued their run by increasing 10%, IBM said.
Revenue from IBM's software business was $5.6 billion, an increase of 5% compared with the Q1 of 2011.
Revenue from IBM's key middleware products including WebSphere, Information Management, Tivoli, Lotus and Rational products, was $3.5 billion, an increase of 7% over Q1 of 2011.
Revenues By Product Line:
Operating systems revenue of $590 million increased 9 percent compared with the prior-year quarter.
WebSphere grew 16% year over year.
Information Management software revenue increased 5%.
Revenue from Tivoli software increased 5 percent.
Revenue from Lotus software was flat.
Rational software increased 1 percent.
Revenue from the company's business analytics operations across services, software and hardware segments increased 14%.
"We continued our strong performance in software," said Mark Loughridge, senior vice president and chief financial officer for Finance and Enterprise Transformation at IBM, in a call with analysts. "Software profits were up 12 percent, driven by growth in business analytics, cloud and Smarter Planet businesses," he said.
Loughridge said IBM's growth initiatives of business analytics sales rose 14% year over year, cloud-related revenue doubled and Smarter Planet revenue grew more than 25% year over year. In addition, growth markets, another of IBM's key growth initiatives, grew 9 percent year over year.
IBM's Global Technology Services segment revenue rose 2% to $10.0 billion, and the company's Global Business Services segment revenue was down 2 percent to $4.6 billion.
The Correct Move by IBM a Decade Ago
Hardware has become a commoditized business over the last decade. Hardware profit margins remain lower due to competition and difficulties to create a differentiated product in the computer systems markets.
While IBM has operating margins in the 20% range, companies such as Hewlett-Packard are more dedicated to hardware, and have operating margins below 7%. HP is increasing its exposure to services lately, and that is most likely the correct move for HP.
HP investors would have done much better if management had followed IBM's transformation back in 2000.
This focus on high margins business has provided the company with strong cash flows which IBM has put to work by growing dividends and shares buybacks. IBM has increased dividends for 16 consecutive years and continues their active share buyback program.