CFO: IBM has got its operations into balance

IBM has achieved its goal of a balanced business, with the company not overly reliant on any individual piece of its operations, according to the vendor's CFO

Based on its latest financial results, IBM's restructuring efforts over the past few years have paid off, according to Mark Loughridge, the company's chief financial officer. He describes the current incarnation of IBM as a company "in balance," not overly reliant on any one of its three key businesses -- software, hardware and services.

Speaking on a Tuesday conference call with analysts to discuss IBM's fiscal 2006 third-quarter results, Loughridge was in an optimistic mood.

"This was a strong quarter for us," he said, positioning IBM to continue to achieve double-digit earnings per share (EPS) growth over the long term. Taking into account one-time charges, IBM reported a third-quarter EPS of US$1.45, up 15 percent on the year-earlier quarter.

In recent years, IBM executives have managed to "reshape" the company by a combination of off-loading certain businesses, continuing to invest in existing products and acquiring complementary offerings, Loughridge said. "The result is a balanced mix with good contributions from software, hardware and services," he added.

For the third quarter, IBM's overall software revenue stood at US$4.4 billion, up 9 percent from a year earlier. Revenue from global services rose 3 percent to US$12.0 billion, and hardware revenue grew 9 percent to reach US$5.6 billion. None of those percentages is adjusted for currency fluctuations.

While sales of IBM's software continued strong, the company still has some issues with its services business and one particular piece of its hardware operations.

Services is "still not where it needs to be," Loughridge said, adding that he was heartened by the 3 percent growth in global services revenue, which acts as a solid profit source. In areas where IBM has been working on redefining its services offerings, notably integrated technology services, the company is already seeing signs of improvement.

Shorter-term services signings grew 9 percent year over year, but IBM fell short of its expectations for longer-term signings, which fell 15 percent. However, Loughridge said some of the shortfall represents deals IBM expects to close in the fourth quarter.

The majority of IBM's hardware operations performed well, notably its System z mainframe, and there was also revenue growth in the vendor's System x and System p servers, as well as storage products.

IBM's System i x86-based servers didn't fare so well, with revenue declining 22 percent, due in part to some supply chain constraints. "We need to do better," Loughridge said.

In its software business, IBM witnessed particularly strong customer demand for products used in service-oriented architecture and information on demand approaches to development, he said. The company also saw plenty of interest in its systems management and security software. Of the 7 percent increase in overall software revenue on a constant currency basis, 2 percent was due to recent IBM acquisitions and the rest to improved sales of established offerings, Loughridge said.

Middleware, at US$3.4 billion, was by far and away the largest contributor to IBM's total software revenue of US$4.4 billion. Revenue from the company's WebSphere middleware family grew 30 percent, while sales of IBM's Tivoli systems management software rose 44 percent.

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