IBM Registers Stellar Performance in Q3

Reporting a quarterly profit of US$2.2 billion, IBMhandily beat Wall Street’s expectations with its Q3earnings. Impressive sales of its hardware andlicensed software sales were the primary driver of the company’sgains.

The only cloudy note in the report was the decline in itsservices unit, which constitutes almost halfof IBM’s business. The company signed $10.5billion in new service contracts — a 29 percent decrease fromlast year’s quarter.

Big Blue’s gains come as the Dow Jonesindustrial average marches into new territory,shooting past 12,000 for the first time.

Led by Hardware and Software

IBM’s third-quarter revenue rose 5 percent to $22.62billion, compared to the $21.53 billion that itposted in the same time period last year. Itsoverall gross profit margin rose to 42 percent, upfrom 40.6 percent in Q3 2005.

IBM’s hardware line — specifically its high-endmainframe computers — led sales for this quarter.Mainframes rose 25 percent, and the category rose 8.9 percentoverall to $5.58 billion. Softwarelicense revenue rose 8.5 percent, to $4.41 billion.

Total delivery of System z computing power, which ismeasured in MIPS (millions of instructions persecond), increased 16 percent. Revenue from theSystem p Unix server products increased 10 percentcompared to the 2005 period.

Revenue from theSystem x servers increased 4 percent, and revenuefrom the System i servers decreased 22 percent.Revenue from Microelectronics increased 29 percent,and revenue from System Storage increased 12 percent.

Disappointing Services

“Our strong performance is the result of excellentexecution and the repositioning of IBM’s businessmodel to capture the growth and profit areas of arapidly changing IT industry,” said Samuel J.Palmisano, IBM chairman, president and chief executiveofficer.

Indeed, IBM has undergone a significantrealignment to remain competitive over the lastseveral years. Key to this repositioning effort hasbeen its services area, which only a few years agoappeared to hold great promise.

While there islittle expectation that it won’t succeed in the long term,the services unit’s performance this quarter and lastyear have been disappointing. In Q3, services rose only2.7 percent. There was only a slight improvement fromlast quarter, when the services unit signed $9.6billion in new contracts.

Tying It Together

IBM is benefiting from a largerpush among enterprises to consolidate and betterintegrate their heterogeneous IT environments,JupiterResearch Senior Analyst Joe Wilcox told theE-Commerce Times.

“IBM’s middleware business offers that glue to pullthe different pieces together. It isn’t just aboutWebSphere or Lotus Notes,” he said. “It is the wholepackage — the services, the Linux that IBM offers, forinstance — it all resonates well together.”

Indeed, revenue from IBM’s middleware brands, whichinclude WebSphere, Information Management, Tivoli,Lotus and Rational products, was $3.4 billion, up 12percent versus the third quarter of 2005.

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