Software, services drive IBM to 'solid' Q1 results

Continued strong software sales and some improvements in IBM's services business buoyed its first quarter earnings, the company reported Tuesday.

In IBM's first quarter of fiscal 2007, which ended March 31, the company saw net income rise 8 percent over the year-ago quarter to $US1.8 billion on revenue up 6.6 percent to $US22 billion. Earnings per share (EPS) were $US1.21, 12 percent up on the same quarter a year ago.

A consensus estimate of Thomson Financial analysts had predicted that IBM would report revenue of $US21.9 billion on EPS of $US1.21.

Mark Loughridge, the company's chief financial officer, described it as "overall, a very solid quarter," during a conference call with analysts and the media.

Looking at IBM's global business, the company saw a 1 percent increase in its Americas operation, which contributed $US9.1 billion to the quarter's revenue, while Europe, the Middle East and Africa at $US7.6 billion in revenue represented a rise of 13 percent over the year-ago quarter and Asia-Pacific with $US4.5 billion, a 10 percent increase in growth. Revenue IBM derived from original equipment manufacturer (OEM) relationships fell 5 percent to $US828 million.

"IBM's good results in the quarter demonstrate the breadth of our global capabilities, the advantages of our business model and our focus on profitable growth," Sam Palmisano, IBM chairman, president and CEO, said in a release.

Services, which have been a troublespot in previous quarters, reflecting stagnant growth, looked somewhat healthier, with revenue from global business services rising 9 percent to $US4.2 billion and global technology services increasing 7 percent to $8.3 billion. However, IBM did end the first quarter with a services backlog of around $US115 billion.

IBM's systems and technology business, at $US4.5 billion in revenue, rose 2 percent. While the vendor's System z mainframes and its System p Unix servers continued to generate strong sales, revenue from both IBM's System x and System i servers fell along with revenue from its microelectronics and system storage operations.

As in previous quarters, IBM's software business did well, with revenue growing 9 percent to reach $US4.3 billion. Middleware continued to sell well, accounting for $US3.2 billion of the software revenue pie, an increase of 10 percent on the year-ago quarter.

Notable events during IBM's first quarter included the company's decision to eventually offload its enterprise printing systems division to Japanese printer and copier vendor Ricoh. Initially, the two vendors are setting up a joint venture company, InfoPrint Solutions, which over the next three years will become a fully owned Ricoh subsidiary.

IBM also announced plans to buy data mobility specialist Softek and closed two previously announced acquisitions of compliance and auditing technology vendor Consul and network performance monitoring software company Vallent. In all three cases, IBM didn't disclose the amount it paid to purchase the companies.