IBM profits rise 11 percent on middleware revenue

IBM reports fourth quarter profits of US$3.54b

Thanks to a strong jump in revenue generated by its middleware software brands, IBM recorded profits of US$3.54 billion for the fourth quarter, a rise of 11.1 percent over the same period in the previous year.

The company had revenue of US$26.26 billion for the quarter ending Dec. 31, an increase of 7.5 percent from last year and better than Wall Street estimates of US$25.67 billion, according to analysts polled by Thomson Financial. IBM posted earnings of US$2.26 per share, excluding extraordinary one-time gains, beating the analyst forecast of US$2.19 and the US$2.11 it posted in the same quarter of the previous year.

IBM relied heavily on revenue from its middleware group, which includes WebSphere, Information Management, Tivoli, Lotus and Rational. Together, those products generated US$4.4 billion, up 18 percent from this quarter last year.

Revenue from other IBM business units rose by only single-digit percentages, including a rise of 7 percent for global technology services, 3 percent for global financing, and 3 percent for the systems and technology group, which includes System z servers.

For the full year of 2006, IBM reported total revenue of US$91.4 billion, a rise of 4 percent over 2005, excluding the PC business sold to Lenovo Group. IBM recorded annual net income of US$9.49 billion, up 19.6 percent from its mark of US$7.93 billion last year.

All of IBM's middleware brands grew faster than the overall market, Senior Vice President and Chief Financial Officer Mark Loughridge said on a conference call to discuss the quarter's results.

In its services business, IBM signed deals worth US$17.8 billion in the quarter, up 55 percent from a year earlier. The company signed 14 deals worth more than US$100 million, Loughridge said. Big deals included contracts with Vodafone Group, the state governments of Indiana and Texas, and the German army.

The company expects to meet analyst's expectations of 10 percent growth this year in income from continuing operations, Loughridge said. In addition, there is no reason to think IBM will slow down its acquisitions this year after buying 13 companies last year, according to Loughridge. Those acquisitions have paid off well, he said.

IBM will focus internal investments on its software business and on emerging markets, he said. Revenue from emerging markets grew 18 percent in the fourth quarter, adjusted for currency changes, compared with 5 percent growth in the Americas and Asia-Pacific and 3 percent in Europe, according to the company. Overall, business improved in France and Italy and recovered in the second half of the year in Japan.

In after hours trading Thursday, the company's stock (IBM) was down US$5.50 at US$93.95 after falling US$0.57 during regular trading on the New York Stock Exchange.

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